Procedure Round Up(date):   Regulations, Mount Up! & State Law SOL Issue When Suing Promoters.

This will be a short post that touches on some temporary and final regulations that were issued in the last quarter of last year that impact tax procedure, specifically information reporting and the preparer due diligence rules, which we have previously covered.  The second portion of the post will deal with a state law statute of limitations issue from a tax shelter participant suing the promoter.

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Regulation Update

What is Keno?

Back in March of 2015, I wrote about the temporary regulations dealing with reporting of winnings from bingo, keno, and slot machines.  The Service has finalized those regulations, which can be found here.  I believe the final regulations are similar to the temporary regulations (although aspects regarding electronic slot machines were not included in the final regs). These rules peg the required reported winnings at $1,200 for bingo and slot machines (but $1,500 for keno).  Anyone have any idea why those amounts are different (or what keno is, I don’t go to casinos much)?  The information on the information reporting must include the name, address, and EIN of the payee, along with a description of the two types of ID used to verify the payee’s address.

Discharge Reporting- Buy Now, Three Years, No Payments!

I thought I had written up the proposed regulations from 2014 relating to the rules on discharge of indebtedness reporting when a borrower had not paid for more than three years, but I cannot find the post (very possible I just read about it and found it interesting).  Under Section 6050P, prior regulations treated nonpayment of debt for 36 months as an “identifiable event”, which indicated formal discharge of indebtedness and required the issuance of a Form 1099-C.  This caused many borrowers to believe the debt had been discharged, but it was simply an IRS reporting requirement.  Tax professionals, lenders and borrowers did not like the rule.  The final regulations can be found here.  The regulations eliminate the passage of that time frame as a reportable event, which is a good result.  This change may have come from discussions started in the ABA Tax Section, Low Income Taxpayer Committee.

Preparer Due Diligence Regs Updated.

The Government has issued temporary/proposed regulations regarding the preparer due diligence rules, which can be found here.  We’ve talked about preparer due diligence repeatedly on the blog, including one of our first posts (and most popular), where Les extensively discussed peeing in pools.  That was re-posted earlier this year, and can be found here.  In both 2014 and 2015, Section 6695 dealing with preparer due diligence was amended.  The penalty was indexed for inflation, and the due diligence requirements were expanded to include the Child Tax Credit, the Additional Child Tax Credit, and the American Opportunity Tax Credit.  The proposed regulations update the provisions to take into account these changes.

Information(less) Returns

In late December 2016, the Service issued guidance (Notice 2017-9) regarding the new de minimis safe harbor provisions enacted under the PATH act.  In general, failure to include all required information on an information return or payee statement will result in a penalty being imposed on the issuer.  The penalty is dependent on various factors, including the amount incorrectly reported, when it was not reported, how quickly it is rectified, and potentially other factors.

The penalty under Section 6721 can be reduced or eliminated in certain circumstances.  There is a de minimis exception to Section 6721, which allows the penalties to be waived if the error is corrected on or before August 1st in the year it is filed.  This is limited to the greater of ten returns or .5 percent of the information returns filed.  For returns required to be filed after December 31, 2016, there is a safe harbor that applies, where, if the information return has an error of $100 or less, or involves less than $25 of withholding, then the safe harbor applies, and no corrected return is required.  The notice is clear that this does not apply for intentional acts or intentional disregard.  It also indicates that regulations will be forthcoming regarding the safe harbor.

The de minimis safe harbor will not apply, however, if the payee elects out of the safe harbor.  Under Section 6721(c)(3)(B) and Section 6722(c)(3)(B), the payee can make an election and the payor has thirty days to furnish a corrected payee statement to the payee and the IRS.  If it is not done within thirty days the penalties will apply (it is possible for additional time in limited circumstances).

The payor must provide the manner for making such an election, which can be any reasonable manner including by writing, electronically or by telephone.  The payee must be told in writing the fashion in which the election can be made.  The notice goes on to indicate the timing of when the election must be made, and indicates the election must: 1) clearly state the election is being made; 2) the payee’s name, address, and TIN; 3) the type of statements and account numbers; and 4) the years in which the election should apply.

So, if you are super angry that Gigantor Bank and Lack of Trust Company misstated your 1099 by $4.37, you now have your avenue for redress.

Shelter Participant SOL Against Promotor Runs From Final Tax Court Ruling, Not Notice of Tax Deficiency

I initially saw this suit, and thought some aspect pertained to federal law claims against the tax shelter promoter, but the claims were state law based.  It is, however, still an interesting statute of limitations issue, that could impact future rulings based on state law.

In Kipnis v. Bayerische Hypo-Und Vereinsbank, AG, the Eleventh Circuit, following direction from the Florida Supreme Court, has reversed the district court in holding the statute of limitation on state based claims against a tax shelter promoter by a participant were not time barred.

The particular holding is for a relatively straightforward issue.  After the defendant admitted fault, the IRS issued a notice of deficiency to the plaintiff for his involvement in the shelter.  This occurred in October of 2007.  On November 1, 2012, there was a final tax court order disposing of the case (90 days thereafter appeal rights expired).  On November 4, 2013, plaintiff filed suit against the defendant alleging various state law claims including fraud from the promoting and selling of the transaction.

The defendants moved to have the case thrown out as being outside of Florida’s four and five year statute of limitations for the claims made.  The issue was appealed to the Eleventh Circuit, which sought guidance from the Florida Supreme Court on the issue, specifically:

Under Florida law and the facts in this case, do the claims of the plaintiff taxpayers relating to the CARDS tax shelter accrue at the time the IRS issues a notice of deficiency or when the taxpayer’s underlying dispute with the IRS is concluded or final.

The Florida Supreme Court, which the Eleventh Circuit followed, determined that the claims accrued at the time the tax court order became final, which was ninety days after the order was issued when the appeals period had passed. See Kipnis v. Bayerische Hypo-Und Vereinsbank, AG 202 So. 3d 859 (Fla. 2016).  I think this is inline generally with what the federal law would be in most analogous situations, but would invite others to comment on this aspect if they have thoughts.

Procedure Grab Bag: CCAs – Suspended/Extended SOLs and Fraud Penalty

My last post was devoted to a CCA, which inspired me to pull a handful of other CCAs to highlight from the last few months.  The first CCA discusses the suspension of the SOL when a petition is filed with the Tax Court before a deficiency notice is issued (apparently, the IRM is wrong on this point in at least one spot).  The second touches on whether failing to disclose prior years gifts on a current gift tax return extends the statute of limitations for assessment on a gift tax return that was timely filed (this is pretty interesting because you cannot calculate the tax due without that information).  And, finally, a CCA on the imposition of the fraud penalty in various filing situations involving amended returns.

