Taxation & Estate Planning

Accuracy Related Penalty Under Section 6662 Imposed on Joint Return Despite Claimed Reliance on Tax Return Preparer. Prudhomme et us v. Commissioner, Fifth Circuit, July 16, 2009

Posted on July 17, 2009
    The Fifth Circuit Court of Appeals, in a per curiam decision, affirmed the findings and holding of the Tax Court and upheld the imposition of an accuracy related penalty on a husband and wife based on the record before the court. The testimony proferred by each side was conflicting, which is frequently if not generally true in tax litigation proceedings, but the Tax Court found that the taxpayer had not met its burden of production that it acted in good faith and reasonable cause in relying on their accountant who prepared their returns...

"Primary Purpose Test" Applied to Work Product of Outside Attorney Conducting Internal Investigation on Behalf of Corporate Client"

Posted on July 14, 2009
In SEC v. Microtune, Inc. (N.D. Tex. 6/4/09), the District Court for the Northern District of Texas held that documents, notes, memos and other material produced and maintained by a law firm and its agents for the purpose of conducting an internal investigation of alleged improper practices with respect to reporting stock options was discoverable by the SEC through the issuance of its subpoena over the company's claims (motion to quash) of attorney client privilege and the work product doctrine...

Southern District of New York Bankruptcy Court Issues Final Order Restricting Transfers of Shares in General Motors Corp. In Order to Preserve GM's Tax Attributes

Posted on July 13, 2009
On June 25, the U.S. Bankruptcy Court for the Southern District of New York, Bankr. S.D. N.Y. No. 09-50026 (REG) June 25, 2009, issued a final order under §§105(a) and 362 of the Bankruptcy Act setting forth notification procedures and transfer restrictions pertaining to the transfer of GM stock retroactive to the filing of the petition before the court...

Chief Counsel Announces Standard of Review Under Innocent Spouse Equitable Relief Provision

Posted on July 06, 2009
Chief Counsel's Office Announces Standard of Review for Litigating Cases Involving Innocent Spouse Relief Under Section 6015(f). (CC-2009-021)(June 30, 2009), supplementing CC-2004-26 (July 12, 2004). The subject of "innocent spouse" relief is not new to tax practitioners and to many individuals who have had to endure the situation where signing a joint income tax return exposed the "non-liable" spouse, so to speak, with the spectre of joint and several liability...

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Seventh Circuit Limits Scope of Federal Tax Practitioner Privilege

Posted on July 04, 2009
There is no accountant-client privilege recognized by the common law. U.S.v. Frederick, 182 F.3d 496, 500 (7th Cir. 1999); FREV 501. In 1998, Congress provided a limited shield of confidentiality between a federally authorized tax practitioner and his client...

VALUATION: Section 7520 Applied to Lottery Winnings

Posted on March 06, 2009
The Sixth Circuit in Negron v. U.S., 103 A.F.T.R. 2d 1009-634 reversed 502 F.Supp. 2d 682 (D.C. OH) and held, following the Fifth Circuit in Cook, that lottering winnings should be valued pursuant to section 7520. As the Court noted, 'A marketability factor is not necessary to determine the value of a guaranteed income stream…'  

Discussion of Kohler Case

Posted on July 29, 2008
The discussion of the Kohler case, posted on March 4, 2008, requires an update.  The Internal Revenue Service has issued Proposed Regulations, Section 20.2032-1(f) which provide that the election to use the alternate valuation can be utilized only to the extent that the change in value during the six-month period is a result of "market conditions...

VALUATION: WHEN CAN SECTION 7520 BE AVOIDED?

Posted on March 12, 2008
VALUATION:  WHEN CAN SECTION 7520 BE AVOIDED?             The Fifth Circuit in Taylor v. United States, ___F.3d___, 2008 WL 57081 (5th Cir. 2008) faced the issue of how to value payments made pursuant to a structured settlement arising from tort claims, which payments could not be anticipated, sold, assigned or encumbered...

