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Saturday, August 22, 2015

9th Circuit's Mortgage Interest Deduction Decision Adds To Tax Code's Marriage Penalty

9th CircuitFollowing up on last week's post, Ninth Circuit Gives Unmarried Couples Double The Mortgage Interest Deduction Available To Married Couples:  

Forbes, Does Ninth Circuit Mortgage Interest Decision Create Special Rights?, by Peter J. Reilly:

is kind of ironic for the Ninth Circuit, which played such a big role in advancing marriage equality, to be issuing a decision that discourages registered  domestic partners from marrying. That is an effect of the decision in the case Bruce Voss and Charles Sophy vs. IRS, although I imagine it is an unintended consequence.  It almost seems as if the Ninth Circuit  has instituted that conservative trope — special rights for homosexuals — with this decision. Closer analysis would show it would be more like special rights for homosexuals and geezers. ...

Thanks to the Ninth Circuit’s recent decision, there is now a new marriage penalty for couples with large mortgages.  The amount of the penalty depends on how much the mortgage exceeds $1.1 million, its interest rate and the marginal tax rate of the taxpayers.  My back of the envelope computation would put the maximum penalty at not a lot more than $20,000. ...

A committed unmarried couple who did some serious planning could really go to town exploiting the fact that they are considered unrelated for federal income tax purposes.  

Wall Street Journal, Another Reason Not to Get Married: Recent Court Ruling in California Gives Unmarried Couples a Big Tax Break:

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August 22, 2015 in New Cases, Tax | Permalink | Comments (3)

Wednesday, August 19, 2015

Divided D.C. Circuit Says Anti-Injunction Act Bars Challenge To IRS's Bank Reporting Regulation

In Florida Bankers Association v. Department of the Treasury, No. 14-5036 (D.C. Cir. Aug. 15, 2015), a sharply divided D.C. Circuit held that the Anti-Injunction Act (26 U.S.C. § 7421(a)) barred a challenge by two bank associations to tax regulations requiring U.S. banks to report to the IRS interest earned by non-resident aliens (even though such interest is not subject to U.S. tax). In a blistering dissent, Judge Henderson argues that the majority's decision is directly contrary to the Supreme COurt's recent decision in Direct Mktg. Ass’n v. Brohl, 135 S. Ct. 1124 (2015), and two prior D.C. Circuit decisions. For a detailed discussion of the opinion see Patrick J. Smith (Ivins, Phillips & Barker, Washington, D.C.), D.C. Circuit Majority Opinion in Florida Bankers Not Consistent with Supreme Court’s Direct Marketing Decision (Part 1, Part 2).  (Hat Tip: Kristin Hickman.)

August 19, 2015 in New Cases, Tax | Permalink | Comments (0)

Thursday, August 13, 2015

Tax Court Petition: Can Boston Bruins (And Other Pro Sports Teams) Deduct 100% Of Meal Expenses At Away Games; Is Hotel A Team's 'Business Premises'?

BruinBloomberg BNA, Boston Bruins Raise Controversy by Arguing That Meals Are Deductible, Team Is "World Class", by Syd Gernstein:

[A] recent case filed in the U.S. Tax Court, Jacobs v. Commissioner, No. 19009-15 (petition filed July 27, 2015), caught my eye. 

At issue is whether the Boston Bruins hockey club may deduct 100% of the costs it incurred to provide its players and staff with meals while travelling to away games. The case poses the IRS and Tax Court with some fairly interesting questions concerning the deductibility of employee fringe benefits. ...

And, although it is not clear on the face of the Bruins’ Tax Court petition, I think it is this employer operated eating facility exception that the Bruins are going to rely on to argue that the meals are 100% deductible.

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August 13, 2015 in New Cases, Tax | Permalink | Comments (5)

Monday, August 10, 2015

Ninth Circuit Gives Unmarried Couples Double The Mortgage Interest Deduction Available To Married Couples

Tax Court Logo 2A split Ninth Circuit panel on Friday reversed the Tax Court and held, contrary to the IRS's position, that the § 163(h)(3) limitations on the deductibility of mortgage interest ($1 million of acquisition indebtedness plus $100,000 of home equity indebtedness) are applied on a per-taxpayer basis (for a total of $2.2 of mortgage debt), as contended by celebrity psychiatrist Charles Sophy and his domestic partner, Bruce Voss, who owned homes in Beverly Hills and Rancho Mirage, California, as joint tenants.  Voss v. Commissioner, Nos. 12-73257 & 12-73261 (Aug. 7, 2015). (The Tax Court had upheld the IRS's position that §163(h)(3) applies on a per-residence basis (and thus limited to $1.1 of mortgage debt.  Sophy v. Commissioner, 138 T.C. 204 (2012).)

Judge Ikuta dissented:

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August 10, 2015 in New Cases, Tax | Permalink | Comments (8)

Tuesday, July 28, 2015

Hickman: The Tax Court Delivers An APA-Based Smackdown

Hickman 2014 2TaxProf Blog op-ed:   Altera Corp. & Subs. v. Commissioner: The Tax Court Delivers An APA-Based Smackdown, by Kristin Hickman (Minnesota):

Since the Supreme Court decided the Mayo Foundation case in 2011, the government has done everything it can to limit the scope of the Supreme Court’s 2011 Mayo Foundation decision.  Even though the Mayo Foundation Court declined “to carve out an approach to administrative review good for tax law only” and otherwise signaled fealty to general administrative law norms in the tax context, the IRS and the Department of Justice have repeatedly pursued a narrow construction of Mayo Foundation, and the Tax Court has often been happy to play along.  Not today.

In Altera Corp. & Subs. v. Comm’r,, 145 T.C. No. 3 (July 27, 2015) the Tax Court unanimously invalidated regulations under Section 482 requiring participants in qualified cost-sharing arrangements to include stock-based compensation costs in the cost pool in order to comply with the arm’s length standard, on grounds that the regulations were not the product of reasoned decisionmaking as required by Administrative Procedure Act (APA) § 706(2)(A) and Motor Vehicle Manufacturers Association of the United States v. State Farm Mutual Automobile Insurance Co.,, 463 U.S. 29 (1983), known in administrative law circles as State Farm.  From top to bottom, the Altera opinion reads like a treatise on general administrative law requirements and norms.  Without delving into the policy details of the regulation at issue, the following paragraphs summarize the Tax Court’s opinion and its potential implications.

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July 28, 2015 in New Cases, Scholarship, Tax | Permalink | Comments (2)

Wednesday, July 22, 2015

Who’s Right on Marijuana? Justice Or The IRS?

Vapor RoomFollowing up on my previous post, 9th Circuit: Marijuana Dispensaries Cannot Deduct Business Expenses, Must Pay Taxes On 100% Of Their Gross Income:  Newsweek, Who’s Right on Marijuana? Justice Or the IRS?:

In downtown Washington, D.C., the Department of Justice asserts that marijuana enterprises are free to exist, while immediately across 10th Street, the IRS tells those businesses they are illegal drug-trafficking operations ineligible for the benefits other corporate entities enjoy.

Which is it? Right now, it is both. This dual status presents commercial challenges for marijuana businesses, carrying serious consequences for individuals, patients, investors, law enforcement, courts, accountants and others.

