Hot tubs, fraudulent credits, the Tax Court saving a marriage, and, of course, some tax procedure.
- This is an old version of Frank Agostino’s newsletter, which was published about a year ago. I had not read it before, and he just posted it to LinkedIn. As always, the quality is great. I particularly enjoyed the hot-tubbing with the IRS article, and will know not to get flattered if Mr. Agostino ever asks me to hot-tub in the future. Great article for tax professionals, but also non-tax folks who deal with valuation disagreements.
- United States v. Bostick is an interesting case from the District Court for the Northern District of Texas relating to the IRS seeking permanent injunctions against preparers engaging in a fraudulent credit scheme. The Court did not grant the government’s injunction to the extent requested by the Service, largely because it did not believe the practitioners would engage in this type of action again. There is also a discussion as to what standard preparers are held to under Section 6694(a) and (b), and the reasonable cause exception to that statute. In discussing these aspects of the case, the Court, interestingly, noted that the government had “not presented any evidence…that persuades the court that tax preparers are held to the same standard as attorneys or are required in every instance to seek the advice of a tax attorney.” I wonder what the standard is for CPAs? Peter Reilly at Forbes has some coverage found here.
- The Service issued Notice 2014-58, which provides additional guidance regarding the codification of economic substance doctrine under Section 7701(o). The Notice provides a definition of “transaction”, and also provides additional guidance for the related penalty under Section 6662. There has been strong coverage of the Notice, especially helpful are write ups by PWC and KPMG.
- In Wang v. Comm’r, a taxpayer claiming innocent spouse failed the “knowledge/reason to know” requirement under Section 6501(b)(1)(C), although she argued that her husband hid information from her. Taxpayer and her husband had conflicting testimony on various aspects of the case, and the Court found that taxpayer was involved in her husband’s business in a meaningful way, was very well educated, and did speak with him regarding his legal troubles. The Court concluded she should have known or inquired more about the tax issues. Worth noting that husband was disbarred a few years before for misappropriating client funds – he attributed this to bookkeeping errors (hmm, seems suspect, I’m sure Mr. Agostino was all over that). Also somewhat interesting, the taxpayer said she was only with her husband for the children, and she would divorce him if successful in the innocent spouse claim…Perhaps the Court did not want to be responsible for the failed marriage.
- I’m working on Saltzman and Book chapter 5 right now, which deals with statutes of limitations, and I’m pretty sure Reinhart v. Comm’r is going to make it into the text in one or two places. Service filed a lien after ten years following the assessment. The primary issue was whether or not the Service could collect trust fund recovery penalties that accrued prior to my little brother being born and around the time President Bush I puked on the Japanese prime minister. The Case has a good burden discussion, a good discussion of when a limitations argument can be made before the court when coming out of Appeals, the proper scope of review, and when the statute is tolled for a taxpayer out of the country. We will have more on this case this week and next, so I’ll just highlight the issues for now.
- More statutes of limitations, this time regarding the refund period for claims based on foreign tax credit carrybacks. In Albemarle Corp. v. United States, the Court of Federal Claims held that although the taxpayer met the “all events” test under Section 461, and the dispute was settled and taxes paid within the 10 year period, under the “relation back doctrine” accruals related to the original refund year, which was outside of the ten year period. McDermott Will & Emery has a write up here, which discusses the issues in greater detail.
- In Hauptman v. Comm’r, the Tax Court confirmed the IRS’s rejection of an OIC predominately because the taxpayer had provided drastically different values for his assets to the Service and to other third parties; further, he failed to comply with the tax laws, and was not completely helpful in providing information and explanations. He was also not the most endearing taxpayer. First, Mr. Hauptman owed a boatload of money; some amount of millions. He also just didn’t file tax returns or pay tax, largely because he didn’t feel like it. Eventually, his business tanked, and he wasn’t as rich anymore, and then the Service started levying. Probably the biggest take away from the case is that you shouldn’t expect the Service to rely on your numbers when you owe millions. The IRS followed up with banks, lenders and business associates, who provided much higher values for the taxpayer’s companies and assets. He said those were “puffed up”, but the Service should definitely trust the numbers he gave to them.
About Stephen Olsen
A picky point on the McDermott Will & Emery write up on Albemarle. (I would have posted it on that page, but could not find a comment section.) The write up says:
It remains to be seen whether the taxpayer will appeal the Court of Federal Claims’ decision to the Federal Circuit. The opinion’s analysis is questionable on several points and presents legal issues that would be reviewed de novo, without any deference to the judge’s fact findings.
JAT Comment: The judge’s factual findings are alawys subject to deference under the clearly erroneous standard. On the legal conclusions are subject to de novo review. Of course, some issues blend fact and law and, depending upon the court, the reviewe may tilt to de novo or clearly erroneous (I think most often de novo to the extent that the trial judge’s fact findings may have been influenced by an erroneous view of the law). For example, the Tax Court may find that the taxpayer resides in X city (a finding that determines precedent under the Golsen standard). That fact finding will be subject to the clearly erroneous legal standard. (OK, that fact finding is usually stipulated and not in dispute, but if it were it would be subject to the clearly erroneous standard.) Perhaps it could be de novo if the judge’s fact finding were based on a clearly erroneous legal standard of residence (such as a legal conclusion that all brown eyed taxpayers reside in X city and all blue eyed taxpayers live in Y city. But most fact findings are not really influenced by an erroneous legal interpretation; they are just facts. They are subject to clearly erroneous review.
I know this is picky.
Jack –
Thanks for the comments and of course I agree with the distinction between factual findings and legal conclusions. The statement referred to above in the write up was not intended to cover all the findings made by the Judge, just the findings that involved legal questions. The analysis itself is mostly based on legal conclusions as the facts were not really in dispute. Just wanted to be clear on that point to avoid any implication that the write up misstates the standard of review.