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CCA 201644020 – Suspension of SOL with Tax Court petition when no deficiency notice

We routinely call the statutory notice of deficiency the ticket to the Tax Court.  In general, when a taxpayer punches that ticket and heads for black robe review, the statute of limitations on assessment and collections is tolled during the pendency of the Tax Court case.  See Section 6503(a).  What happens when the petition is filed too soon, and the Court lacks jurisdiction?  Well, the IRM states that the SOL is not suspended.  IRM 8.20.7.21.2(4) states, “If the petition filed by the taxpayer is dismissed for lack of jurisdiction because the Service did not issue a SND, the ASED is not suspended and the case must be returned to the originating function…”  But, Chief Counsel disagrees. Section 6503(a) states:

The running of the period of limitations provided in section 6501 or 6502…shall (after the mailing of a notice under section 6212(a)) be suspended for the period during which the Secretary is prohibited from making the assessment or from collecting by the levy or a proceeding in court (and in any event, if a proceeding in respect of the deficiency is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter. (emph. added).

Chief Counsel believes the second parenthetical above extends the limitations period even when the Tax Court lacks jurisdiction because no notice of deficiency was issued.   The CCA further states, “Any indication in the IRM that the suspension does not apply if the Service did not mail a SND is incorrect.”  Time for an amendment to the IRM.  I think this is the correct result, but the Service likely had some reason for its position in the IRM, and might be worth reviewing if you are in a situation with the SOL might have run.

CCA 201643020

The issue in CCA 201643020 was whether the three year assessment period was extended due to improper disclosure…of prior gifts properly reported on prior returns.  In general, taxpayers making gifts must file a federal gift tax return, Form 709, by April 15th the year following the gift.  The Service, under Section 6501(a) has three years to assess tax after a proper return is filed.  If no return is filed, or there is not proper notification, the service may assess at any time under Section 6501(c)(9).

In the CCA, the Service sought guidance on whether a the statute of limitations was extended where in Year 31 a gift was made and reported on a timely filed gift tax return.  In previous years 1, years 6 through 9, and 15 prior gifts were reported on returns.  On the year 31 return, however, those prior gifts were not reported.  That information was necessary to calculate the correct amount of tax due.

Section 6501(c)(9) specifically states:

If any gift of property the value of which … is required to be shown on a return of tax imposed by chapter 12 (without regard to section 2503(b)), and is not shown on such return, any tax imposed by chapter 12 on such gift may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. The preceding sentence shall not apply to any item which is disclosed in such return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature of such item.

Chief Counsel concluded that this requires a two step analysis.  Step one is if the gift was reported on the return.  If not, step two requires a determination if the item was adequately disclosed.  Counsel indicated it is arguable that the regulations were silent on the omission of prior gifts, but that the statutory language was clear.  Here, the gift was disclosed on the return, and the statutory requirements were met.  The period was not extended.  I was surprised there was not some type of Beard discussion regarding providing sufficient information to properly calculate the tax due.

CCA 201640016

Earlier this year, the Service also released CCA 201640016, which is Chief Counsel Advice covering the treatment of fraud penalties in various circumstances surrounding taxpayers filing returns and amended returns with invalid original issue discount claims.  The conclusions are not surprising, but it is a good summary of how the fraud penalties can apply.

The taxpayer participated in an “Original Issue Discount (OID) scheme” for multiple tax years.  The position take for the tax years was frivolous.  For tax year 1, the Service processed the return and issued a refund.  For tax year 2, the Service did not process the return or issue a refund. For tax year 3, the return was processed but the refund frozen.  The taxpayer would not cooperate with the Service’s criminal investigation, and was indicted and found guilty of various criminal charges.  Spouse of taxpayer at some point filed amended returns seeking even greater refunds based on the OID scheme, but those were also frozen (the dates are not included, but the story in my mind is that spouse brazenly did this after the conviction).

The issues in the CCA were:

  1. Are the original returns valid returns?
  2. If valid, is the underpayment subject to the Section 6663 fraud penalty?
  3. Did the amended returns result in underpayments such that the penalty could apply, even though the Service did not pay the refunds claimed?

The conclusions were:

  1. It is likely a court would consider the returns valid, even with the frivolous position, but, as an alternative position, any notice issued by the Service should also treat the returns as invalid and determine the fraudulent failure to file penalty under Section 6651(f).
  2. To the extent the return is valid, the return for which a refund was issued will give rise to an underpayment potentially subject to the fraud penalty under Section 6663. The non-processed returns or the ones with frozen refunds will not give rise to underpayments and Section 6663 iis inapplicable.  CC recommended the assertion of the Section 6676 penalty for erroneous claims for refund or credit.
  3. The amended returns did not result in underpayments, so the Section 6663 fraud penalty is inapplicable, but, again, the Service could impose the Section 6676 penalty.

So, the takeaway, if a taxpayer fails to file a valid return, or there is no “underpayment” on a fraudulent return, the Service cannot use Section 6663.  See Mohamed v. Comm’r, TC Memo. 2013-255 (where no valid return filed, no fraud penalty can be imposed).  In the CCA, Counsel believed the return was valid, but acknowledged potential issues with that position.  Under the Beard test, a return is valid if:

 four requirements are met: (1) it must contain sufficient data to calculate tax liability; (2) it must purport to be a return; (3) it must be an honest and reasonable attempt to satisfy the requirements of the tax law; and (4) it must be executed by the taxpayer under penalties of perjury. See Beard v. Comm’r,  82 T.C. 766 (1984). A return that is incorrect, or even fraudulent, may still be a valid return if “on its face [it] plausibly purports to be in compliance.” Badaracco v. Comm’r, 464 U.S. 386 (1984).

The only prong the CCA said was at issue was the third prong, that the return “must be an honest and reasonable attempt to satisfy the requirements of the tax law.”  As the taxpayer had been convicted of Filing False Claims with a Government Agency/Filing A False Income Tax Return, Aiding and Abetting, and Willful Attempt to Evade or Defeat the Payment of Tax, it is understandable why you would question if the returns were “an honest and reasonable attempt to satisfy the requirements of the tax law.”  Further, the Service had imposed the frivolous filing penalty under Section 6702, which only applies when the return information “on its face indicates that the self-assessment is substantially incorrect.”

The CCA notes, however, it is rare for courts to hold returns as invalid solely based on the third prong of Beard, but clearly there would be a valid argument for the taxpayers in this situation.  The CCA acknowledges that by stating “[t]o guard against the possibility that the returns are not valid, the Service should include the Section 6651(f) fraudulent failure to file penalty as an alternative position,” so the taxpayer could pick his poison.

