Paul L. Caron
Dean


Thursday, November 6, 2014

The IRS Scandal, Day 546

IRS Logo 2Forbes, IRS Memo Claims Forbes Story Influenced Tax Exempt Decision Involving Billionaire, by Janet Novack:

A newly uncovered Internal Revenue Service memo lends support to billionaire investor Peter R. Kellogg’s claim that the IRS tax exempt division may have improperly taken press coverage –and specifically a Forbes cover story–into account before making a decision that cost him a bundle.

Kellogg K +0.22% and IAT Reinsurance Co. Ltd, the Bermuda-based insurance company his family owns, are suing the IRS for refunds of $186 million in taxes and interest they paid after the IRS revoked IAT’s qualification as a tax exempt 501(c)(15) insurance company retroactively. The lead of a March 2001 Forbes cover story on the proliferation of edgy tax shelters exposed Kellogg’s use of IAT to shield hundreds of millions in capital gains from tax. At that time, promoters were pushing the 501(c)(15) ploy to small business owners, particularly car dealers, as a tax shelter. After the Forbes story appeared, the IRS listed the Producer Owned Reinsurance Company (PORC) as a potentially abusive tax shelter and began an enforcement project.

The surprising IRS memo is disclosed in filings in the U.S. Court of Federal Claims where Kellogg and the government are battling over whether internal IRS documents and IRS officials’ thought processes and motivations are subject to discovery and can be used as evidence in his refund suits. The memo, a January 2010 Appeals Case Memorandum (ACM) from three IRS appeals officers, argues the IRS should reconsider the Technical Advice Memoranda (TAMs) that retroactively revoked IAT’s tax exemption and that of another Kellogg owned insurance company.

The ACM asserts that originally the TAMs were favorable to Kellogg and that then Tax Exempt Commissioner Steven Miller was persuaded “to go adverse because of the ramifications” to the PORC project “to no-change the very taxpayer (Kellogg) that started this project because of the Forbes article.” The memo adds: “We believe a `fresh-look’ is needed as to the facts of these cases in applying the laws as is without regard to the outside publicity.’’

Miller went on to become Acting IRS Commissioner and resigned from the agency in May 2013 amid the ongoing controversy over IRS targeting of Tea Party and certain other groups for extra scrutiny in the tax exemption process. Internal IRS documents suggest that Tea Party groups were first flagged because of media attention to political groups’ use of the 501(c)(4) exemption. Lois Lerner, a central figure in the exempt scandal who has been held in contempt of Congress by the Republican controlled House, was particularly sensitive to criticism that the IRS was letting 501(c)(4) organizations get away with too much political activity.

https://taxprof.typepad.com/taxprof_blog/2014/11/the-irs-scandal-2.html

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Comments

Horse hockey. The question in a tax refund suit has nothing to do with internal IRS procedure. The question is whether the taxpayer overpaid its taxes, and if so, by how much. How the IRS processed the refund claim is irrelevant.

Posted by: Publius Novus | Nov 6, 2014 6:22:26 AM

With a GOP congress I hope the real investigations will begin soon. A joint select committee with a full investigative staff is a good start. Start with the IT guys and the "crashed" hard drives. Twenty of Lerner's closest friends also just happened to have their computers crash? Let's look into it.

Posted by: VoteOutIncumbents | Nov 6, 2014 8:56:04 AM