Last week, one challenge—the issue of tax deductions for marijuana enterprises—had its day in court. In Olive v. Commissioner of Internal Revenue [CIR], the U.S. Court of Appeals for the Ninth Circuit reviewed whether a medical marijuana enterprise in California—Vapor Room Herbal Center in San Francisco—could deduct business expenses under U.S. tax law (the Internal Revenue Code).

The case made its way to the Ninth Circuit on appeal from a decision from the United States Tax Court. The Tax Court previously ruled in favor of the commissioner of the IRS because Vapor Room Herbal Center was a business that “consist[ed] of trafficking in controlled substances” (26 U.S.C. § 280E). Section 280E of the tax code limits businesses from deducting business expenses under such circumstances.

The Ninth Circuit upheld the Tax Court decision. The appeals court outlined two clear reasons (among others) why Vapor Room Herbal Center could not deduct business expenses.

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July 22, 2015 in IRS News, New Cases, Tax | Permalink | Comments (1)

Tax Court Throws Marvel For $16 Million Loss In NOL Adjustment Case

MarvelMarvel Entertainment Group v. Commissioner, 145 T.C. No. 2 (July 21, 2015):

MEG was an affiliated group that filed consolidated returns. On Dec. 27, 1996, certain MEG member entities filed for bankruptcy under 11 U.S.C. ch. 11 and subsequently excluded cancellation of indebtedness (COD) income from their respective gross incomes under I.R.C. sec. 108(a)(1)(A) for MEG’s short taxable year ending Oct. 1, 1998. Pursuant to I.R.C. sec. 108(b)(2)(A), MEG reduced each member entity’s allocable share of consolidated net operating loss (CNOL) by each member entity’s previously excluded COD income. MEG carried forward into its successor affiliated group a $47,424,026 CNOL and used this amount to offset income of the successor group for its taxable years ending Dec. 31, 2003 and 2004.

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July 22, 2015 in New Cases, Tax | Permalink | Comments (0)

Wednesday, July 8, 2015

Estate of Former Detroit Pistons Owner Settles $2.8 Billion Gift, Estate & GST Deficiency Claim For 11 Cents On The Dollar

DavidsonFollowing up on my previous post, IRS Hits Estate of Former Detroit Pistons Owner With $2 Billion Tax Bill:  the IRS settled for $320 million of the $2.8 billion in gift, estate, and Generation-skipping taxes it sought from the estate of William Davidson, the former owner of the Detroit Pistons. Estate of Davidson v. Commissioner, No. 13748-13 (July 6, 2015).

Born in Detroit, Davidson built Auburn Hills-based Guardian Industries into one of the world’s leading makers of glass, automotive and building products. He went on to own the Detroit Pistons, the WNBA’s Detroit Shock and NHL’s Tampa Bay Lightning. He died March 13, 2009, at age 86, with a net worth estimated at more than $3 billion.

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July 8, 2015 in New Cases, Tax | Permalink | Comments (0)

Sunday, July 5, 2015

Will Christian Colleges (And Law Schools) Lose Their Tax Exemption After Obergefell?

White House Same Sex MarriageFollowing up on my previous post, Will Supreme Court's Same-Sex Marriage Decision Cost BYU Its Tax Exemption?:  Inside Higher Ed, The Supreme Court Ruling and Christian Colleges:

Friday's Supreme Court decision that states must authorize and recognize gay and lesbian marriages could create major legal challenges for religious colleges -- primarily evangelical Christian colleges that bar same-sex relationships among students and faculty members. Or the decision may not create much of a legal challenge at all. Or it may create challenges, but not soon.

Legal experts are divided. But the question of whether same-sex marriage as a national right changes the legal status of Christian colleges is no longer just theoretical.

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July 5, 2015 in Legal Education, New Cases | Permalink | Comments (14)

Monday, June 29, 2015

Seto: The Tax Implications of Obergefell v. Hodges

Seto (2014)TaxProf Blog op-ed:  The Tax Implications of Obergefell v. Hodges, by Theodore P. Seto (Loyola-L.A.):

In Obergefell v. Hodges, 576 U. S. ____ (June 26, 2015), the Supreme Court held that (1) state laws banning same-sex marriage are “invalid to the extent they exclude same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples” and (2) “there is no lawful basis for a State to refuse to recognize a lawful same-sex marriage performed in another State on the ground of its same-sex character.” The decision’s most profound impact will undoubtedly be on individuals’ lives and relationships, not on their tax returns. Nevertheless, it has significant implications for the substance and administration of both state and federal tax law.

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June 29, 2015 in New Cases, Tax | Permalink | Comments (0)

Friday, June 26, 2015

Herzig: The Tax Implications Of Today's Supreme Court Same-Sex Marriage Decision

HerzigTaxProf Blog op-ed:  The Tax Implications Of Today's Supreme Court Same-Sex Marriage Decision, by David Herzig (Valparaiso):

Last June, in Windsor, the Supreme Court decided that section 3 of the Defense of Marriage Act (“DOMA”) was unconstitutional.  I wrote about that decision in an op-ed for TaxProf Blog.  The Supreme Court did not decide under section 2 whether states had to provide full-faith and credit to out-of-state marriages.  That secondary question was resolved today when the Supreme Court in a 5-4 decision held in Obergefell v. Hodges that the 14th Amendment of the Constitution guarantees a right to same-sex marriage.

I wrote an article for Slate in January predicting that the Supreme Court would rule in favor of same-sex marriage.  I based my theory on the tax consequences of ruling against same-sex marriage would have collateral damage.  “Couples that relied on their regional Circuit Court decisions for marriage recognition would no longer be married, and their marriages would not be recognized for federal income tax purposes. Under the current IRS ruling, they would not be treated as married in their state of domicile. Currently, without taking into account the pending 5th Circuit decision, this would mean residents of some 16 states would be affected.”

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June 26, 2015 in New Cases, Tax | Permalink | Comments (0)

Gamage: Reflections On The King v. Burwell Decision

Gamage (2014)TaxProf Blog op-ed:  Reflections on the King v. Burwell Decision, by David Gamage (UC-Berkeley):

And, so, another judicial threat to Obamacare bites the dust.  Yesterday, the Supreme Court issued its decision in King v. Burwell, affirming that Obamacare’s premium tax credits are to be available in all States.  The 6-3 majority opinion written by Chief Justice Roberts concludes that the key statutory text is ambiguous.  To resolve this ambiguity, the majority looks to the Act’s context and structure, and decides for the government.

Crucial to the majority’s reasoning is that the term “Exchange” is defined by the statute as a term of art, and—as so defined—all Exchanges are explicitly deemed as being established by a State.  Although the statutory language is beyond inelegant and creates substantial ambiguity, it would be improper to ignore that “Exchange” is a defined term.  When a statute explicitly defines terms, this has always been understood to trump what might otherwise be the ordinary meaning of those terms.  I thus find the majority’s reasoning persuasive.  Indeed, I have been arguing along similar lines since this controversy first arose, and Darien Shanske and I previously co-authored an essay that made this argument in greater depth:  Why the Affordable Care Act Authorizes Tax Credits on the Federal Exchanges, 71 State Tax Notes 229 (2014).

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June 26, 2015 in New Cases, Scholarship, Tax | Permalink | Comments (4)

Thursday, June 25, 2015

Grewal: King v. Burwell — The IRS Isn’t An Expert?