As to the underpayment, Counsel highlighted that overstatements of withholding credits can give rise to an underpayment under the fraud penalty.  The definition was shown as a formula of Underpayment = W-(X+Y-Z).  W is the amount of tax due, X is the amount shown as due on the return, Y is amounts not shown but previously assessed, and Z is the amount of rebates made.  Where the refund was provided, the penalty could clearly apply.  In “frozen refund” situations, the Service has adopted the practice of treating that amount as a sum collected without assessment, which can cancel out the X and Y variables so no underpayment for the fraud penalty will exist.

But, as shown above, even if the fraud penalty may not apply, the Section 6651 penalty will likely apply if the return is invalid, or the frivolous position penalty under Section 6702 may apply.

Summary Opinions for End of December 2015

Happy Presidents’ Day!  While some of you are at home celebrating the lives of Martin Van Buren, Chester Arthur, Tippecanoe and Tyler too, PT is still hard at work churning out tax procedure commentary.  In this SumOp, we cover a few remaining items from December that we didn’t otherwise cover (in detail).  Post includes more of Athletes, the IRS, and rich people behaving badly.  It also has a link to Frank Agostino’s January newsletter, which has a bankruptcy/OIC discussion that is really strong.

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  • The IRS has mud on its face again for wiping another hard drive, this time potentially destroying documents related to the IRS hiring of Quinn Emanuel.  Robert Woods at Forbes has coverage here.
  • Those of you who love the beautiful game should be excited Sepp’s on his way out, but worried that Mascherano’s stout defense won’t extend to his tax fraud conviction.  That’s three Barca players with tax troubles, including Messi and Neymar.  Barca should call me immediately, and bring me in house to review all their players’ finances (and/or play midfield).  Marketwatch has an article, found here, on why so many professional athletes get in tax trouble (recap:  their tax returns are more complicated than your tax return, they are super rich and young, and they often have issues handling their finances).
  • Agostino and Associates have issued their January tax controversy newsletter found here.  The bankruptcy/OIC discussion and which option to use is a great summary of something many of us probably grapple with on a weekly or even daily basis.
  • This is more substantive than procedural, but interesting.  Sometimes cases have the best names based on the underlying dispute.  Loving vs. Virginia is probably the best known.  Green v. US, a recent District Court case out of Oklahoma also fits the bill.  The case involves a bunch of green, in the form of a real estate charitable contributions (Hobby Lobby $$$ and land).  In Green, prior to the case, Chief Counsel had stated that a non-grantor trust could not deduct the full fair market value of appreciated property donated to a charity under Section 642(c)(1).  That section allows for a deduction, without limitation, for property passed to qualifying charities.  The CCA looks to various cases which indicated (tangentially) that the deduction was limited to the adjusted basis.  The District Court of the Western District of Oklahoma held that Section 642(c)(1) had no specific limitation on the deduction amount and the full FMV was allowed.
  • Morales v. Comm’r was decided by the Ninth Circuit in December.  Prior to the opinion, Carlton Smith has covered this case in detail for us, including this post in July, and he cited to it last week in discussing the 6676 penalty.   At issue in Morales was a Rand type case, where penalties were imposed on an “underpayment” created by a taxpayer improperly claiming and receiving the first time homebuyer credit. The question raised was whether a taxpayer must assign errors to each and every alleged error or whether pleadings are sufficient with only a general denial of liability. The Ninth Circuit in an unpublished opinion held that the Tax Court had properly denied the reconsideration of the penalty as the taxpayer had not specifically raised the argument that the credit did not give rise to an underpayment.
  • Before making flippant remarks about this case, I hope the US Attorney involved has obtained proper treatment for the mental illness.  Beyond the wellbeing of that individual, I do not feel terribly bad for the IRS in In Re: Murphy.  In February of 2015, the Assistant District Court found that the IRS violation of a preliminary injunction on collection actions could not be ignored due to the fact that the US Attorney was suffering from substantial mental health issues, including dementia.  In December, the Bankruptcy Court (sorry, no link) concluded it would not review the matter again, and the IRS was responsible for claims under Section 7433, even if the Service likely would have been successful in the case had the US Attorney been competent.  As we’ve seen many cases where taxpayer’s representatives have suffered from illness, but the IRS has still imposed substantial penalties, I’m not heartbroken to see the issue go the other way.
  • Way back in July of 2014, SumOp covered the tax problems of the Hit Dog, Mo Vaughn, where the Tax Court held he lacked reasonable cause for failing to file his tax returns and pay the tax due.  Mo took a swing and a miss with the Sixth Circuit also, which agreed with the Tax Court.  The Court held that simply hiring an attorney, financial advisor and accountant was not sufficient to show reasonable cause, and the fraud and embezzlement of those folks did not constitute disability.
  • Sumner Redstone did not have the best December and early January.  He probably lost a boatload in the stock market, and he was directed to undergo a mental exam to determine if he is incapacitated (his ex-ladyfriend is making this accusation – lover scorned!).  He was also found liable for gift tax from 1972!!!!!!.  Jack Townsend had coverage on his Federal Tax Crimes Blog here. Tax was around $740k.  The interest has to be pretty darn high.  There was one bit of good news, which was that no penalties were imposed.  As Jack notes, this is the interesting aspect of the case.  Underlying question involved the valuation of a closely held business interest, which was based on redemption price on intra-family sale.

Summary Opinions through 12/18/15

Sorry for the technical difficulties over the last few days.   We are glad to be back up and running, and hopefully won’t have any other hosting issues in the near future.

December had a lot of really interesting tax procedure items, many of which we covered during the month, including the PATH bill.  Below is the first part of a two part Summary Opinions for December.  Included below are a recent case dealing with Section 6751(b)(1) written approval of penalties, a PLR dealing with increasing carryforward credits from closed years , an update on estate tax closing letters, reasonable cause with foundation taxes, an update on the required record doctrine, and various other interesting tax items.