NONACQUIESCENCE AND FAILURE TO APPEAL

Posted on March 04, 2008
NONACQUIESCENCE AND FAILURE TO APPEAL             Once again the Internal Revenue Service in AOD 2008-1 announced its nonacquiescence in Herbert V. Kohler, Jr., v. Commissioner, T.C. Memo 2006-152(2006), but did not appeal the adverse result in the Tax Court...

EQUITABLE RECOUPMENT

Posted on February 20, 2008
EQUITABLE RECOUPMENT             The Supreme Court first approved an application of the doctrine of equitable recoupment in Bull v. United States, 295 U.S. 247 (1935).  In a case of first impression, the Tax Court (Menard, Inc...

ARE TAX-ACCRUAL WORKPAPERS GENERATED BY CORPORATION AND ITS INDEPENDENT AUDITOR SO THAT CORPORATION COULD COMPLY WITH SEC FILING REQUIREMENTS SUBJECT TO AN IRS SUMMONS??? ---STAY TUNED!

Posted on February 07, 2008
On January 25, 2008 the Justice Department submitted a brief for the First Circuit, arguing that a district court erred in U.S. v. Textron Inc. and Subsidiaries, 507 F. Supp. 2d 138 (D.R.I. 2007) by refusing to enforce an IRS summons and in holding that tax accrual workpapers prepared by a public corporation for a regular financial audit required by federal securities laws are protected by the work product doctrine...

FORMULA DISCLAIMERS

Posted on February 07, 2008
In a fully reviewed opinion, the United States Tax Court in the  Estate of Christiansen v. Commissioner, 130 TC  No.1 (2008) rendered what may become a landmark case dealing with “formula disclaimers.” The decedent’s daughter made a formula disclaimer of everything in the estate in excess of $6,350,000...

Treasury Suggests Congress Cut Us a Break

Posted on February 05, 2008
On February 4, 2008 as part of President Bush's proposed fiscal 2009 budget, Treasury suggested that Congress give tax return preparers a break.  Realizing the potential conflict between the client taxpayer and the preparer the Treasury made the following proposal: “The standard applicable to preparers when taking a position not disclosed on a return would be the substantial authority standard...

Family Limited Partnerships

Posted on January 29, 2008
       The most recent appellate case involving family limited partnerships, Estate of Bigelow v. Commissioner, 503 F.3d 955, 2007 WL 2684526 (9th Cir. 2007) deserves careful study for the discussion of the "bona-fide sale for adequate and full consideration," exception to section 2036...

CAN EQUITABLE TOLLING APPLY TO THE 90 DAY FINAL DETERMINATION LETTER FOR AN INNOCENT SPOUSE?

Posted on January 16, 2008
That’s the question currently being considered in the Tax Court in what most likely will be a fully reviewed opinion. The facts of the case are as follows, the taxpayer applied to the IRS for innocent spouse relief in August of 2002. The IRS made a final determination denying the requested relief in a letter dated April 27, 2006...

UNLESS YOU ARE IN THE 11TH OR 5TH CIRCUIT PLAN ON LITIGATING WHETHER AND HOW MUCH TO TAKE INTO ACCOUNT FOR CORPORATION'S BUILT-IN CAPITAL GAINS TAX LIABILITY FOR ESTATE TAX VALUATION PURPOSES.

Posted on December 27, 2007
Estate of Jelke III v. Comm'r 2007 WL 3378539 (11th Cir. 2007) involves the proper valuation for estate tax purposes of a 6.44% stock interest, or 3,000 shares, owned by the decedent, Jelke, in a closely-held, investment holding company, owning appreciated, marketable securities...

Brandon Ridge Partners v. United States, 2007 TNT 148-14 (M.D. Fl. 2007); Estate of Hicks v. Commissioner, T.C. Memo. 2007-182 - One case is worth analyzing the other case is worth reversing.

Posted on August 05, 2007
In Brandon Ridge, the United States District Court in the Middle District of Florida jumped in the foray of TEFRA and the statue of limitation. The lesson from the case is clear- just because the Court cites to a case doesn’t mean the court has necessarily read the case...

Stein - The Court got it right! The Government and the Wall Street Journal Editorial just don't get it.

