In Osvaldo and Ana Rodriguez v. Commissioner, 722 F.3d 306 (5th Cir. 2013) , aff’g 137 T.C. 14 (2011) the Fifth Circuit recently affirmed a Tax Court decision that held that earnings from a couple’s controlled foreign corporation that were invested in U.S. property and properly included in their gross income under §§951 and 956… Continue Reading
The entity level audit rules under §§6222 thru 6333 set forth a labyrinth of complex rules and procedures which have often been criticized as too arcane in language and containing many traps for the unwary or uninformed. Regardless of the criticisms, which led to the removal of “large” S corporations from the reach of the… Continue Reading
In Sun Capital Partners III LP et al. v. New England Teamsters & Trucking Industry Pension Fund et al.; No. 12-2312 (1st Cir. 2013) (“Sun Capital Partners”) the First Circuit Court of Appeals, in a three judge panel opinion issued on July 24, 2013, reversed and vacated grants of summary judgment to two private… Continue Reading
On June 26, 2013, the United States Supreme Court, held in U.S. v. Windsor, Executor of the Estate of Spyer, et al, that Section 3 of the Defense of Marriage Act (“DOMA”) definition of “marriage” ), which defines marriage as between a man and a woman for purposes of federal law, violates the due process and… Continue Reading
Based on the logic set forth in the Tax Court’s opinion below and as further magnified in the opinion of Justice Thomas, it may be contended that reason and logic prevailed. It did. Clearly the regulation in issue should not have been “compressed” into solely a tax on income as the Third Circuit felt. The fact the Court was unanimous in its view, although Justice Sotomayer, in her concurring opinion, wanted to note that if the record were different the tax may not have been analogous to an excess profits tax, is indeed important and may even be surprising to some. For PPL as well as many tax practitioners, the result made perfect sense.
Section 6223(e) of TERFA sets forth the circumstances under which a partner may opt-out of a partnership audit. The provision provides that “[t]his subsection applies where the Secretary has failed to mail any notice specified in subsection (a) to the partner entitled to such notice within the period specified ….” 26 U.S.C. § 6223(e)(1)(A). In other words, Section 6223(e)’s remedy provision, which includes the right to opt-out, applies only when a partner is entitled to but does not receive timely notices of the audit. Here, Sarma was not entitled to any notice because it failed to provide the requisite information to the IRS. Sarma may not capitalize on the IRS’ mistake to invoke the right to a remedy that was not provided by the statute
Chalk up another economic substance doctrine win for the Service. This one from a three judge panel of the Third Circuit Court of Appeals, in affirming the Tax Court below, in Crispin v. Commissioner, 111 AFTR2d 2013-XXXX (2/25/2013). The taxpayer in this case , Neal D. Crispin, a businessman-entrepreneur was involved in leasing, structured… Continue Reading
In Bank of New York Mellon Corporation, Successor in Interest to the Bank of New York, Company, Inc. (“BNY”) v. Commissioner, 140 T.C. No. 2; No. 26683-09 (filed 2/11/2013), the Tax Court, in a fully reviewed decision with Judge Diane L. Kroupa writing for the majority, upheld a proposed deficiency in federal income… Continue Reading
In a recent memorandum decision of the Tax Court in Howell, TCM 2012-303, a couple was held liable for a deficiency in self-employment taxes, plus statutory additions and interest, for 2000 and 2001, with respect to payments made to Mrs. Howell by their (California) limited liability company. The business operations conducted by the LLC… Continue Reading
Petitioner-taxpayer leased land and telecommunication towers to his wholly owned S corporation, in exchange for a percentage of the Company’s revenues from its leases of tower access to third parties. Petitioners also leased three parcels of land to the Company on which no telecommunication towers were located. The Company sold and serviced radios and… Continue Reading
Inferring knowledge of the contents of a return signed by the taxpayer is consistent with the conclusion drawn by the Sixth Circuit in United States v. Sturman, which held that, “It is reasonable to assume that a person who has foreign bank accounts would read the information specified by the government in tax forms,” including the reference on Schedule B to the FBAR. 951 F.2d at 1477.