Grewal (2015)Tax Prof Blog Op-Ed:  The IRS Isn’t an Expert?, by Andy Grewal (Iowa):

Today, the Supreme Court issued its much-anticipated decision in King v. Burwell, holding that the Section 36B premium tax credit extends to taxpayers who acquire healthcare policies on federally established exchanges.  The decision probably will not bear much on core tax provisions, but the Court’s reasoning could have major implications for the IRS’s administration of the various social programs littered throughout the tax code.

To uphold the government’s position, the Court might have been expected to employ the familiar Chevron framework, under which it generally defers to agency interpretations of ambiguous statutory provisions.  However, in King, the Court refused to offer the IRS any deference on the question presented, even though it acknowledged the ambiguity in the contested statutory provision.  The meaning of the contested phrase, referring to credits for policies purchased on an Exchange established by the State, implicated major questions of health care policy, and “[t]his is not a case for the IRS.”  The IRS “has no expertise in crafting health insurance policy,” so the Court believed that it should resolve the ambiguity in the statutory scheme.  It ultimately did so through an examination of Section 36B and various related Affordable Care Act provisions.

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June 25, 2015 in New Cases, Tax | Permalink | Comments (9)

Monday, June 22, 2015

The IRS Scandal, Day 774: The D.C. Circuit Continues To Chip Away At The Anti-Injunction Act

Hickman 2014 2TaxProf Blog op-ed:  Z Street v. Koskinen: The D.C. Circuit Continues To Chip Away At The Anti-Injunction Act, by Kristin E. Hickman (Minnesota):

In Z Street v Koskinen, the D.C. Circuit considered the justiciability of a claim raised by Z Street, a nonprofit organization, that the IRS delayed considering Z Street’s application for tax exempt status under IRC § 501(c)(3) based solely upon the fact that Z Street’s activities contradicted government policy vis a vis Israel, and that the IRS thus violated Z Street’s First Amendment rights. IRC § 7428 allows an organization to seek declaratory judgment if the IRS fails to act upon its exemption application within 270 days. Z Street brought its challenge 32 days short of that date, prompting the IRS to claim that the Anti-Injunction Act, § 7421 precluded Z Street’s suit until the 270-day period for relief under IRC § 7428 had elapsed. 

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June 22, 2015 in IRS News, IRS Scandal, New Cases, Tax | Permalink | Comments (0)

Monday, June 15, 2015

Zelinsky: Preliminary Thoughts About The Enigma Of Wynne

ZelinskyTaxProf Blog op-ed:  Preliminary Thoughts About The Enigma of Wynne, by Edward Zelinsky (Cardozo):

Maryland’s county income tax does not grant a credit to Maryland residents for the out-of-state income taxes such residents pay on the income they earn outside of Maryland. In Comptroller of the Treasury of Maryland v. Wynne, the U.S. Supreme Court held that this failure causes the Maryland county income tax to violate the dormant Commerce Clause of the U.S. Constitution.

Wynne perpetuates an inherent problem of the Court’s dormant Commerce Clause doctrine: The Court declares some, ill-defined taxes such as the Maryland county income tax unconstitutionally discriminatory while other, economically equivalent taxes and government programs are apparently acceptable under the dormant Commerce Clause. A decision as enigmatic as it is important, Wynne raises as many questions as it answers. Among these are the continuing viability (or not) of external consistency and apportionment, concepts which have been central to the Court’s formulation of the dormant Commerce Clause. Wynne also undermines the Supreme Court’s traditional tolerance of the double state income taxation of dual residents.

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June 15, 2015 in New Cases, Scholarship, Tax | Permalink | Comments (5)

Wednesday, May 27, 2015

Tax Profs' Brief in Direct Marketing Association v. Brohl

Brief of Interested Law Professors in Direct Marketing Association v. Brohl (10th Circuit) (Joseph Bankman (Stanford), Jordan Barry (San Diego), Barbara Fried (Stanford), Alan Morrison (George Washington), Darien Shanske (UC-Davis), Kirk Stark (UCLA), John Swain (Arizona) & Dennis Ventry (UC-Davis)):

This case, Direct Marketing Association v. Brohl, was recently remanded by the U.S. Supreme Court to the Tenth Circuit Court of Appeals. The Tenth Circuit then requested a full supplemental briefing; amici law professors submitted this brief.

Like all states with a sales tax, Colorado faced – and faces – a voluntary compliance problem with the collection of its use tax. The use tax is a complement to the sales tax; in-state vendors collect and remit the sales tax, while in-state consumers are responsible for remitting the use tax on purchases made from out-of-state vendors that do not collect the sales tax. To this compliance challenge, Colorado turned to a third-party reporting solution. In broad strokes, the Colorado Statute imposes a modest requirement on one party to a taxable transaction – specifically on relatively large retailers who do not collect the use tax - to report information on their Colorado sales both to the consumer/taxpayer and to the taxing authorities.

Amici make three specific arguments.

 

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May 27, 2015 in New Cases, Tax | Permalink | Comments (0)

Saturday, May 23, 2015

WSJ: Tax Court OKs Use Of Crummey Trust To Give $1.6 Million Tax-Free To 60 Beneficiaries, Despite No-Contest Clause

Tax Court Logo 2Following up on last week's post, Tax Court Approves Crummey Trust With 60 Beneficiaries, Despite Religious Arbitration Clause:  Wall Street Journal Tax Report, A Way to Make Big Gifts to Family Without Tax: The Tax Court Cleared a Couple’s Use of Crummey Trusts to Give $1.6 million Free of U.S. Gift or Estate Tax:

In Mikel v. Commissioner, [T.C. Memo. 2015-64 (2015),] the court ruled against the Internal Revenue Service and allowed a New York couple to use Crummey trusts—named after a Methodist minister who was the plaintiff in a 1968 case—to make tax-free transfers of $1.6 million without dipping into their lifetime gift-tax exemptions.

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May 23, 2015 in New Cases, Tax | Permalink | Comments (0)

Tuesday, May 19, 2015

Supreme Court Denies Cert. In Case Challenging President's Authority To Remove A Tax Court Judge

Supreme Court (2014)Following up on my previous posts (links below):  the Supreme Court yesterday denied the taxpayers'  cert. petition arguing that the President’s authority under 26 U.S.C. §  7443(f) to remove Tax Court judges violates the Constitution’s separation of powers. Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014).

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May 19, 2015 in New Cases, Tax | Permalink | Comments (0)

Monday, May 18, 2015

5-4 Supreme Court Rules Against Maryland In Double Taxation Case (Comptroller v. Wynne)

Supreme Court (2014)A 5-4 Supreme Court ruled today that Maryland unconstitutionally failed to provide a full credit for  taxes paid to other states.  Comptroller v. Wynne, No. 13-485 (May 18, 2015).  Justice Aliton wrote the majority opinion, joined by Chief Justice Roberts and Justices Breyer, Kennedy, and Sotomayor.  There were three separate dissenting opinions:  Justice Ginsburg (joined by Justices Kagan and Scalia); Justice Scalia (joined in part by Justice Thomas); and Justice Thomas (joined in part by Justice Scalia).