Posted on July 22, 2007
Judge Kaplan dismissed the indictment against 13 of the former KPMG employees who were charged in the largest criminal tax case in the history of the United States. The Court correctly found that the government violated their constitutional rights when it coerced KPMG to stop paying their legal fees...

Shelter + Facilitator + Rico = $6 Million Award

Posted on July 15, 2007
The IRS has rather explicitly been telling taxpayers caught in the middle of the tax shelter wars to go sue the parties that got them in the transaction. In Ducote Jax Holdings LLC et al. v. William E. Bradley, - F. Sup2d – ( E.D. La. 2007), those taxpayers that have heeded the advice of the IRS must have jumped for the heavens as the Court applied the RICO statute to what appears to be a Son-of- Boss transaction...

IRS's policy updates on FIN 48: The eye of the beholder; Stein - Is the United States facing the inevitable?

Posted on July 01, 2007
Recently, the IRS positions – LMSB-04-0507-044; LMSB-04-0507-045; and CC-2007-015 - have been made public. See 2007 TNT 125-9, 2007 TNT 125-10 and 2007 TNT-12. The IRS says it will continue to maintain a policy of restraint on FIN 48 workpapers, as it has with tax accrual workpapers Yet in the same breath, the IRS is training its agents on “FIN 48 information and disclosures” and has created a tax accrual workpaper (TAW) cadre to assist with the review of documents received in response to TAW’s IDR’s...

Section 6676 and Section 6694 penalties on refund claims but what is the applicable standard?

Posted on June 24, 2007
A slow week in tax litigation caused my eye to wander back to the 2007 Small Business Act, (the “Act”) and the imposition of penalties on refund claims. As we are all aware prior to the Act, there was no applicable addition to tax on a refund claim because there was no deficiency to impose a penalty on...

Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. No. 17 (2007). The IRS goes for the trifecta and loses.

Posted on June 17, 2007
The IRS had some “notable” wins in Kligfeld Holdings et al. v. Commissioner; 128 T.C. No. 16 (2007) and G-5 Investment Partnership v. Commissioner, 128 T.C. No. 15 (2007) but a win in Bakersfield would have made every partner in a partnership potentially subject to a six year statute...

Stein, Coplan, and Sala - Criminal and Civil cases bang into each other. The question becomes what does this all mean?

Posted on June 10, 2007
We have heard that the Government state that the United States v. Stein, et al. is the “largest criminal tax case in American history”. United States v. Stein, 452 F. Supp. 2d 230, 237 (S.D.N.Y. 2006). Now because of the ruling in Stein v...

Kligfeld Holdings et al. v. Commissioner; 128 T.C. No. 16 (2007) - Rhone-Poulenc v. Commissioner, 114 T.C. 533 (2000) taken to the extreme. Is this really what the Commissioner wants?

Posted on June 01, 2007
The long awaited opinion finally came out and length is an appropriate term but not in terms of pages but rather what the opinion has to say about TEFRA and the statute of limitations. Footnote 20 of the opinion reflects the Commissioner’s views as to TEFRA and the statue of limitations as follows: “The Court: The Kligfelds, they take the life-enhancing serum, they don't get rid of their distributed partnership property until 2100...

Hinck v. United States, 127 S.Ct. 2011 (2007) and United States v. Mount Sinai Medical Center of Florida, Inc., -- F.3d --- (11th Cir. 2007) - Lessons in statutory construction.

Posted on May 27, 2007
A week after Eileen O’Connor had addressed the ABA Tax Section and had reveled in the Government’s victories in the FICA wars over medical residents; the Eleventh Circuit cast a pall over the Government’s victory parade with its decision in United States v...

H.R. 2345, the Abusive Tax Shelter Shutdown and Taxpayer Accountability Act of 2007 and economic substance

Posted on May 22, 2007
Last week there was an interesting article on Tax Notes Today as to a pending bill pertaining to Economic substance. But just as quickly, i.e. in a blink of an eye, it was removed. However, this did not stop the story from having a life of its own as I and a few tax litigators debated was it really going to pass...

