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Tag Archive for Freeman Law

Are Settlement Payments For Emotional Distress Taxable?

Are Settlement Payments For Emotional Distress Taxable?

The proper federal tax treatment for any given settlement payment is something of an enigma.  Generally, federal courts (and thus, the IRS) respect the terms of a settlement agreement if the terms are clear and the parties expressly allocate the settlement payment or payments to one or more of the underlying claims or causes of action at issue.  But, if one or more of these requirements are not present, federal courts are left searching through other evidence in an attempt to determine the payor’s intent, which, absent an express allocation, generally governs the tax characterization of the payment.

The terms of a settlement agreement may become significant in the context of settlement payments received in lieu of damages for personal physical injuries and/or physical sickness.  Under Section 104(a)(2) of the Code, these payments are not taxable.  However, Section 104(a) specifically provides that settlement payments received in lieu of damages for emotional distress are taxable.  So, what is the difference and how can a taxpayer ensure that any settlement payments received are properly treated as non-taxable under Section 104(a)(2)?

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Battling The Counterfeiters: White-Collar Intellectual Property Enforcement

Battling The Counterfeiters: White-Collar Intellectual Property Enforcement

By: Jason B. Freeman, JD, CPA

Contributing Authors: Bryce Couch, Jessica Lee, Alexandra Duncan, and Vrinda Bhuta

This CLE paper explores criminal intellectual property violations.  There are a wide range of potentially applicable statutory provisions. Part One broadly discusses criminal copyright infringement, focusing on 17 U.S.C. Section 506 and 18 U.S.C. Section 2319. Part Two explores the Trademark Copyright Act, as well as its relation to its civil law counterpart, the Lanham Act, and its evolution since 1984. Part Three explores the theft of trade secrets, both those illegally obtained for the benefit of a foreign government, instrumentality, or agent and those merely sold for profit. Part Four explores the enactment of the Digital Millennium Copyright Act—a 1998 bill that responded to the increasing prevalence of web-based technology—highlighting the anti-circumvention and anti-trafficking measures necessary to prevent internet piracy. Part Five explores counterfeit and illicit labels, as well as counterfeit documentation and packaging, in the context of certain classes of copyrighted works under 18 U.S.C. § 2318. Part Six explores the sentencing guidelines for copyright claims under U.S.S.G. Section 2B5.3 and EEA claims under US.S.G. Section 2B1.1.

Criminal Copyright Infringement
I. Introduction: History and Purpose

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Bankruptcy: The Mechanics of Exemptions and Related Issues

Bankruptcy: The Mechanics of Exemptions and Related Issues

Most bankruptcy attorneys have a basic level of understanding of the how exemptions work.  At a very broad level, a claim of exemptions removes property of a consumer debtor (note that business debtors are not afforded exemptions) from the bankruptcy estate and thereby serves as a foundation for the “fresh start” that bankruptcy is designed to provide.

But I suspect that even seasoned bankruptcy attorneys – including myself – lack a detailed understanding of many of the nuances of the mechanics of exemptions unless they’ve been faced with issues related to the claiming of exemptions.  A recent case has prompted a “back to the basics” look at the mechanics of exemptions.

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What Are The Rules On Unreimbursed Employee Expenses? Freeman Law Tax Court In Brief

What Are The Rules On Unreimbursed Employee Expenses? Freeman Law Tax Court In Brief

PEEPLES v. Comm’r, Summary Op. | May 19, 2021 | Paris, J. | Docket No. 17117-17S.

Short Summary: Mr. Peeples deducted unreimbursed employee business expenses on his 2014 federal income tax return. The IRS disallowed the deductions and issued a notice of deficiency. Mr. Peeples filed a petition with the United States Tax Court challenging the proposed adjustments in the notice of deficiency.

Key Issues: Whether Mr. Peeples is entitled to deduct (1) certain unreimbursed employee business expenses and (2) tax preparation fees (under Section 162) for 2014.

Primary Holdings: No, Mr. Peeples is not entitled to deduct either because he failed to provide the Court adequate documentation or information that would have substantiated either the application of the Cohan rule for the deductions or the tax preparation expense.
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Recent Tax Court Case: Unassessed Taxes Are Not Discharged In Bankruptcy

Recent Tax Court Case: Unassessed Taxes Are Not Discharged In Bankruptcy

A recent Tax Court opinion demonstrates the complexities involved when a taxpayer attempts to discharge tax liabilities through bankruptcy proceedings.  The case emphasizes the need for an attorney knowledgeable in both tax and bankruptcy cases to ensure that the the best, most-viable tax arguments are put forward in the proceedings.

A brief outline of the case is set forth below:

Barnes v. Comm’r, T.C. Memo. 2021-49 | May 4, 2021 | Lauber, J. | Dkt. No. 6330-19L

Short Summary:  The taxpayers challenged a proposed deficiency in the Tax Court related to their 2003 tax year.  Prior to the Tax Court issuing an opinion, the taxpayers filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the District of Columbia.  The IRS participated in the bankruptcy proceedings and filed a proof of claim for tax deficiencies—however, the 2003 tax year was not included.