The majority opinion cites the amicus brief filed by Tax Profs Michael Knoll (Pennsylvania) and Ruth Mason (Virginia), as well as Ruth Mason's article, Made in American for European Tax: The Internal Consistency Test, 49 B.C. L. Rev. 1277 (2008). 

For the Vanderbilt Law Review roundtable on the case, see here.  For press and blogosphere on today's decision, see:

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May 18, 2015 in New Cases, Tax | Permalink | Comments (0)

Friday, January 23, 2015

Tax Court: Payments for Donations of Eggs to Infertile Couples Constitute Income, Not Damages Excludable Under § 104

EggFollowing up on my previous posts (links below):  Perez v. Commissioner, 144 T.C. No. 4 (Jan. 22, 2014):

We acknowledge that this case has received some publicity in tax and nontax publications, which is why it is important to state clearly what it does not concern. It does not require us to decide whether human eggs are capital assets. It does not require us to figure out how to allocate basis in the human body, or the holding period for human-body parts, or the character of the gain from the sale of those parts. Fn.4

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January 23, 2015 in New Cases, Tax | Permalink | Comments (0)

Wednesday, January 14, 2015

8th Circuit Rejects Discrimination Claim by Tenured Tax Prof Over Her Termination Following Conviction For Tax Evasion

Magee Following up on my prior posts:

National Law Journal, Eighth Circuit Again Rejects Fired Hamline Prof’s Suit:

A federal appeals court for the second time has affirmed dismissal of a lawsuit brought against Hamline University and its former law dean by a professor who was fired after being found guilty of failing to file state tax returns.

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January 14, 2015 in Legal Education, New Cases, Tax | Permalink | Comments (2)

Thursday, January 1, 2015

The Top 10 Tax Cases (And Rulings) Of 2014

Top 10 (2014)Forbes:  The Top Ten Tax Cases (And Rulings) Of 2014, by Anthony J. Nitti (WithumSmith & Brown, Aspen, CO):

  1. Obamacare Endures Additional Attacks (Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014)/King v. Burwell, 759 F.3d 358 (4th Cir. 2014))
  2. Loving And Ridgely Take On The IRS (Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014)/Ridgely v. Lew, 2014 U.S. Dist. LEXIS 96447 (D. D.C. 2014))
  3. Aragona Trust Changes The Way We Look At Real Estate Professionals (Aragona Trust v. Commissioner, 142 T.C. 9 (2014))
  4. IRS Rules on Self-Employment Income Of LLC Members (CCA 201436049)
  5. Is The Sale Of A Right To Buy Land Ordinary Income Or Capital Gain? (Long v. Commissioner (11th Cir. 2014), rev'g T.C. Memo. 2013-233)
  6. The IRS (Finally) Figures Out The Real Estate Professional Rules (CCA 201427016)
  7. Buy A Building, Get An Immediate Deduction? (ABC Beverage Corp. v. United States, 113 AFTR 2d 2014-2536 (6th Cir. 2014))
  8. A Big Break For Home Builders (Shea v. Commissioner, 142 T.C. 3 (2014))
  9. Tax Court Further Muddies The 'Dealer Versus Investor' Issue (Allen v. US, 113 AFTR 2d 2014-2262 (DC CA 2014))
  10. IRA and Qualified Plan Rollovers Are More Treacherous Than You Realize (Bobrow v. Commissioner, T.C. Memo. 2014-21)

January 1, 2015 in New Cases, Tax | Permalink | Comments (0)

Tuesday, December 9, 2014

U.S. Sues Deutsche Bank Over $190 Million in Taxes

Monday, December 1, 2014

Taxpayers Ask Supreme Court to Decide President's Authority to Remove a Tax Court Judge

Supreme Court (2014)Following up on my previous posts (links below):  the taxpayers in Kuretski v. Commissioner, No. 13-1090 (D.C. Cir. June 20, 2014), on Wednesday filed a  cert. petition in the U.S. Supreme Court arguing that the President’s authority under 26 U.S.C. §  7443(f) to remove Tax Court judges violates the Constitution’s separation of powers.

December 1, 2014 in New Cases, Tax | Permalink | Comments (0)

Saturday, November 8, 2014

Supreme Court Grants Cert. to Hear Challenge to IRS's Expansion of Affordable Care Act Tax Credit

Supreme Court (2014)The Volokh Conspiracy:  Supreme Court to Hear King v. Burwell Challenge to IRS Tax Credit Rule, by Jonathan H. Adler (Case Western):

Friday the Supreme Court granted certiorari in King v. Burwell, one of four pending challenges to the IRS rule authorizing tax credits and cost-sharing subsidies for the purchase of health insurance in federally established exchanges. ...

With this grant, the Court has the opportunity to reaffirm the principle that the law is what Congress enacts, not what the administration or others wish Congress had enacted with the benefit of hindsight. Granting tax credits to those who need help purchasing health insurance may be a good idea, and may have bipartisan support, but the IRS lacks the authority to authorize such tax credits where Congress failed to do so. The PPACA only authorizes tax credits for the purchase of insurance  on exchanges “established by the State.”

Prior TaxProf Blog coverage:

(Hat Tip: Greg McNeal.)

November 8, 2014 in New Cases, Tax | Permalink | Comments (3)

Monday, November 3, 2014

District Court Refuses to Dismiss Suspended Practitioner's Lawsuit Against IRS Office of Professional Responsibility

IRS Logo 2In press reports last month, Karen Hawkins, Director of the IRS Office of Professional Responsibility ("OPR"), was quoted as saying that although she first "laughed" at the argument in Sexton v. Hawkins that OPR lacked jurisdiction over a suspended practitioner (a tax lawyer with a tax LL.M.), after  Ridgely v. Lew (more here) "there are some judges out there that would buy that now."  Last Thursday, the Federal District Court in Nevada rejected the Government's motion to dismiss Sexton's complaint againt the OPR.   Sexton v. Hawkins, No. 2:13-cv-00893 (D NV Oct. 30, 2014).

November 3, 2014 in IRS News, New Cases, Tax | Permalink | Comments (0)

Monday, October 6, 2014

Tax Court: Tenured Art Professor Has Separate Trade or Business as Artist

Crile v. Commissioner, T.C. Memo. 2014-202 (Oct. 2, 2014):

CrilePetitioner is an artist and a tenured professor of studio art. ... This opinion addresses the first of respondent’s theories and concludes that petitioner during the years in issue was engaged in a “trade or business” with the objective of making a profit from her activity as an artist. Respondent’s contentions concerning the substantiation of her expenses, the character of those expenses as “ordinary and necessary,” and her liability for penalties and additions to tax will be resolved in due course.

Petitioner has had a long, varied, and distinguished career as an artist. She has worked for more than 40 years in media that include oil, acrylic, charcoal, pastels, printmaking, lithograph, woodcut, and silkscreen. She has exhibited and sold her art through leading galleries; she has received numerous professional accolades, residencies, and fellowships; and she is a full-time tenured professor of studio art at Hunter College in New York City. Respondent agrees that petitioner has been a successful, though rarely a profitable, artist.

During the academic year petitioner devotes roughly 30 hours per week to her art, working mainly at a small studio in her Manhattan apartment. During the summer, she works full time on her art business at a larger studio in upstate New York. The amount of time it takes petitioner to create a finished work of art varies greatly--from one week to two years--depending on its size and complexity. During her career petitioner has created more than 2,000 pieces of art.