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  • In December, PLR 201548006 was issued regarding whether an understated business credit for a closed year could be carried forward with the correct increased amounts for an open year.  The taxpayer was a partner in a partnership and shareholder in an s-corp.  The conclusion was that the corrected credit could be carried forward based on Mennuto v. Comm’r, 56 TC 910, which had allowed the Service to recalculate credits for a closed year to ascertain the correct tax in the open year.
  • IRS has issued web guidance regarding closing letters for estate tax returns, which can be found here.  This follows the IRS indicating that closing letters will only be issued upon taxpayer request (and then every taxpayer requesting a closing letter).  My understanding from other practitioners is that the transcript request in this situation has not worked well.  And, some states will not accept this as proof the Service is done with its audit.  Many also feel it is not sufficient to direct an executor to make distributions.  Seems as those most are planning on just requesting the letters.
  • Models and moms behaving badly (allegedly).  Bar Refaeli and her mother have been arrested for tax fraud in Israel.  The Israeli taxing authority claims that Bar told her accountant that she resided outside of Israel, while she was living in homes within the country under the names of relatives.  Not model behavior.
  • The best JT (sorry Mr. Timberlake and Jason T.), Jack Townsend, has a post on his Federal Tax Procedure Blog on the recent Brinkley v. Comm’r case out of the Fifth Circuit, which discusses the shift of the burden of proof under Section 7491.
  • PMTA 2015-019 was released providing the government’s position on two identity theft situations relating to validity of returns, and then sharing the return information to the victims.  The issues were:

1. Whether the Service can treat a filed Business Masterfile return as a nullity when the return is filed using a stolen EIN without the knowledge of the EIN’s owner.

2. Whether the Service can treat a filed BMF return as a nullity when the EIN used on the return was obtained by identifying the party with a stolen name and SSN…

4. Whether the Service may disclose information about a potentially fraudulent business or filing to the business that purportedly made the filing or to the individual who signed the return or is identified as the “responsible party” when the Service suspects the “responsible party” or business has no knowledge of the filing.

And the conclusions were:

1. The Service may treat a filed BMF return as a nullity when a return is filed using a stolen EIN without the permission or knowledge of the EIN’s owner because the return is not a valid return.

2. The Service may treat a filed BMF return as a nullity when the EJN used on the return was obtained by using a stolen name for Social Security Number for the business’s responsible person. The return is not a valid return.

  • Back in 2014, SCOTUS decided Clark v. Rameker, which held that inherited IRAs were not retirement accounts under the bankruptcy code, and therefore not exempt from creditors.  In Clark, the petitioners made the claim for exemption under Section 522(b)(3)(C) of the Bankruptcy Code for the inherited retirement account, and not the state statute (WI, where petitioner resided, allowed the debtor to select either the federal exemptions or the state exemptions).  End of story for those using federal exemptions, but some states allow selection like WI between state or federal exemptions, while others have completely opted out of the federal exemptions, such as Montana.  A recent Montana case somewhat follows Clark, but based on the different Montana statute.  In In Re: Golz, the Bankruptcy Court determined that a chapter 7 debtor’s inherited IRA was not exempt from creditors.  The Montana law states:

individual retirement accounts, as defined in 26 U.S.C. 408(a), to the extent of deductible contributions made before the suit resulting in judgment was filed and the earnings on those contributions, and Roth individual retirement accounts, as defined in 26 U.S.C. 408A, to the extent of qualified contributions made before the suit resulting in judgment was filed and the earnings on those contributions.

The BR Court, relying on a November decision of the MT Supreme Court, held that an inherited IRA did not qualify based on the definition under the referenced Code section of retirement account.  I believe opt-out states cannot restrict exemption of retirement accounts beyond what is found under Section 522, but it might be possible to expand the exemption (speculation on my part).   Here, the MT statute did not broaden the definition to include inherited IRAs.

  • In August, we covered US v. Chabot, where the 3rd Circuit agreed with all other circuits in holding the required records doctrine compels bank records to be provided over Fifth Amendment challenges.  SCOTUS has declined to review the Circuit Court decision.
  • PLR 201547007 is uncool (technical legal term).   The PLR includes a TAM, which concludes reasonable cause holdings for abatement of penalties are not precedent (and perhaps not persuasive) for abating the taxable expenditure tax on private foundations under Section 4945(a)(1).  The foundation in question had assistance from lawyers and accountants in all filing and administrative requirements, and those professionals knew all relevant facts and circumstances.  The foundation apparently failed to enter into a required written agreement with a donee, and may not have “exercised expenditures responsibly” with respect to the donee.  This caused a 5% tax to be imposed, which was paid, and a request for abatement due to reasonable cause was filed.  Arguments pointing to abatement of penalties (such as Section 6651 and 6656) for reasonable cause were made.  The Service did not find this persuasive, and makes a statutory argument against allowing reasonable cause which I did not find compelling.  The TAM indicates that the penalty sections state the penalty is imposed “unless it is shown that such failure is due to reasonable cause and not due to willful neglect.”  That language is also found regarding Section 4945(a)(2), but not (1), the first tier tax on the foundation.  That same language is found, however, under Section 4962(a), which allows for abatement if the event was due to reasonable cause and not to willful neglect, and such event was corrected within a reasonable period.  Service felt that Congress did not intend abatement to apply to (a)(1), or intended a different standard to apply, because reasonable cause language was included only in (a)(2).  I would note, however, that Section 4962 applies broadly to all first tier taxes, but does specify certain taxes that it does not apply to.  Congress clearly selected certain taxes for the section not to apply, and very easily could have included (a)(1) had it intended to do so.

I’m probably devoting too much time to this PLR/TAM, but it piqued my interest. The Service also stated that the trust cannot rely on the lack of advice to perform certain acts as advice that such acts are not necessary.  I am not sure how the taxpayer would know he or she was not receiving advice if it asked the professionals to ensure all distributions were proper and all filings handled.  I can hear the responses (perhaps from Keith) that this is a difficult question, and perhaps the lawyer or accountant should be responsible.  I understand, but have a hard time getting behind the notion that a taxpayer must sue someone over missed paperwork when the system is so convoluted.  Whew, I was blowing so hard, I almost fell off my soapbox.

  • This is more B.S. than the tax shelters Jack T. is always writing about.  TaxGirl has created her list of 100 top tax twitter accounts you must follow, which can be found here. Lots of great accounts that we follow from writers we love, but PT was not listed (hence the B.S.).  It stings twice as much, as we all live within 20 miles of TaxGirl, and we sometimes contribute to Forbes, where she is now a full time writer/editor.  Thankfully, Prof. Andy Gerwal appears to be starting a twitter war against TaxGirl (or against CPAs because Kelly included so many CPAs and so few tax professors).  We have to throw our considerable backing and resources behind Andy, in what we assume will be a brutal, rude, explicit, scorched earth march to twitter supremacy.  We are excited about our first twitter feud, even if @TaxGirl doesn’t realize we are in one.
  • This doesn’t directly relate to tax procedure or policy, but it could be viewed as impacting it, and we reserved the right to write about whatever we want.  Here is a blog post on the NYT Upshot blog on how we perceive the economy, how we delude ourselves to reinforce our political allegiances (sort of like confirmation bias), and how money can change that all.