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The Tax Court Addresses The Origin-Of-The-Claim Doctrine And Legal Fees

The Tax Court Addresses The Origin-Of-The-Claim Doctrine And Legal Fees

A recent Tax Court decision addressed the deductibility of legal expenses and the so-called “origin-of-the-claim” doctrine. The Mylan decision demonstrates that the deductibility of a legal expense generally depends on the origin and character of the underlying claim or transaction out of which the legal expense was incurred. An expenditure, such as legal expenses, may be deductible in one setting but nevertheless required to be capitalized in another. Legal expenses directly connected with (or pertaining to) the taxpayer’s trade or business are deductible under I.R.C. Section 162 as ordinary and necessary business expenses, while expenses arising out of the acquisition, improvement, or ownership of property are capital expenditures under I.R.C. Section 263(a) and are not currently deductible.

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The Tax Court in Brief

The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

Plentywood Drug, Inc. | April 26, 2021 | Holmes| Dkt. No. 17753-16

Short Summary:  The Tax Court was asked to decide whether rent paid by the Taxpayer was reasonable.  The Taxpayer was owned by four related individuals (the “Shareholders”).  The Shareholders owned the building where the the Taxpayer was operating.  The Taxpayer paid rent of $83,584, $192,000, and $192,000 for 2011, 2012 and 2013, respectively.

The IRS disallowed certain rent deductions by the Taxpayer to the Shareholders because the IRS stated that the rent paid by the Taxpayer was greater than what the fair market rent would have been paid at an arm’s length transaction.  The IRS recharacterized the excess rent as dividends, therefore, the Taxpayer would not be able to deduct the dividends.

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Tax Treaties: United States And Romania

Tax Treaties: United States And Romania

Quick Summary.  Romania taxes resident companies on their worldwide income.  Non-resident companies are taxed on Romanian-source income.  Micro-companies–defined based upon total prior-year revenue of no more than 1 million euros–are subject to a special, micro-company tax regime.

Romania is a semi-presidential republic.   It is governed by a prime minister and president.  Romania is divided into 41 counties and the municipality of Bucharest. The Romanian Constitution provides for the right to ownership of private property.

Residents are taxed on worldwide income with certain exceptions, including salaries from abroad for work performed outside of Romania.  Non-residents are subject to tax on Romanian-sourced income.  Romania generally employs a flat personal income tax at a rate of 10%.

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Tax Treaties: United States And Hungary

Tax Treaties: United States And Hungary

Quick Summary.  Hungary is a parliamentary republic.  It is comprises of 19 counties.

In 2019, Hungary introduced a group taxation regime.  With certain restrictions, the regime promotes cross offsetting of operating losses.  As of 2020, Hungary implemented EU’s Anti-Tax Avoidance Directive (ATAD II), providing for hybrid anti-abuse rules.  In addition, Hungary imposed an exit tax and anti-avoidance rules.

Other recent development for individuals subject to Hungarian taxation include removal of cash benefits as fringe benefits and developments with respect to the economic employer rules.

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Tax Treaties: United States And Austria

Tax Treaties: United States And Austria

Quick Summary.  Austria is a member country of the European Union (EU).  Its economy is primarily driven by the services industry, which accounts for approximately 75% of its labor force. Austria is comprised of nine states and its capital, Vienna, and is bordered by Italy, Switzerland, Germany, Czechia, Slovakia, Hungary, and Slovenia.

Under the Tax Amendment Act 2020, Austria implemented the Digital Tax Act (‘Digitalsteuergesetz’).  In addition, pursuant to the Reform Act 2020 (‘Steuerreformgesetz 2020’), Austria implemented changes to its Value-added tax (VAT), an exit tax, controlled foreign company (CFC) provisions, and affiliate-deduction rules.

The European Union (EU) Tax Dispute Resolution Act (‘EU-Besteuerungsstreitbeilegungsgesetz’ or EU-BStbG) became effective in September of 2019.

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Tax Treaties: United States And Norway

Tax Treaties: United States And Norway

Quick Summary.  Norway is a constitutional monarchy with a parliamentary, democratic form of government consisting of three branches: a legislature, the Storting; an executive, the Council of State; and a judiciary.

In 2016, the Government of Norway (GON) initiated tax reforms, gradually reducing the individual income and corporate tax rates.

Norwegian companies are subject to tax on worldwide income.  Non-residence companies are subject to tax on certain Norwegian-source income or when engaged in business managed in, or conducted in, Norway.

Resident individuals are subject to tax on their worldwide income.  Non-resident taxpayers are taxed on specified categories of Norwegian-source income.  Norway introduced a PAYE system in 2019 that applies to certain non-resident workers.  The PAYE system applies a 25% flat tax rate.

Norway bases individual tax resident status on a days-of-presence test, which is satisfied where an individual is present more than 183 days during a 12-month period or, alternatively, 270 day during a 36-month period.

Norway is a member of the North Atlantic Treaty Organization (NATO).  While not a member of the European Union, Norway is a member of the European Economic Area (EEA).

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Tax Treaties: United States And Finland

Tax Treaties: United States And Finland

Quick Summary.  Located in Europe’s Nordic region, Finland shares a border with Sweden, Russia and Norway. Officially the Republic of Finland, Finland is a parliamentary republic.

Finland obtained independence in 1917.  Finland consists of five regions and approximately 310 municipalities, with a capital at Helsinki.

The Constitution of Finland provides for a representative democracy through its parliamentary republic, which established a unicameral Parliament of Finland (Eduskunta).  The President serves as the head of state.

Finland’s legal system is a civil law system with an independent judiciary.

Finland implemented hybrid mismatch rules and mandatory reporting pursuant to the EU Directive on cross-border tax arrangements.

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