Petitioner’s artwork hangs in the permanent collections of at least 25 museums. These include the Metropolitan Museum of Art, the Guggenheim Museum, the Brooklyn Museum of Art, the Phillips Collection, the Hirshhorn Museum, and art museums at eight colleges and universities. Museums have a rigorous vetting process for acquiring art. Museum acquisitions boost an artist’s reputation in the eyes of collectors and may contribute to price increases for the artist’s other works.

Petitioner’s artwork has been acquired by for-profit as well as nonprofit entities. Corporations that have purchased petitioner’s art (several of which have since merged) include AT&T, Exxon, Texaco, Standard Oil of Ohio, Bank of America, Chase Manhattan Bank, Chemical Bank, Charles Schwab, General Mills, Westinghouse, General Telephone & Electronics, Frito-Lay, Cigna, and Prudential. Her works hang in the collections of six major New York law firms. Governmental entities that have acquired her art include the Federal Reserve Board, the Library of Congress, and the State Department (for display in U.S. embassies abroad). Such acquisitions, like museum acquisitions, place a “seal of approval” on an artist’s works and have the potential to make them more attractive to private collectors. ...

Petitioner has generated substantial income from sales of her artwork. Respondent stipulated that the total value of works sold during her career is at least $937,150. Galleries usually took a 50% commission. ...

All in all, the Court finds that petitioner sold, directly or through galleries, a total of 356 works of art during 1971-2013. These sales generated gross proceeds of approximately $1,197,150. After subtracting gallery commissions and other reductions, petitioner earned income of approximately $667,902 from sales of her art during these years. ...

To be promoted and gain tenure, a studio artist must exhibit art; the sale of art is not required. There is an expectation that a professor, once tenured, will continue to make and exhibit art. However, a tenured professor is no longer subject to annual performance evaluations, and the expectation to exhibit art is not rigorously enforced. Petitioner plans to continue her art business following her retirement from Hunter College. ...

Petitioner filed Federal income tax returns for all years in issue. On those returns she reported wage income between $85,999 and $106,058, and she reported other taxable income (interest, dividends, capital gains, pensions, and Social Security payments) between $17,658 and $67,046. On her Schedules C, she reported income and claimed the following expenses as deductions in connection with her activity as an artist during the years at issue:

Chart

Petitioner's theory for claiming deductions seems to have been that most experiences an artist has may contribute to her art and that most people with whom an artist socializes may become customers or otherwise advance her career. The trial established that a significant number of the deductions she claimed were not, within the meaning of section 162(a), "ordinary and necessary expenses" of conducting her art business but were "personal, living, or family expenses" non-deductible under section 262(a). The latter expenses appear to have included telephone and cable television bills, newspaper and magazine subscriptions, gratuities to doormen in her apartment building, taxicabs to the opera, museums, and social events, restaurant meals with friends and acquaintances, and international travel to gain inspiration from paintings in European museums. We have deferred to another day the calibration of petitioner's deductible business expenses. But it was clear to the Court that the economic losses she actually sustained in her art business were substantially smaller than the tax losses reported on her Schedules C, owing to the inclusion of many personal expenses when calculating her business income. ...

For any practitioner who teaches--whether a lawyer, an accountant, an economist, or an artist--there is an obvious intersection between the individual’s profession and his or her teaching. But the two activities have different job requirements and entail different skills.

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October 6, 2014 in Celebrity Tax Lore, New Cases, Tax | Permalink | Comments (5)

Tuesday, September 23, 2014

Camp: 9th Circuit on 'Willful Attempts to Evade or Defeat Taxes' Under Bankruptcy Code § 523(a)(1)(C)

From Bryan Camp (Texas Tech), Hawkins v. Franchise Tax Board, No. 11-16276 (9th Cir. Sept. 15, 2014):

The bankruptcy court had refused to allow the discharge of certain tax debts, holding that the debtor’s actions pre-bankruptcy were “willful attempts to evade or defeat taxes” within the meaning of 11 U.S.C. § 523(a)(1)(C). The basis for the holding was that the debtor lived a life of luxury even in the face of overwhelming tax liabilities that had accrued because the Service disallowed losses from the taxpayer’s tax shelters. The bankruptcy court found that the debtors personal living expenses from January 2004 to September 2006 exceeded their earned income by up to $2.35 million during that period. The district court affirmed.

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September 23, 2014 in New Cases, Tax | Permalink | Comments (0)

Monday, September 22, 2014

Tax Court Approves Taxpayer's Use of Predictive Coding to Respond to IRS's Discovery Request, Reducing Costs by 80%

In a case of first impression, the Tax Court has approved a taxpayer's use of predictive coding technology to respond to the IRS's discovery demand for tax information.  Dynamo Holdings LP v. Commissioner, 143 T.C. No. 9 (Sept. 17, 2014):

Predictive CodingRespondent requests that petitioners produce the electronically stored information (ESI) contained on two specified backup storage tapes or, alternatively, that they produce the tapes themselves (or copies thereof). Petitioners assert that it will take many months and cost at least $450,000 to fulfill respondent’s request because they would need to review each document on the tapes to identify what is responsive and then withhold privileged or confidential information. Petitioners request that the Court ... let them use predictive coding, a technique prevalent in the technological industry but not yet formally sanctioned by this Court, to efficiently and economically identify the nonprivileged information responsive to respondent’s discovery request [at a cost of $80,000]. ...

Although it is a proper role of the Court to supervise the discovery process and intervene when it is abused by the parties, the Court is not normally in the business of dictating to parties the process that they should use when responding to discovery. If our focus were on paper discovery, we would not (for example) be dictating to a party the manner in which it should review documents for responsiveness or privilege, such as whether that review should be done by a paralegal, a junior attorney, or a senior attorney. Yet that is, in essence, what the parties are asking the Court to consider--whether document review should be done by humans or with the assistance of computers. ...

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September 22, 2014 in IRS News, New Cases, Tax | Permalink | Comments (1)

Tax Court: Couple Failed to Report $30 Million Gift, But Not Liable for Penalty Due to Reliance on Advice From EY, WilmerHale

EYWHIn Cavallaro v. Commissioner, T.C. Memo. 2014-189 (Sept. 17, 2014), the Tax Court held that a Massachusetts couple failed to report a $30 million gift to their sons as a result of misvaluations in a merger of their company with their sons' company, but were not liable for penalties because they reasonably relied on the advice of Ernst & Young (now EY) and Hale & Dorr (now William Cutler Hale & Dorr).

Mr. and Mrs. Cavallaro made the requisite showing of reasonable cause. They had little to no advanced education, including no formal accounting, legal, or business education. Mr. and Mrs. Cavallaro hired advisers who were competent professionals with sufficient expertise to justify reliance. They engaged professionals from a well-known accounting firm and a well-known law firm to structure the tax-free merger of their S corporation, Knight Tool, with their sons' S corporation, Camelot Systems. As discussed above, the professionals initially had differing opinions regarding the ownership of the CAM/ALOT technology, and the issue was explicitly considered by those professionals. The team of advisers eventually structured the merger transaction according to the idea proposed by the Cavallaros' attorney Mr. Hamel at Hale & Dorr -- that is, that on the date of the merger, the CAM/ALOT technology belonged to Camelot and not to Knight (and therefore that no gift occurred) because of a prior transfer. They obtained the valuation report by Mr. Maio based on this assumption and allocated the post-merger stock accordingly.