Summary Opinions for November

1973_GMC_MotorhomeHere is a summary of some of the other tax procedure items we didn’t otherwise cover in November.  This is heavy on tax procedure intersecting with doctors (including one using his RV to assist his practice).  Also, important updates on the AICPA case, US v. Rozbruch, and the DOJ focusing on employment withholding issues.

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I’ve got a bunch of Jack Townsend love to start SumOp.  He covered a bunch of great tax procedure items last month.  No reason for me to do an inferior write up, when I can just link him.  First is his coverage of the Dr. Bradner conviction for wire fraud and tax evasion found on Jack’s Federal Tax Crime’s blog.  Why is this case interesting?  Because it seems like this Doc turned his divorce into some serious tax crimes, hiding millions offshore.  He then tried to bring the money back to the US, but someone in the offshore jurisdiction had flipped on him, and Homeland Security seized the funds ($4.6MM – I should have become a plastic surgeon!).  His ex is probably ecstatic that the Feds were able to track down some marital assets.   I am sure that will help keep her in the standard of living she has become accustom to.

  • I know I’ve said this before, but you should really follow Jack Townsend’s blogs.  From his Federal Tax Procedure Blog, a write up of the Second Circuit affirming the district court in United States v. Rozbruch.  Frank Agostino previously wrote up the district court case for us with his associates Brian Burton and Lawrence Sannicandro.  That post, entitled, Procedural Challenges to Penalties: Section 6751(b)(1)’s Signed Supervisory Approval Requirement can be found here.  Those gents are pretty knowledgeable about this topic, as they are the lawyers for the taxpayer. As Jack explains, the Second Circuit introduces a new phrase, “functional satisfaction” (sort of like substantial compliance) as a way to find for the IRS in a case considering the application of Section 6751(b) to the trust fund recovery penalty.
  • The Tax Court in Trumbly v. Comm’r  has held that sanctions could not be imposed against the Service under Section 6673(a)(2) where the settlement officer incorrectly declared the administrative record consisted of 88 exhibits that were supposed to be attached to the declaration but were not actually attached.  The Chief Counsel lawyer failed to realize the issue, and forwarded other documents, claiming it was the record.  The Court held that the Chief Counsel lawyer failed to review the documents closely, and did not intentionally forward incorrect documents.  The Court did not believe the actions raised to the level of bad faith (majority position), recklessness or another lesser degree of culpability (minority position).  Not a bad result from failing to review your file!
  • This isn’t that procedure related, but I found the case interesting, and I’ve renamed the Tax Court case Cartwright v. Comm’r as “Breaking Bones”.  Dr. Cartwright, a surgeon, used a mobile home as his “mobile office” parked in the hospital parking lot.  He didn’t treat people in his mobile home (which is good, because that could seem somewhat creepy), but he did paperwork and research while in the RV.  Cartwright attempted to deduct expenses related to the RV, including depreciation.  The Court found that the deductions were allowable, but only up to the percentages calculated by the Service for business use verse personal use.  I’m definitely buying an Airstream and taking Procedurally Taxing on the road (after we find a way to monetize this).
  • The IRS thinks you should pick your tax return preparer carefully (because it and Congress have created a monstrosity of Code and Regs, and it is pretty easy for preparers to steal from you).
  • Les wrote about AICPA defending CPA turf in September.  In the post, he discussed the actions the AICPA has been taking, including the oral argument in its case challenging the voluntary education and testing regime.  As Les stated:

The issue on appeal revolves whether the AICPA has standing to challenge the plan in court rather than the merits of the suit. The panel and AICPA’s focus was on so-called competitive standing, which essentially gives a hook for litigants to challenge an action in court if the litigant can show an imminent or actual increase in competition as a result of the regulation.

On October 30th, the Court of Appeals for the District of Columbia reversed the lower court, and held that the AICPA had standing to challenge the IRS’s Annual Filing Season Program, where the IRS created a voluntary program to somewhat regulate unenrolled return preparers.  The Court found the AICPA had “competitive standing”, which Les highlighted in his post as the argument the Court seemed to latch on to.   For more info on this topic, those of you with Tax Notes subscriptions can look to the November 2nd article, “AICPA Has Standing to Challenge IRS Return Preparer Program”.  Les was quoted in the post, discussing the underlying reasons for the challenge.

  • Service issued CCA 201545017 which deals with a fairly technical timely (e)mailing is timely (e)filing issue with an amended return for a corporation that was rejected from electronic filing and the corporation subsequently paper filed.  The corporation was required to efile the amended return pursuant to Treas. Reg. 301.6011-5(d)(4). Notice 2010-13 outlines the procedure for what should occur if a return is rejected for efiling to ensure timely mailing/timely filing, and requires contacting the Service, obtaining assistance, and then eventually obtaining a waiver from efiling.  There is a ten day window for this to occur.  The corporation may have skipped some of the required steps and just paper filed.  The Service found this was timely filing, and skipping the steps in the notice was not fatal.  The Service did note, however, that efiling for the year in question was no longer available, so the intermediate steps were futile.  A paper return would have been required.  It isn’t clear if the Service would have come to the same conclusion if efiling was possible.
  • Sticking with CCAs, in November the IRS also released CCA 201545016 dealing with when the IRS could reassess abated assessment on a valid return where the taxpayer later pled guilty to filing false claims.   The CCA is long, and has a fairly in depth tax pattern discussed, covering whether various returns were valid (some were not because the jurat was crossed out), and whether income was excessive when potentially overstated, and therefore abatable.  For the valid returns, where income was overstated, the Service could abate under Section 6404, but the CCA warned that the Service could not reassess unless the limitations period was still open, so abatement should be carefully considered.

 

 

Summary Opinions for 9/21/15 to 10/2/15

Running a little behind on the Summary Opinions.  Should hopefully be caught up through most of October by the end of this week.  Some very good FOIA, whistleblower, and private collections content in this post.  Plus fantasy football tax cheats, business on boats, and lots of banks getting sued.  Here are the items from the end of September that we didn’t otherwise write about:

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  • Let’s start with some FOIA litigation. The District Court for the District of Columbia issued two opinions relating to Cause of Action, which holds itself out as an advocate for government accountability.  On August 28th, the Court ruled regarding a FOIA request by Cause for various documents relating to Section 6103(g) requests, which would include all request by the executive office of the Prez for return information, plus all such requests by that office that were not related to Section 6103(g), and all requests for disclosure by an agency of return information pursuant to Sections 6103(i)(1), (2), & (3)(A).   The IRS failed to release any information pursuant to the last two requests, taking the position that records discussing return information would be “return information” themselves, and therefore should be withheld under FOIA exemption 3.  There are various holdings in this case, but the one I found most interesting was the determination that the request by the Executive Branch and the IRS responses may not be “return information” per se, which would require a review by the IRS of the applicable documents.  Although the petition was drafted in broad terms, this Washington Times article indicates the plaintiff was seeking records regarding the Executive Branch looking into them specifically, presumably as some type of retaliation.

