The Tax Procedure Roundup for 10/18/13

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At first I thought the week was slow again, but it turns out I was too busy with client matters to realize there was a fair amount of interesting tax procedure and policy content published.   Here are a few things I caught up on at the end of this week:

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  • Government is back up and running, which is good.  Service is back in business, and Tax Court has reopened and is rescheduling matters.  Coverage can be found here and at  Tax Girl here.   PTIN renewal for 2014 may have to be postponed until later this year or until 2014 due to the government shut down (***reader Bob Kamman pointed out the original post may have been incorrect; read the comments below for further discussion***).  Don’t Mess With Taxes hypothesizes the shutdown could impact filing next year.
  • Forbes contributor Joe Harpaz has a post on innovation and tax policy found here.  This is more tax policy than procedure, but we are fans of that also.  The article outlines recent research into the most innovative companies based on patents, and connections between the geographic locations of those companies and the applicable government’s tax policy on R&D.
  • More from the Forbes tax blog, which has a post on a study showing that taxpayers with a balance due are more likely to cheat than those who are owed a refund, which can be found here.  Mr. Reilly describe this “stupinomics” (his term for loss aversion and behavior economics—which probably could apply to a much broader range of economic transactions) phenomena, which most tax preparers probably assumed to be the case.  Even though all tax planners state it is bad planning to give the Service an interest free loan and overpay, I always do it, because I know I will be ticked off when I have to cut the Treasury a check on April 15.  This is based on the same idea.  Owing makes us angry, refunds are fun.    It is not hard to see a few ways to use this to reduce fraud (assuming the report is true, and I have not reviewed any aspect of it beyond this article), but those would likely meet resistance.
  • An article can be found here discussing the IRS guidance issued in January of 2013 regarding the use by tax preparers of tax or other information obtaining when preparing returns to solicit other business.  The article is by Thomas Manisero of Wilson Elser.  It is not very long, and does not delve too far into this area, but does highlight something practitioners often do not think much about and the somewhat simple solution (obtaining consent) to the issue.
  • Here is a synopsis of Vandenheede v. Vecchio, which was decided on October 1, 2013.  I read a summary last week, and did not initially pick up on anything of interest.  The summary from Bryan Cave showed it was fairly interesting, where the Sixth Circuit affirmed the lower court’s granting of a motion for summary judgment of the case when a recipient of funds from a trust had sued the co-trustees for filing fraudulent information returns under Section 7434.  The trustees treated distributions to this woman as income from a trade or business, and 1099’d her.  She felt the payments were reimbursements for her and her husband’s living expenses, and the Form 1099s were fraudulent.  The case was dismissed because the trustees were held to not be the “filer” of the Form 1099s since the income and deductions of the trust were required to be placed on the settlor/husband’s personal income tax return.  Here is the Sixth Circuit’s opinion.
  • SCOTUS denied the taxpayer’s petition for certiorari in Knappe v. United States, where a taxpayer was seeking to demonstrate reasonable cause under Section 6651 by relying on an accountant or attorney who erroneously advised the taxpayer on the due date of a Form 706.  I am going to write more about this case during this week, and have some comments on the handful of other cases on this same topic that have been reported over the last year.
  • Jack Townsend uses bad words again, which I like, in describing a bull$h*! or not-BS tax shelter decision in the Santander Holdings USA case, which can be found on his tax procedure blog here.  The post lifts language from the case to describe the tax shelter, but what is more important is the discussion of substance over form doctrine, with the Judge in Santander holding that it “is a legal question, to be answered by judges, not economists,” and did not put any weight on Government’s expert testimony.  This will be an interesting holding moving forward, as most other Courts appear to rely somewhat heavily on the expert opinions in determining substance over form.  If you read Mr. Townsend’s post, you should also read Richard Jacobus’ comment to the point.  He highlights his other perceived issues with the holding, which are insightful.
  • The Service lost a motion for summary judgment in Suntrust Mortgage Inc. v. US in the District Court of Maryland, where the Service tried to stop a mortgage holder’s quiet title action to determine priority over the Service’s lien.  Order can be found here.   The mortgage company’s argument as to title is that that equitable subrogation protects its mortgage on the property because the borrower used the new mortgage to pay off two prior mortgages.  This issue has yet to be decided.  The motion the Government lost was a 12(b)(6) motion, arguing sovereign immunity or, in the alternative, this was not a proper use of a quiet title action.  The Court stated sovereign immunity had been waived as to quiet title matters, and the question was if “an action by a non-taxpayer to establish the priority of his mortgage lien over the government’s tax lien a ‘quiet title’ action under the statute.”  The Court found the majority rule is that this was a permissible action.
  • And, I’ve found the answer to why my client’s don’t donate more to charity.  Thanks to TaxProfBlog.
  • There is an amazing amount of tax discussion regarding lap dances, such as Philly’s amusement tax being blocked from applying to such amusements found here (thanks to MauledAgain) and the attempt of a New York club to exempt its dances from the sale and use tax based on an exception for the dramatic arts found here.  Not really tax procedure related, but appealing to readers’ more prurient interests is sure to drive up page views.
  • And, of course, the best stuff on the internet: Les posted twice on the Kuretski case, the most recent can be found here, which is generating some interesting  discussion on our blog and on others; and,  Keith posted on the Frazier erroneous refund case here, and has a good discussion of the intersection of bankruptcy and tax.
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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Comments

  1. Since this isn’t merely a round-up, but also offers some editorializing, how about calling it “Summary Opinions” (like a play on the Tax Court opinion of that type)?

  2. Bob Kamman says:

    I’m not reading the IRS announcement as stating that PTIN’s can’t be renewed until 2014. My understanding is that it will be later this year, but before they expire December 31, 2013.

    • Bob, I think you may be correct, and I glossed over the statement by the Service too quickly. The IRS page now seems to be down, so I can’t review what it said. Apparently, the Service will issue emails or letters to PTIN holders over the next few weeks, which will indicate how and when to renew. I’ll modify the post. Thanks, and sorry!

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