Summary Opinions for June

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Before covering the June tax procedure items we didn’t otherwise write on, I wanted to highlight that Keith was quoted in a Seattle Times’ article about the IRS/Microsoft litigation, where MS is questioning the length of its audit and the Service’s hiring of Quinn Emanuel to investigate its tax obligations.  Other tax procedure luminaries Stuart Bassin (who is working with Les on rewriting part of SaltzBook addressing disclosure litigation) and Professor Andy Grewal (a PT guest poster) were also quoted.   Keith’s last post on the topic can be found here, where he discusses Senator Hatch’s letter to the Commissioner questioning the use of an outside law firm on audits.

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  • The 2015 IRS annual Whistleblower Report to Congress was released in June and can be found here.  In 2014, the Service paid out around $52MM in awards, representing about 17% of the tax it claims was collected due to WB’s information.  Submissions to the WB group were up in 2014, with over 14,000 claims being filed.  Of those, about 8,600 were opened.  The report paints a slightly rosier picture of the program than what may be practitioners’ perceptions of the program.  It does note issues with taxpayer confidentiality, and whistleblower protection. The report also provides a spreadsheet of the reasons for closing cases and the time most cases have been in the program (which tends to be fairly long).
  •  This Tax Court case has a fair amount of tax procedure packed into it.  In Webber v. Comm’r, the Court found a taxpayer had retained control and incidents of ownership over life insurance held in a trust, which caused some negative tax  consequences.  In coming to this determination, the Court found that the IRS Revenue Rulings dealing with the “investor control” doctrine were entitled to Skidmore deference under the “power to persuade” standard.  The Court also found reasonable cause due to the taxpayer’s reliance on his advisor.  In the case, the advisor was an expert and was paid hourly to review the transaction, and had the pertinent information.  We just wrote this case up for SaltzBook, so I won’t go into too much detail (don’t want to give all the milk away, as we definitely want to keep selling cows).
  • Agostino & Associates has published its July Monthly Journal of Tax Controversy.  Frank and his associate Brian Burton have a nice piece on the public policy of OICs.  As always, it is interesting and essentially a mini law review article.
  • BMC Software v. Comm’r is a Fifth Circuit case we (I) missed in March that was potentially significant in how closing agreements are interpreted.  Miller & Chevalier’s Tax Appellate Blog has coverage here.  The facts are fairly specific, and the applicable Code sections do not pertain to many taxpayers.  What is important is that the Fifth Circuit reversed the district court, and held that the boilerplate in the opening paragraph stating, “for income tax purposes” did not cause the agreed treatment of a tax item for one purpose as applying for all purposes under the Code.  The Court would not read that into the agreement of the two parties, who had meticulously spelled out the specific tax treatments for one purpose.
  • Another case with multiple interesting tax procedure items.  In Riggs v. Comm’r, the Tax Court ruled on 1) whether a bankruptcy stay for the taxpayer’s successor-in-interest applied to the taxpayer, and  2) whether the IRS had to follow the taxpayer’s instructions about which debts its payment should be applied to when the Bankruptcy Court directed the payment generally.  As to the first point, the court found there was not sufficient “identity between the debtor and the [taxpayer] that the debtor may be said to be the real party defendant”, so the stay did not apply.  As to the second point, the Court found the payments were not voluntary, and therefore it did not have to follow the taxpayer’s instructions under Rev. Proc. 2002-26.  I would assume the Court would have specifically directed the payment application in the order had it been requested.
  • Hard to talk to an accountant these days and not discuss the tangible personal property change of accounting method.  The Service has provided additional time to file Form 3115 and modified some procedures.  See Rev. Proc. 2015-33.