In a second opinion issued on September 16th, in Cause of Action v. TIGTA, Judge Jackson granted TIGTA’s motion for summary judgement because after litigation and in camera review, the Court determined none of the found documents were responsive.  This holding was related to the same case as above, but the IRS had shifted a portion of the FOIA request to TIGTA.  Initially, TIGTA issued a Glomar response, indicating it could not confirm or deny the existence (I assume for privacy reasons, not national defense).  The Court found that was inapplicable, and TIGTA was forced to do a review and found 2,500 records, which it still withheld.  Cause of Action tried to force disclosure, but the Court did an in camera review and found the responsive records were not actually applicable.

  • That was complicated.  Now for something completely different.  This HR Block infographic is trying to get you all investigated for tax fraud.  In summary, 75 million of the 319 million people in America play fantasy football, and roughly none are paying taxes on their winnings.  If you click on the infographic, we know you are guilty.  Thankfully, my teams this year are abysmal, so I won’t be committing tax fraud…my wife on the other hand has a juggernaut in our shared league…To all of our IRS readers, please ignore this post.
  • Now a couple whistleblower cases.  In Whistleblower One 10683W v. Comm’r, the Tax Court held that the whistleblower was entitled to review relevant information relating to the denial of the award based on information provided by the whistleblower.  The whistleblower had requested information relating to the investigation of the target, the disclosed sham transaction, and the amounts collected, but the IRS took the position that certain items requested were not in the Whistleblower Office’s file, and were, therefore, beyond the scope of discovery (denied, but we don’t have to explain ourselves).  The Court disagreed and found the information was relevant and subject to review by the whistleblower.  Further, the IRS was not unilaterally allowed to decide what was part of the administrative record.  Another case that perhaps casts a negative light on how the IRS is handling the whistleblower program.
  • On September 21st, the District Court for the Middle District of Florida declined a pro se’s request for reconsideration of a petition for injunctive relief against the IRS to force it to investigate his whistleblower claim in Meidinger v. Comm’r (sorry couldn’t find a free link to this order).  Mr. Meidinger likely knew the court lacked jurisdiction, and this was the purview of the tax court —  Here is a write up by fellow blogger, Lew Taishoff, on Mr. Meidinger’s failed tax court case.  Lew’s point back in 2013 on the case still rings true:  “But the administrative agency here has its own check and balances, provided by the Legislative branch.  There’s TIGTA, whose mission is ‘(T)o provide integrated audit, investigative, and inspection and evaluation services that promote economy, efficiency, and integrity in the administration of the internal revenue laws.’ Might could be y’all should take a look at how the Whistleblower Office is doing.”  The tax court really can’t force an investigation, but TIGTA could put some pressure on the WO to do so.  After taking a shot at the IRS, I should note I know nothing of the facts in this case, and Mr. Meidinger may have no right to an award, and TIGTA has flagged various issues in the program.  It just doesn’t feel like significant progress is being made.
  • I found Strugala v. Flagstar Bank  pretty interesting, which dealt with a taxpayer trying to bring a private action under Section 6050H.  Plaintiff Lisa Strugala filed a class action suit against Flagstar Bank for its practice of reporting, and then in future years ceasing to report, capitalized interest on the borrower’s Form 1098s.  Flagstar Bank apparently had a loan that allowed borrowers to pay less than all the interest due each month, resulting in interest being added to the principal amount due.  At year end, the bank would issue a 1098 showing the interest paid and the interest deferred.  In 2011, the bank ceased putting the deferred interest on the form.  Plaintiff claims that the bank’s practice violated Section 6050H, which only requires interest paid to be included.  The over-reporting of interest, she claims, causes tens of thousands of tax returns to be filed incorrectly.  Further, upon the sale of her home, Strugala believed that the bank received accrued interest income that it didn’t report to her.  A portion of the case was dismissed, but the remainder was transferred to the IRS under the primary jurisdiction doctrine.  The Court found the IRS had not stated how the borrower should report interest in this particular situation, and that it should determine whether or not this was a violation.  In addition, Section 6050H didn’t have a private right under the statute.  I was surprised that this was not a case of first impression.  The Court references another action from a few years ago with identical facts.  However, perhaps I shouldn’t not have been, as this is somewhat similar to the BoA case Les wrote about last year, where taxpayers sued Bank of America alleging fraudulent 1098s had been issued relating to restructuring of mortgage loans.
  • The Tax Court has held in Estate of John DiMarco v. Comm’r, that an estate was not entitled to a charitable deduction where individual beneficiaries were challenging the disposition of assets.  Under the statute, the funds have to be set aside solely for charity, and the chance of it benefiting an individual have to be  “so remote as to be negligible.”  Here, the litigation made it impossible to make that claim.
  • My firm has a fairly large maritime practice, which makes sense given our sizable port in West Chester, PA (there is not actually a port, but we do a ton of maritime work).  That made me excited about this crossover tax procedure and maritime  Chief Counsel Advice dealing with Section 1359(a).  Most of our readers probably do not run across Section 1359 too frequently.  Section 1359 provides non-recognition treatment for the sale of a qualifying vessel, similar to what Section 1031 does for like kind real estate transactions.  This applies for entities that have elected the tonnage tax regime under Section 1352, as opposed to the normal income tax regime.  In general, the replacement vessel can be purchased one year before the disposition or three years afterwards.  But, (b)(2) states, “or subject to such terms and conditions as may be specified by the Secretary, on such later date as the Secretary may designate on application by the taxpayer.  Such application shall be made at such time and in such manner as the Secretary may by regulations prescribe.”  Those regulations do not exist.  The CCA determined that even though the regulations do not exist, the IRS must consider a request for an extension of time to purchase a replacement vessel, as the Regs are clearly supposed to deal with extensions by request.
  • From The Hill, another article against the IRS use of private collection agencies.

 

 

 

Summary Opinions for the Week Ending 8/21/15

We here at PT are huge fans of self-promotion, so I am thrilled to link Les’ recent article in The Tax Lawyer.   Les’ article, Academic Clinics: Benefitting Students, Taxpayers, and the Tax System, was published in the Tax Section’s 75th Anniversary Compendium – Role of Tax Section in Representing Underserved Taxpayers.  There are various other articles in the full publication that are worth reading (and hopefully will make you all feel guilty enough that you aren’t doing enough pro bono work to either cause you to assist some underserved folks or donate some money to those who are).