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September 22, 2014 in IRS News, New Cases, Tax | Permalink | Comments (0)

Thursday, September 11, 2014

Fifth Circuit Denies Dow Chemical's $2 Billion Tax Shelter Deduction

DowThe Fifth Circuit yesterday disallowed $2 billion in deduction claimed by Dow Chemical in a tax shelter promoted by Goldman Sachs and King & Spalding.  Chemtech Royalty Associates v. United States, No. 13-30887 (5th Cir. Sept. 10, 2014). For more, see Reuters.

September 11, 2014 in New Cases, Tax | Permalink | Comments (0)

Friday, August 29, 2014

More on Tax Court Decision Siding With IRS on Taxation of Frequent Flyer Miles Issued By Citibank

CitiBank LogoFollowing up on Wednesday's post, Tax Court Approves the IRS's Taxation of Frequent Flyer Miles:  Sam Brunson (Loyola-Chicago), Tax Court: Frequent Flier Miles Are Income

What does the Tax Court decision mean to you? Let’s explore the ramifications of the Tax Court’s decision in an Explainer.

  • How can frequent flier miles be income? They’re not money.
  • Did I break the law all those times I got frequent flier miles and didn’t pay taxes on them?
  • Then why did the I.R.S. go after Mr. Shankar?
  • So I’m taxable on the receipt of frequent flier miles from a bank?
  • Okay, so if I get frequent flier miles from my bank, I’m taxable when I redeem them. How about if I get frequent flier miles from my credit card?
  • So how do I know whether I should include my frequent flier miles on my tax return?

Forbes, Tax Court Says Bank 'Thank You' Points Are Taxable Income
Forbes, Tax Court Sides With IRS In Tax Treatment Of Frequent Flyer Miles Issued By Citibank
Legal Times, Value of Bank's 'Thank You' Points is Taxable, Court Says

August 29, 2014 in New Cases, Tax | Permalink | Comments (2)

Wednesday, January 23, 2013

Texas Heirs Bring Estate Planning Malpractice Action

Texas Lawyer:  Oilman's Family Sues Lawyers, Firms, Accountants:

The beneficiaries of a multimillion-dollar trust have sued an estate-planning attorney, his firm and an accounting firm, alleging professional malpractice related to a tax plan that led to litigation with the IRS.

But in an unusual twist, the beneficiaries also sued the firm and lawyers to whom their estate-planning attorney referred them for representation in that litigation before the U.S. Tax Court against the IRS. That Tax Court litigation [Hurford v. Commissioner, T.C. Memo. 2008-278] allegedly cost the plaintiffs more than $1 million in legal fees.

"As a result of the Defendants' representations, negligence and misconduct, Plaintiffs have incurred exorbitant fees and costs in the tax transactions, legal fees in pursuing litigation before the Tax Court, other expenses, and taxes, penalties and interest that otherwise would not have been owed," according to the petition in G. Michael Hurford, et al. v. Joseph B. Garza, et al.

January 23, 2013 in New Cases, Tax | Permalink | Comments (1) | TrackBack (0)

Tuesday, January 22, 2013

IRS Suspends Regulation of Tax Return Preparers After Friday's Court Defeat

IRS LogoFollowing up on my post, Court Says IRS Lacks Authority to Regulate Tax Preparers

As of Friday, Jan. 18, 2013, the U.S. District Court for the District of Columbia has enjoined the IRS from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not currently required to register with the IRS, to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

The IRS, working with the Department of Justice, continues to have confidence in the scope of its authority to administer this program. It is considering how best to address the court’s order and will take further action shortly. Please continue to check this site as additional information becomes available.

January 22, 2013 in IRS News, New Cases, Tax | Permalink | Comments (1) | TrackBack (0)

Saturday, December 8, 2012

Supreme Court Grants Cert to Decide Whether Estate Tax Marital Deduction Applies to Same-Sex Couple

The Supreme Court yesterday granted certiorari to decide whether the denial of an estate tax marital deduction to the surviving spouse of a lesbian couple under the Defense of Marriage Act violates the equal protection clause.

December 8, 2012 in New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, November 30, 2012

2d Circuit Reverses Tax Shelter Convictions of Two Former Ernst & Young Partners

Ernst & YoungUnited States v. Coplan, No. 10-583 (2d Cir. Nov. 29, 2012):

We consider here the fate of four partners and employees of Ernst & Young, LLP (“E&Y”), one of the largest accounting firms in the world, who appeal their convictions in connection with the development and defense of five “tax shelters” that were sold or implemented by E&Y between 1999 and 2001. At issue, among other things, is the scope of criminal liability in a conspiracy to defraud the United States under 18 U.S.C. § 371 and the sufficiency of the evidence with respect to the criminal intent of certain defendants.

The defendants in these consolidated actions are three tax attorneys, Robert Coplan, Martin Nissenbaum, and Richard Shapiro, and one accountant, Brian Vaughn, formerly employed by E&Y. A fifth defendant, Charles Bolton, was an investment advisor who owned and operated various asset-management companies. Coplan, Nissenbaum, Shapiro, and Vaughn (jointly, the “trial defendants”) appeal from separate judgments of conviction entered by the United States District Court for the Southern District of New York (Sidney H. Stein, Judge) on February 17, 2010, following a 10-week jury trial on charges of conspiracy to defraud the Government, tax evasion, obstruction of the Internal Revenue Service (“IRS”), and false statements to the IRS. Bolton appeals from a judgment of conviction entered by the District Court on April 14, 2010, following his plea of guilty to a single conspiracy charge.

For the reasons that follow, we reverse the convictions of Shapiro and Nissenbaum on Counts One, Two, and Three, and the conviction of Nissenbaum on Count Four, and we affirm the convictions of Coplan and Vaughn in their entirety. We affirm the District Court’s order sentencing Bolton principally to 15 months of imprisonment, but we vacate and remand the portion of the judgment that imposed a fine of $3 million. ....

Dissent:  I respectfully dissent from so much of the Majority Opinion as finds the evidence insufficient to support (1) the convictions of defendants Richard Shapiro and Martin Nissenbaum of conspiracy, in violation of 18 U.S.C. § 371, to (a) defraud the United States by impairing the lawful functions of an agency of the United States government, to wit, the Internal Revenue Service ("IRS"), (b) commit tax evasion, see 26 U.S.C. § 7201, and (c) make false statements to the IRS, see 18 U.S.C. § 1001 (Count One); and (2) those two defendants' convictions of attempted tax evasion in violation of 26 U.S.C. § 7201 (Counts Two and Three).

November 30, 2012 in New Cases, Tax | Permalink | Comments (1) | TrackBack (0)

Thursday, September 27, 2012

Gerzog: Another Turn with Turner

Tax AnalystsWendy C. Gerzog (Baltimore), Another Turn with Turner, 136 Tax Notes 1613  (Sept. 24, 2012):

In its latest Estate of Turner opinion [138 T.C. No. 14 (Mar. 29, 2012)], the Tax Court decided whether a pecuniary formula marital deduction clause could shield the inclusion of family limited partnership assets in the decedent’s estate.