Californians Helping to Alleviate Medical Problems Inc. v. Commissioner; 128 T.C. No. 14 (2007)- A victory for statutory construction and a little common sense

Posted on May 20, 2007
In Californians Helping to Alleviate Medical Problems Inc., the Court analyzed the language and the legislative history of § 280E and held, in good part, for the taxpayer. The Court’s opinion is a framework for statutory analysis and, just as important from a tax litigation perspective, a lesson on how the Court views testimony when it is corroborated by the objective facts...

ABA Tax Section - Recap

Posted on May 14, 2007
One piece of advice: If you are not a member of the ABA Tax Section then join! If you are a member of the ABA Tax Section then try to attend at least one of the conferences held throughout the year. This year I was fortunate to be part of a panel that presented to the Young Lawyer’s section a Q&A on IDR’s...

ABA Tax Section Meeting in Washington D.C.

Posted on May 09, 2007
It's that time of the year. This year I will be speaking on Friday , May 11th, from 1:30 - 2:30 p.m. at the following workshop: "Court Practice & Procedure Roundtable Discussion: Practical Tips for Young Lawyers." My topic will be on Information Document Requests ("IDR's") what the IRS wants and how to respond"...

Estate of Erickson v. Commissioner, T.C. Memo. 2007-107. Is anyone reading Strangi, Rosen, Bongard, or Shepherd?

Posted on May 06, 2007
Another case where the reader of the opinion is left wondering – Why did this case go trial? The results - Bad facts equals the IRS winning another Family Limited Partnership case. However, there is some positive news to come out this case. Rather than relying on ambiguous, nebulous language, Judge Kroupa rolls up his sleeves and delves into the Bongard standards in detail...

EC Term of Years Trust v. United States, - U.S. - (2007) Statutory Analysis wins!

Posted on May 06, 2007
The Supreme Court held that as to third party wrongful levy actions there is a specific statute § 7426(a)(1) that governs this area. Therefore, the limitations period for a tax refund action under 28 U.S.C. § 1346(a)(1) does not apply. The outcome is not a surprise but the analysis in the decision, albeit short and simple, again raises questions as to the strategy being employed by the Government in its battles as to tax shelters...

Exceptional Circumstances in Discovery - Not in Stein.

Posted on April 22, 2007
In United States v. Stein, 2007 TNT 32-19 (S.D.N.Y. 2007), the Court denied the Government’s motion to depose certain witness that live abroad. The denial was based on the Court’s reading of Federal Rule Criminal Procedure 15, (hereinafter referred to as “FRCP 15”)...

U.S. v. Davenport, -- F.3d - (5th 2007) - Is it Res Judicata or is it collateral estoppel

Posted on April 15, 2007
If asked how many of us could succinctly tell a client the difference between res judicata and collateral estoppell? Well it appears that the 5th Circuit and the 10th Circuit have trouble differencing these judicial terms as well as the rest of us. Unfortunately for Davenport, the 5th Circuit’s definition of res judicata caused them to be found liable for the gift’s taxes under § 6324 while a co-personal representative of the same estate may be off the hook...

Call it the Government just being obstinate or worse call it for what it is - just plain dumb idea - Klamath Strategic Investment Fund, LLC v. United States, --- F.Supp.2d ----, 2007 TNT 66-9 (E.D.Tex.. 2007). (Part II).

Posted on April 08, 2007
Well the Government asked the Court to reconsider its opinion. Let’s just say for the Government that said motion was not a wise choice but for taxpayers in the Fifth (and maybe the Eleventh) they say “Thank You”!!! Not only did the Court not reconsider its opinion but it further elaborated as to why the plaintiff’s were entitled to deduct operational and interest expenses...

Multiple Issues - When can you "rely" on the IRS; Did the Tax Cheat really beat the system; Jenkens & Gilchrist; and the 40% penalty issue surfaces again!

Posted on April 01, 2007
This past week there was a lot of interesting news that came around. The first issue really came out two weeks ago in an order issued by the United States Court of Claims in Evergreen Trading, LLC v. United States. I did not consider it worth mentioning it until I overheard a conversation between two distinguished tax planners with one of them bemoaning the IRS’s lack of guidance on a particular subject but then bragging about how he conducted a search on the IRS’s web-site to ascertain the IRS’s position which allowed him to render advice to the client...