To the tax procedure:

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  • Hopping in the not-so-wayback-machine, in October of 2014, SumOp covered Albemarle Corp. v. US, where the Court of Federal Claims held that tax accruals related back to the original refund year under the “relation back doctrine” in a case dealing with the special statute of limitations for foreign tax credit cases.   As is often the case in SumOp, we did not delve too deeply into the issue, but I did link to a more robust write up.  It seems the taxpayers were not thrilled with the Court of Federal Claims and sought relief from the Federal Circuit.  Unfortunately for the taxpayer, the Fed Circuit sided with its robed brothers/sisters, and affirmed that the court lacked subject matter jurisdiction because the refund claim had not been made within the ten year limitations period under Section 6511(d)(3)(A).   This case deserves a few more lines.  The language in question states,  “the period shall be 10 years from the date prescribed  by law for filing the return for the year in which such taxes were actually paid or accrued.”   When the tax was paid or accrued is what generated the debate.

In the case, a Belgium subsidiary and its parent company, Albemarle entered into a transaction, which they erroneously thought was exempt from tax, so no Belgian tax was paid.  Years in question were ’97 through ‘01.  In 2002, Albemarle was assessed tax on aspects of the transaction in Belgium, and paid the tax that was due.   In 2009, Albemarle filed amended US returns seeking about $1.5MM in refunds due to the foreign tax credit for the Belgian tax.  Service granted for ’99 to ’01, but not ’97 or ’98 because those were outside the ten year statute for claims related to the foreign tax credit under Section 6511(d)(3)(A).  Albemarle claimed that the language “from the date…such taxes were actually…accrued” means the year in which the foreign tax liability was finalized, which would be 2002 instead of the year the tax originated.  Both the lower court and the Circuit Court found that the statute ran from the year of origin.  The Circuit Court came to this conclusion after a fairly lengthy discussion of what “accrue” and “actually” mean, plus a trip through the legislative history and various doctrines, including the “all events test”, the “contested tax doctrine”, and the “relation back” doctrine.  The Court found the “relation back” doctrine was key for this issue, which states the tax “is accruable for the taxable year to which it relates even though the taxpayer contests the liability therefor and such tax is not paid until a later year.” See Rev. Rul. 58-55.  This can result in a different accrual date for crediting the tax against US taxes under the “relation back” test and when the right to claim the credit arises, which is governed by the “contested tax” doctrine.

  • Prof. Andy Grewal, a past PT guest poster, has uploaded an article on SSRN entitled “King v. Burwell:  Where Were the Tax Professors?”  The post discusses possible reasons why tax professors largely did not enter the public debate on the merits of the legal arguments in King v. Burwell, and encourages them to be more active in future similar cases.
  • Another fairly technical issue was addressed in PMTA 2015-009, where the Service discussed interest netting when it is later determined that there was no original overpayment.  Under Section 6621(d), interest is wiped out if there equivalent overpayments to the taxpayer and underpayment to the Service.  The PMTA has a fair amount of analysis, but the issue and conclusion are a sufficient summary for our purposes.  Issues are:

(1) Whether an underpayment applied against an equivalent overlapping overpayment to obtain a net interest rate of zero pursuant to Section 6621(d) is available for netting against another equivalent overlapping overpayment if the Service determines the first overpayment was erroneous, (2) Whether the same is true for an overpayment netted against an erroneous underpayment, and (3) Whether the cause of the error affects these answers.

And concludes:

(1)  An underpayment that was previously netted against an equivalent overlapping overpayment is not available to net against another equivalent overpayment if the taxpayer has retained the benefit of the original interest netting (the interest differential amount paid or credited to the taxpayer). If, however, the taxpayer did not retain the benefit of the original netting, then the underpayment is available for netting against another overpayment. (2) The same analysis applies to an overpayment netted against an erroneous underpayment. (3) We are unaware of any circumstance where the cause of the error would change our answers.

  • I haven’t highlighted Prof. Jim Maule’s blog, MauledAgain, in a while, which is a failing on my part.    Here you will find Prof. Maule’s post on tax fraud in the People’s Court and if you scroll down on this page you will find an update to the case.  Two schmohawks agreed to commit tax fraud by transferring the value of a child tax credit.  The plan fell apart, and one sued the other in People’s Court to enforce the “contract” between the co-conspirators.  The Judge dismissed the case because fraudulent contracts are not enforced.  Prof. Maule quotes from the show, where the plaintiff said, “What about pain and suffering?”  Stole my line.
  • TIGTA has released a report about Appeals penalty abatement decisions, and it isn’t great.  First, it isn’t great because, as the report concludes, Appeals is not adequately explaining its abatement decisions.  I agree Appeals should indicate why it is abating penalties, but I do not agree with the second conclusion, which is that Appeals is leaving money on the table.  Meaning, it should not be waiving those penalties.  TIGTA reports that an additional $34MM could have been collected on the abated penalties.  It also reported that many cases were inappropriately considered by Appeals because Compliance had not reviewed the abatement.  Given that penalties are essentially applied to every underpayment, with no consideration to whether the taxpayer reasonably attempted to comply, it seems inappropriate to assume those penalties are all collectible (or to encourage Appeals to abate less).
  • On Jack Townsend’s Federal Tax Procedure Blog is a discussion of the tax perjury case, US v. Boitano (What would Brian Boitano do?  Not perjure himself in a tax filing, that is for darn sure.  This is Steve Boitano- presumably not related to the super hero/figure skater).  Questions presented in the case were whether filing a document was required under Section 7206(1) for perjury, and what constituted filing.  In Boitano, the taxpayer provided returns to an agent who was not authorized to accept filed returns.  Agent realized the returns were questionable and never forwarded to appropriate Service employee for filing.  The 9th Circuit held filing was required (not stated in statute), and giving the return to the agent did not constitute filing.  Therefore, no crime under Section 7206(1).
  • Like Thor’s mighty hammer, the IRS has slammed down the tax law upon Marvel, and not even its super team of Avenger like lawyers could provide a  Shield (select from Captain America’s, or Agents of) from the consequences.  The Tax Court has decided the hulking consolidated group of the Marvel universe was required to offset its net operating loss by the cancellation of debt  income, and could be applied against the NOL of one member of the consolidated group.   I’ll touch on the holding below in broad strokes and I’ll stop trying to incorporate Marvel superheroes, but what I found most interesting about this case is that it arose out of the 1996 Chapter 11 Bankruptcy of Marvel, which seems to just print money with its movies now.  I had completely forgotten also that two real life titans (of industry) got in dustup in ’96 about that bankruptcy, Ronald Perelman and Carl Icahn.  You can read more about the amazing twenty year turn around here and here.   That story is more interesting than the law in this one.  Under Section 108(a), discharge of indebtedness income is not included as income if the discharge is pursuant to a Chapter 11 bankruptcy.  The excluded income reduces certain other tax attributes in certain circumstances, including a reduction of NOLs that carryover from prior years.  See 108(b)(1)(2).  Marvel’s subsidiary only reduced the carryover for the subsidiaries  in Chapter 11, and not the parent group that filed consolidated returns with the subs.  The Tax Court found that the aggregate approach was required, and the COD income had to reduce the NOLs of the consolidated full group.  I’ve glossed over the analysis, which is worthwhile if you have this specific type of issue.