All Tax Analysts content is available through the LexisNexis® services.

September 27, 2012 in New Cases, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 25, 2012

Forbes: Judge Shoots Down Another Forbes 400 Member's Tax Shelter

Forbes:  Judge Shoots Down Another Forbes 400 Member's Tax Shelter, by Janet Novack:

A California federal district court judge on Friday rejected, on summary judgment, a bid by billionaire Broadcom co-founder Henry Nicholas, III,  to claim hundreds of millions in tax losses from a shelter marketed more than a decade ago by myCFO, Inc. the  wealth advisory firm started by Forbes 400 member James  Clark, co-founder of Netscape,  and backed by venture capitalist John Doerr. [Broadwood Investment Fund LLC v. United States, No. 08-0295 (C.D. CA Sept. 21, 2012).]  An attorney for Nicholas, BakerHostetler partner  Jeffrey H. Paravano,  said Monday that Friday’s ruling will be appealed.

The Nicholas case involves what the IRS has branded the distressed asset/debt or “DAD” shelter. In this ploy,  a U.S. taxpayer  purchases (through a partnership) junk foreign debt for pennies on the dollar and then claims big paper tax losses—losses that are real, but that were sustained by a foreign lender, not the U.S. taxpayer. DAD was marketed to the ultra-wealthy in 2001 and 2002 after the IRS began cracking down on even more brazen tax gambits, such as the notorious Son of Boss shelter. New 400 member Shahid Khan, owner of the NFL’s Jacksonville Jaguars, is currently suing BDO Seidman for, among other things, selling him DAD shelters for both 2002 and 2003.  In October 2004,  Congress changed the tax code to bar partnerships from being used to transfer foreign losses to U.S. taxpayers, thus clearly outlawing DAD after that point.

September 25, 2012 in New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 29, 2012

Federal Circuit Denies Patent Protection for § 1031 Like-Kind Exchange Strategy

Fort Properties, Inc. v. American Master Lease, LLC (No. 2009-1242) (Fed. Cir. Feb. 27, 2012):

The investment tool disclosed in the '788 patent is designed to invoke the benefits of § 1031. In particular, the claims require the aggregation of a number of properties into a "real estate portfolio." The property interests in this portfolio are then divided into shares and sold to investors much in the same way that a company sells stock. These divided property interests are called "deedshares." Each deedshare can be encumbered by its own mortgage debt, which provides flexibility to real estate investors attempting to structure their debts in a way that complies with § 1031.

We view the present case as similar to Bilski. Specifically, like the invention in Bilski, claims 1-31 of the '788 patent disclose an investment tool, particularly a real estate investment tool designed to enable tax-free exchanges of property. This is an abstract concept. Under Bilski, this abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world through deeds, contracts, and real property. 

February 29, 2012 in New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 22, 2012

8th Circuit Denies Accountant's Use of 'John Edwards Sub S Tax Shelter' -- Is Warren Buffett Next?

The Eighth Circuit yesterday affirmed the district court's denial of an accountant's attempted use of the 'John Edwards Sub S tax shelter' and required him to treat $91,044 per year as his compensation (and thus subject to the 15.3% Social Security and Medicare taxes), rather than the $24,000 he claimed as wages. (During the years in question, the accountant treated $175,470 and $203,651 as Sub S distributions.)  David E. Watson, P.C. v. United States, No. 11-1589 (8th Cir. Feb. 21, 2012):

(1) Watson was an exceedingly qualified accountant with an advanced degree and nearly 20 years experience in accounting and taxation; (2) he worked 35-45 hours per week as one of the primary earners in a reputable firm, which had earnings much greater than comparable firms; (3) LWBJ had gross earnings over $2 million in 2002 and nearly $3 million in 2003; (4) $24,000 is unreasonably low compared to other similarly situated accountants; (5) given the financial position of LWBJ, Watson's experience, and his contributions to LWBJ, a $24,000 salary was exceedingly low when compared to the roughly $200,000 LWBJ distributed to DEWPC in 2002 and 2003; and (6) the fair market value of Watson's services was $91,044. Based on the record, the district court did not clearly err.

Warren Buffett famously draws only a $100,000 salary from Berkshire Hathaway -- although he does not avoid the 12.4% Social Security tax because this is roughly the amount of the FICA wage base ($110,000 in 2012), Buffett is avoiding the 2.9% Medicare tax on the value of his services in excess of $100,000. (Hat Tip: Monty Meyer.) Prior TaxProf Blog coverage:

February 22, 2012 in New Cases, Tax | Permalink | Comments (3) | TrackBack (1)

Thursday, February 2, 2012

Tax Prof Amicus Brief in Affordable Care Act Litigation

Jordan Barry (San Diego), Patricia Cain (Santa Clara), Bryan Camp (Texas Tech) & Keith Fogg (Villanova) have filed Amicus Curiae Brief in Health and Human Services v. Florida (Affordable Care Act Litigation) on Behalf of Tax Law Professors in Support of Vacatur:

This amicus brief, filed in HHS v. Florida (the Affordable Care Act litigation), has two principal goals.

First, it seeks to aid the Court by giving it an overview of the tax determination and tax collection processes. This background is intended to help the Court understand the relationship between new Internal Revenue Code Section 5000A (which contains both the individual mandate itself and the penalty that enforces it) and the rest of the Internal Revenue Code.

Second, it seeks to correct what we see as an error in the lower courts' analysis of Section 5000A. Section 7421, also known as the Anti-Injunction Act, prohibits lawsuits that restrain the assessment or collection of taxes. Accordingly, whether the 5000A penalty is a tax for purposes of Section 7421 is of great importance for this case. Several judges who concluded that the 5000A penalty is not a tax for purposes of Section 7421, including the majority in the DC Circuit, reached that conclusion, in part, because they thought it significant that Congress limited the IRS‘s ability to collect the 5000A penalty. We think that approach is misguided in this particular case for three reasons. First, these limitations strongly imply that Congress thought the 5000A penalty constitutes a tax for purposes of key tax administrative provisions. Second, 5000A is structured to avoid every procedure that a taxpayer could use to challenge a liability before paying it. Third, in light of the specific limitations that Congress imposed on its collection, the 5000A penalty looks increasingly like a true tax measure, regardless of its label.

This brief assumes that Section 7421 is jurisdictional, as the Court has previously held. This brief does not address arguments that the 5000A penalty is a tax for purposes of Section 7421 by virtue of other Code sections, such as Section 6671 or Section 6201. These arguments are ably presented in the brief filed by the court-appointed amicus curiae and the brief filed on behalf of former IRS commissioners Mortimer Caplin and Sheldon Cohen. Special thanks to Michael de Leeuw and the rest of the Fried Frank team.

February 2, 2012 in New Cases, Tax | Permalink | Comments (1) | TrackBack (0)

DOJ Indicts Swiss Bank for Hiding $1.2 Billion from the IRS

DOJThe Justice Department yesterday indicted Swiss bank Wegelin on tax charges:

February 2, 2012 in New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, January 30, 2012

Hickman: Impressions From the Home Concrete Oral Argument

Tax AnalystsKristin E. Hickman (Minnesota), Home Concrete: Impressions From the Oral Argument. 134 Tax Notes 579 (Jan. 30, 2012):

In this article, Hickman, who filed an amicus brief in Home Concrete, discusses the case, the history of litigation leading up to it, and the oral argument; she believes the case is too close to call for either party.