  • For those of you who do work with Section 6672 penalties, you know the definition of willfulness and actually running a business can be in conflict.  Often, a business that is light on cash has to make a decision about which bills to pay, and sometimes the business thinks that suppliers need payment to keep product flowing.  If a responsible person makes such a decision and knows the withholding taxes are delinquent, Section 6672 penalties will almost certainly apply.  See Phillips v. US, 73 F3d 939 (9th Cir. 1996).  The Court of Federal Claims had occasion to review one such case in Gann v. US, and dismissed the government’s motion for summary judgement.  It held that determining when and whether the responsible person had knowledge of the company’s failure to pay taxes was a disputed issue of fact.  The Court found that simply showing that cash inflows and outflows indicating someone wasn’t going to get paid weren’t enough for summary judgement, and some level of actual knowledge was needed by the responsible person.  There was also some question as to whether the person was a “responsible person”, which was covered by Professor Timothy Todd on Forbes and can be found here.
  • Another attorneys’ fees case that probably would have ended differently had the client made a qualified offer.  In Mylander v. Comm’r, the Tax Court found that the taxpayer prevailed in the amount in controversy and the most significant issue, but the Service’s position was substantially justified.  The reasoning for this was because the case was complex and the taxpayer didn’t share all relevant facts or the case law for their claims.  I’m not sure how I feel about the complexity aspect or the onus being on the taxpayer to provide the applicable law  to the Service.  If the taxpayer’s position was clear, and reasonable research could have turned up the correct law, it seems unfair to make the taxpayer outline all relevant cases.  I hope those were only considered in conjunction with the missing facts, and wouldn’t have been sufficient on their own.  The Court did also mention that the current case was arguably distinguishable from the applicable prior holdings, so the Service’s position could have been somewhat reasonable no matter what.  All of this probably wouldn’t have mattered if the taxpayer had taken advantage of the qualified offer provisions (although if you make an offer, and fail to provide the IRS with the facts and the law, can you still prevail?).
  • SCOTUS has denied cert for Ford in its interest payment case involving the treatment of an advanced remittance.  Les has blogged this case twice before, most recently here.  In addition to the interest question, there was also a jurisdictional issue about whether the district courts could hear an interest disagreement or if it had to be determined by the Court of Federal Claims.  Les’ post outlines the issue and eventual court holding.
  • In Slone v. Comm’r, The 9th Circuit has decided another case on the two prong test necessary to establish a transferee is liable for the predecessor’s tax liability.  The court remanded for the tax court to review the transaction as to the first prong on federal law, but also held that the Service had to show it was a fraudulent transaction under the federal law and also had to independently show that the transferee was liable under the applicable state law.  This holding is in line with the various other recent cases, including Stern, Salus Mundi, and Diablod, which we most recently covered here.
  • Would you like to know how to file delinquent FBARs and not pay a penalty (i.e. are you mega rich and hiding money in some country with shady banking laws)?  Well, this probably doesn’t apply to you because you likely did not pay the tax due on those assets.  For those folks who paid the tax, but inadvertently failed to file the FBAR the IRS has issued updated guidance on filing late without penalties.
  • A res judicata case, which should have a familiar name for tax procedure junkies.  In Batchelor-Robjohns v. US, the 11th Circuit held the feds were barred by res judicata from raising the dead taxpayer’s income tax issues in an income tax audit when the same issue was previously litigated in an estate tax refund relating to same issue.
  • Just about a year ago, we covered Heckman v. Comm’r, where the Tax Court found the six year statute of limitations under Section 6501(e)(1)(A) applied to ESOP distributions that were not properly disclosed.  The Eighth Circuit has affirmed that ruling.  This is the link to the prior SumOp where we discussed the case.  In Heckman, the courts (Tax Court & 8Th Cir.) declined to incorporate other related entity returns to show disclosure for the individual’s return of the ESOP distribution.  It is interesting to compare that language to CNT Investors, another recent Tax Court statute of limitations case, which seemed to indicate the tax court would consider all the filings of the taxpayer and his related entities.  Although the tones are different, I do not think the holdings are necessarily in conflict.  In Heckman, there was not much disclosed that would adequately apprise the Service of the connection.  In CNT, a few key items were left off, but overall the filings painted a fairly full picture.
Stephen Olsen About Stephen Olsen

Stephen J. Olsen’s practice includes tax planning and controversy matters for individuals, businesses and exempt entities for the law firm Gawthrop Greenwood, PC.

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