 

 

 

Summary Opinions for August 1st to 14th And ABA Tax Section Fellowships

Before getting to the tax procedure, we wanted to let everyone know the application for the ABA Tax Section fellowships is now open.  Here is a link to the release regarding the applications and the Christine A. Brunswick Public Service Fellowships.   Here is another link regarding the process, which also highlights recent winners.   I’ve had the pleasure of meeting many of the recipients, and it is an esteemed group providing amazing services thanks to the ABA Tax Section.

A few quick follow ups to some items from last week.  We had a wonderful post from Robin Greenhouse on the BASR Partnership case dealing with the statute of limitations and fraud of the tax preparer, which can be found here.  Ms. Greenhouse and Les were both also quoted in a story on the topic for Law360, which can be found here (may be behind a subscription wall, sorry).  Keith posted on the Ryscamp case, which dealt with jurisdiction to review a determination that a taxpayer’s position is frivolous.  Keith was also quoted about the case in the Tax Notes article, which can be found here (also behind subscription wall, sorry again).

Here are some of the other tax procedure items we didn’t otherwise cover:

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  • We flagged earlier in the month that Congress has overturned Home Concrete with the new Highway Bill.  The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 has a few other changes to tax procedure laws.  Probably the biggest news is that partnerships and s-corps will need to file tax returns three months and fifteen days after the close of their tax years (for calendar filers, that will be March 15).  This is a change for partnerships, but not s-corps.  C-corporations, however, will not have to file until four months and fifteen days after the close of the tax year (April 15 for calendar year filers).  The goal of this is to get k-1s to individuals prior to the April 15 filing deadline.  I assume c-corps were pushed back a month on work flow concerns for preparers.  The act also revised the extended due dates for various types of returns.  In addition, next year, FBARs will be due April 15, and there will be a possible six month extension.
  • The District Court for the District of New Jersey decided a lien priority case where a bank recorded a mortgage regarding a home equity line of credit (HELOC), some portion of which may have been withdrawn after a federal tax lien was filed.  In US v. Balice, the bank argued that the withdrawal date of the funds on the HELOC was irrelevant and state law directed that the date related back to the original recording date (the Court declined to offer an opinion about whether or not this is the actual NJ law).  The government argued that federal law applied, which held first in time is first in right, but only to the extent the funds were already withdrawn.  The Court held that state law defined the property rights, but federal law governed the lien priority.  Under federal the federal statute, the security interest was only perfected when the funds were actually borrowed.  See Section 6323(a).
  • The IRS has issued two important Revenue Rulings in the international arena.  The first outlines the procedures for making competent authority requests.  The second is for taxpayers seeking advanced pricing agreements, and can be found here.
  • Jack Townsend on his Federal Tax Procedure blog has a discussion of Sissel v. US Dept. HHS, where the majority, concurring and dissenting opinions all review the Originations Clause of the Constitution and its application to Obamacare.
  • I unabashedly praised John Oliver’s sultry singing about the IRS with Michael Bolton previously in our pages.  In that ditty, Oliver pointed out we should be hating on Congress, not the IRS.  Peter Reilly over at Forbes makes a good point that in Oliver’s new IRS bit, he should probably be complaining about Congress again and not the IRS about the lack of church audits (check out Section 7611, which is Congress’ doing).
  • Service issued guidance to its new international practice unit on transactions that might generate foreign personal holding company income under subpart F.  Caplin & Drysdale have coverage here.
  • The Tax Court seems to have just thrown an assist to the Service in Summit Vineyard Holdings v. Comm’r, holding that an individual had apparent authority to execute an extension for the statute of limitations, even though the individual lacked actual authority.  The Court somewhat saved the Service, because it probably should have known that the TMP was a different entity in the year in question, as it had been informed of the switch.  The Court noted the auditing agent had very limited TEFRA knowledge (I’m not sure that excuses the IRS from properly following the rules).  The agent had the manager of the then current TMP sign, instead of the TMP for the year in question.  There appears to be somewhat of a split on this, but the Court determined that the Ninth Circuit (where the appeal would lie) would apply state law and find apparent authority based on the evidence and actions taken by the individual.  Saved by the Court!  Based on the facts, it does not seem that unfair though, as the individual was the manager of both TMPs, and it seems like he also thought he was properly executing the paperwork and extending the SOL.
  • In Chief Counsel Advice, the Service has concluded it can only apply the Section 6701 aiding and abetting penalty one time against a person who submitted false retirement plan application documents.  This is the case even though multiple documents could be submitted with fraudulent information, and even though it could result in an understatement for the plan and each participant.
  • The Service has also released PMTA 2015-11, which outlines the application of the penalty under Section 6662A(c) for taxpayers who failed to disclose participation in listed transactions involving cash value life insurance to provide welfare benefits.  This is a very specific issue, so I won’t go into much detail, but the guidance is fairly thorough and provides good insight into the Service’s thoughts on the matter.
  • And another Section 7434 case.  I wrote about the Angelopolous case earlier in the week, which dealt with who was the “filer” of the information return.  In US v. Bigley, the District Court for the District of Arizona reviewed whether an employee’s claim against his employer for false returns was time-barred.  The suit was well past the six year statute, and the employee clearly had knowledge over the last year.  Section 7343(c) outlines the statute of limitations, and states the statute is the later of six years or one year after the return is discovered by exercise of reasonable care.    The Court found that the employee received the information returns upon filing, so the six year statute clearly applied, and it would be impossible to have the one year statute in that situation.  The actual language is “1 year after the date such fraudulent information return would have been discovered by exercise of reasonable care.”  I wonder if it would be possible to create a larger fraudulent scheme, whereby the recipient would receive the information return but not realize it was fraudulent until a later date.  Would the one year statute then apply?
  • My brother-in-law just got a Ph.D. (congrats Alex! I doubt he will ever read this).  In honor of that esteemed accomplishment, here is an infographic highlighting all kinds of negative financial and other statics related to Ph.Ds.  I make no assurances to the veracity of the graphic’s claims, and I am generally in favor of graduate degrees, but I found the stats interesting.