All Tax Analysts content is available through the LexisNexis® services.

January 30, 2012 in New Cases, Tax, Tax Analysts | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 24, 2012

2d Circuit Rejects GE's $62 Million Castle Harbour Tax Shelter

TIFD III-E Inc. v. United States, G.E. LogoNo. 10-70-CV (S.D.N.Y. Jan. 24, 2012):

The United States appeals from a judgment of the United States District Court for the District of Connecticut (Underhill, J.) invalidating two notices of Final Partnership Administrative Adjustments issued by the Internal Revenue Service. The district court so ruled because it concluded that the taxpayer-plaintiff’s characterization of two tax-exempt Dutch banks as its partners in Castle Harbour LLC was proper under Internal Revenue Code § 704(e)(1). The district court also concluded that, even if the banks did not qualify as partners under § 704(e)(1), the government was not entitled to impose a penalty pursuant to § 6662. The Court of Appeals (Leval, J.) holds that the evidence compels the conclusion that the banks do not qualify as partners under § 704(e)(1), and that the government is entitled to impose a penalty on the taxpayer for substantial understatement of income. The judgment of the district court is REVERSED....

We appreciate and have benefitted from the District Court’s conscientious, thoughtful and comprehensive analysis on remand. Ultimately, however, the issue whether the term “capital interest” in § 704(e)(1) includes an interest that is overwhelmingly in the nature of debt is one of law, which of course we review de novo. We respectfully disagree with the district court’s analysis. As we now review the question arising under § 704(e)(1), we conclude that the same evidence which, on our last review, compelled the conclusion that the banks’ interest was so markedly in the nature of debt that it does not qualify as bona fide equity participation also compels the conclusion that the banks’ interest was not a capital interest under § 704(e)(1)....

The taxpayer has failed to point to substantial authority supporting its treatment of the banks as partners. We find that a penalty for substantial understatement of income was therefore properly assessed.

January 24, 2012 in New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 18, 2012

Tax Court Rejects Buy.com Founder's $45 Million OPIS Tax Shelter

Buy.com-logoBlum v. Commissioner, T.C. Memo. 2012-16 (Jan. 17, 2012):

This Court has not previously considered an Offshore Portfolio Investment Strategy (OPIS) transaction. The question before us is whether petitioners are entitled to deduct certain capital losses claimed from their participation in the OPIS transaction. We hold that they are not because the transaction lacks economic substance. We must also decide whether petitioners are liable for gross valuation misstatement penalties and negligence penalties under § 6662(a). We hold they are liable for the penalties.

Petitioners claimed an artificial loss of over $45 million. This is exactly the type of “too good to be true” transaction that should cause a savvy, experienced businessman to seek independent advice. See Neonatology Associates, P.A. v. Commissioner, 299 F.3d at 234 (“When, as here, a taxpayer is presented with what would appear to be a fabulous opportunity to avoid tax obligations, he should recognize that he proceeds at his own peril.”). ... Petitioners’ decision to rely exclusively on KPMG in structuring, facilitating and reporting their OPIS transaction was therefore not reasonable. Petitioners did not take their position in good faith and thus lacked reasonable cause for that position. Accordingly, we sustain respondent’s determination that petitioners are liable for accuracy-related penalties for 1998 and 1999.

January 18, 2012 in Celebrity Tax Lore, New Cases, Tax | Permalink | Comments (0) | TrackBack (1)

Wednesday, January 4, 2012

Three Swiss Bankers Indicted for Helping U.S. Taxpayers Hide $1.2 Billion From the IRS in Offshore Accounts

DOJThe U.S. Attorney for the Southern District of New York yesterday announced the indictment of three Swiss bankers with Wegelin & Co. for conspiring with U.S. taxpayers to hide more than $1.2 billion in assets from the IRS.

(Hat Tip: Ann Murphy.)

January 4, 2012 in New Cases, News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 28, 2011

DOJ Sues Hal Steinbrenner for Return of 'Erroneous' $670k Tax Refund

HalBloomberg, Yankees Co-Owner Harold Steinbrenner Target of U.S. Suit Over Tax Refund:

New York Yankees co-owner and managing partner Harold Steinbrenner was sued by the U.S. Justice Department over an “erroneous” $670,494 tax refund he received in 2009. The complaint, filed Dec. 27 in Tampa, Florida federal court, seeks to reclaim the funds issued to Steinbrenner on Dec. 28, 2009. The refund stemmed from disputes between Steinbrenner and the IRS over the 2001 tax year and audits of the Major League Baseball team’s parent company for 2001 and 2002, according to court papers.

According to the complaint, Hal Steinbrenner paid his taxes in 2008, and then filed an amended 2001 tax return in 2009 seeking a refund because of a $6.8 million net operating loss carried back from 2002. The IRS paid the refund -- and then said that the refund claim should have been filed by March 1, 2009, more than five months before Hal Steinbrenner sought the refund.

December 28, 2011 in Celebrity Tax Lore, New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

10th Circuit Rejects Billionaire Philip Anschutz's Tax Shelter

AnschutzThe Tenth Circuit yesterday affirmed the Tax Court's disallowance of billionaire Philip Anschutz's use of variable prepaid forward contracts with Donaldson, Lufkin & Jenrette to avoid $144 million in capital gains taxes. Anschutz Co. v. Commissioner, No 11-9001 (Dec, 27, 2011).

Prior TaxProf Blog coverage:

December 28, 2011 in New Cases, Tax | Permalink | Comments (1) | TrackBack (0)

Friday, December 23, 2011

Supreme Court Briefing in Home Concrete (6-Year SOL and Overstatement of Basis)

The briefing is now completed in United States v. Home Concrete & Supply, LLC, No. 11-139, which is scheduled for oral argument in the U.S. Supreme Court on Jan. 17, 2012.

December 23, 2011 in New Cases, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, December 19, 2011

Federal Judge Allows IRS to Troll Through State Records for Unreported Gifts of Real Estate

Forbes, Federal Judge Green Lights IRS Search For California Gift Tax Cheats, by Janet Novack:

A federal district court judge has given the IRS permission to serve a “John Doe” summons on the California State Board of Equalization demanding the names of residents who transferred property to their children or grandchildren for little or no money, from 2005 to 2010. [In the Matter of the Tax Liabilities of John Does, No. 2:10-mc-00130 (E.D. CA Dec. 15, 2011)] The IRS wants those names as part of a crackdown on what it believes is the widespread failure to file required tax returns when real property is passed between family members.

The IRS has already received information about intra-family property transfers from county or state officials in Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington state and Wisconsin. But officials of California’s BOE said state law prohibited them from disclosing the information without a court approved summons.

In an affidavit filed in the California case in October, Josephine Bonaffini, the Federal/State Coordinator for the IRS’ Estate and Gift Tax Program, said the agency has so far examined 658 taxpayers identified as transferring property to relatives and concluded that 238 of them should have, but didn’t, file [gift tax returns].

Prior TaxProf Blog posts:

December 19, 2011 in New Cases, Tax | Permalink | Comments (2) | TrackBack (0)