Last month the Supreme Court of Canada (SCC) rendered a unanimious decision in GlaxoSmith Kline, supra. The decision provides insights into the high court’s view that all relevant facts and circumstances must be taken into account in addition to the selection of the appropriate pricing model or method. While the Canadian version of our… Continue Reading
A district court in Arizona has rejected cross motions for summary judgement filed by the taxpayers and the government in a tax refund case involving the amount of basis that could be established with respect to "equity" type rights that a policyholder had in several life insurance policies issued by a mutual insurance company… Continue Reading
The government has been very successful in applying its long standing ruling to impute “wages” for shareholder-employees of an S corporation whom it may believe underreport the value of their services rendered to reduce payroll taxes, including HI tax, to the government. With this new “win” it should be expected that the Service will press on and attack “low service” income personal service S corporations where the facts under review lend themselves to this type of argument. Tax advisors should continue to look at Rev. Rul. 74-44 and the case law which follows its holding on imputing “wages” to shareholder-employees of S corporations.
The implications of the Mohamed decision serve to warn taxpayers that non-cash charitable contributions of substantial value will be determined to be non-deductible for federal income tax purposes where the substantiation and qualified appraiser rules in the regulations are not carefully and timely followed.
The Third Circuit looked at the DeNaples and the DOT as having entered into an arms-length settlement agreement, albeit in the “shadow of the ongoing condemnation proceeding with its attendant rights and obligations, including the DeNaples’ right to interest for any payment delay.” However, the taxpayers agreed to a rate of interest on deferred payments as part of the bargain and that bargain implicated the State of Pennsylvania’s borrowing authority. Thus, the interest paid on the deferred payments was not part of a judicial award of just compensation which would fall outside of §103
Taxpayer invested $310,000 in an oil and gas partnership in 2001 consisting of cash of $110,000 and a subscription note issued by the taxpayer obligating him to pay $200,000 at the stated maturity date of December 31, 2009. The oil and gas partnership used the taxpayer’s, as well as the other investors’ notes a security… Continue Reading
U.S. Income Tax Treatment of Personal Service Income or Royalty Income of a Non-resident Non-residents of the U.S. are subject to U.S. income tax on U.S. source fixed and determinable annual or periodic income, as described in Section 871(a), which income, subject to treaty override, is subject to a flat 30% tax rate without… Continue Reading
In Russian Recovery Fund, Ltd., 108 AFTR2d ¶2011-5494, the Court of Federal Claims ruled that the Internal Revenue Service may proceed with a collection action against a partner in a lower-tier partnership or “indirect partner” provided such partner’s return was filed within three years of the issuance of a final partnership administrative adjustment (FPAA)… Continue Reading
The Boltar case should be viewed as a “wake up” call to tax practitioners and estate planners that the Tax Court will throw out biased or improperly based expert reports when, as to the latter situation, it finds that the reports themselves lack foundation based on methodology or ignore the essential facts concerning the nature of the property that is the subject of the valuation dispute.This can also result in the imposition of substantial penalties for faulty valuation reports.
The lesson of Woodsum, supra, is that a taxpayer’s failure to review the return to ensure that the income has not gone unreported can demonstrate a lack of reasonable cause, even if the taxpayer provided full and accurate information to the return preparer.
The Tax Court, in a consolidated case involving a distressed asset/debt tax shelter, held that several partnerships’ basis in purchased consumer debt acquired from a Brazilian company was zero and that the transfer to the partnerships and subsequent redemption of the Brazilian company’s partnership interests were a sale of receivables. The Service’s imposition of… Continue Reading
Petitioners, husband and wife, were shareholders in an S corporation which provided wireless cellular service. The IRS asserted a deficiency in tax for approximately $16 million for the 5 years in issue (1996-2001) . At the heart of the dispute was the length in years of the recovery period that the S corporation was… Continue Reading
Section 1058 provides that where an owner of “securities”, as such term is defined under §1236(c), loans securities to another person, such as a broker or investor engaging in a short sale, the owner is not treated as having engaged in a “sale” in which gain or loss is recognized, either when the securities are transferred to the borrower or when they are later returned to the taxpayer. §1058(a).
In order to qualify for non-recognition treatment, certain agreement provisions must be satisfied in accordance with 1058(b): (i) the agreement provides for the return to the lender of securities that are identical to those transferred; (ii) payments must be made to the transferor of the shares for amounts equivalent to all interest, dividends and other distributions which the owner of the securities is entitled to receive during the period beginning with the transfer of the securities by the transferor and ending with the transfer of identical securities back to the transferor; (iii) the agreement doesn’t reduce the transferor (owner’s) risk of loss or opportunity for gain with respect to the securities transferred; and (iv) the agreement complies with the requirements set forth under the regulations. The third element was of direct consequence in the Samuelis case as discussed below which the Court ruled was not satisfied.