Sales tax . . . A (if not the most) commonly overlooked tax for nonprofit organizations. This Freeman Law Insights blog focuses on sales tax regime applicable to “admissions” collected by or for nonprofit organizations in the State of Florida.
General Rule. The state of Florida imposes a tax on “admissions,” which is defined as the net sum of money for admitting a person to any place of amusement, sport, or recreation, including theaters, outdoor theaters, shows, exhibitions, games, races, or any place where charge is made by way of sale of tickets. See Fla. Stat. §§ 212.02(1), 212.04(1)(b). The tax is required to be collected by every person who exercises the privilege of selling or receiving anything of value by way of admissions. Id. § 212.04(1)(a), (b).
Exception for 501(c)(3) Organizations. No tax is levied on dues, membership fees, and admission charges solely imposed by a not-for-profit sponsoring organization. See id. § 212.04(2)(a)(2); Fla. Admin. Code Ann. § 12A-1.005(2)(f). To receive this exemption, the sponsoring organization must qualify as a not-for-profit entity under I.R.C. § 501(c)(3). Fla. Stat. § 212.04(2)(a)2.; Fla. Admin. Code Ann. § 12A-1.005(2)(f).
Co-Promotion of Events. In Fla. Tech. Assistance Advisement No. 09A-051 (Oct. 8, 2009) the Florida agency held that an event co-promoted by a governmental body and a non-profit organization did not qualify for exemption because the governmental body is not a qualified organization under section 501(c)(3) of the Internal Revenue Code. The agency noted:
[T]he event was not solely sponsored by the Foundation, and the admissions were not solely imposed by the Foundation. Rather, as expressed in the agreement . . . , both parties were responsible for imposing and collecting the ticket charges regarding this issue. Therefore, since the exemption must be narrowly construed against the taxpayer seeking the exemption, the event in question does not qualify for the exemption found in Section 212.04(2)(a)2.a., F.S.
Agency Liability for Tax on Admissions. Under the Florida Administrative Code:
Parker v. Commissioner, T.C. Memo. 2022-110 | November 15, 2022 |Paris, J.| Dkt. No. 6054-19
Short Summary: This case involves whether a taxpayer is entitled to relief from joint and several liability regarding a deficiency in federal income tax under 26 U.S.C. § 6015(f). Haywood Earl Parker Jr. (Parker) and Jaqueline Ann Parker (Ann Parker) married in 1988 and divorced in April 2018. Parker has severe health problems and his only income as of 2012 arises from Social Security (SS) disability payments. Ann Parker received a settlement award in relation to a discrimination claim she asserted against her employer. The Parkers filed their joint tax return for 2016, where they excluded the attorney’s fees or noneconomic and compensatory damages from the settlement amount. They considered those amounts were non-taxable from a call held with the IRS.
Freeman Law Tax Court In Brief
Fields v. Comm’r, T.C. Summary Opinion 2022-22 | November 10, 2022 | Panuthos, Special Trial J. | Dkt. No. 2925-20S (IRS Automated Underreporter, gifts from employer, unreported gross income, and accuracy-related penalty)
Summary: Pursuant to 26 U.S.C. § 7463(b), this decision is not reviewable by any other court, and the opinion shall not be treated as precedent for any other case. The case regards a deficiency determination and a 26 U.S.C. § 6662(a) accuracy-related penalty assessed against petitioners, Jennifer Fields (“Jennifer”) and Walter Fields (with Jennifer, the “Fields”). Jennifer worked for Paragon Canada ULC. Paragon Canada ULC operated in Canada, and it operated in the U.S. as Paragon Gaming (collectively, Paragon). She had a personal relationship with the CEO of Paragon, Scott Menke. On a few occasions, Paragon wired funds to or for Jennifer’s personal benefit, such as for use as a down payment to purchase a residence or other unspecified.
In January 2017, she separated from Paragon. In a severance agreement, the respective parties agreed to a write-off of certain employee advances totaling $79,581.50. A revised draft severance agreement modified the consideration but was never signed. Jennifer executed a Form W–9, Request for Taxpayer Identification Number and Certification, which was provided to Paragon. Paragon issued to Jennifer and filed with the IRS a Form 1099–MISC, reporting $79,581 in other income for the year in issue.
FBAR penalty procedures under Title 31 are similar to federal tax penalty procedures under Title 26. Under both Title 31 and Title 26, the IRS must make a timely assessment of the penalty prior to initiating collection action. However, the two procedures diverge somewhat with respect to collection remedies available to the government. This article discusses FBAR penalty collection procedures and provides some insights on issues that tax professionals should consider when representing taxpayers who have FBAR penalty assessments.
FBAR Collection Procedures
Prior to beginning a discussion of the FBAR collection procedures, it is important to remember that the IRS has six (6) years to make a timely FBAR assessment. This six-year period begins on the date in which the FBAR should have been filed and runs regardless of whether an FBAR has been filed at all.
Because FBAR penalties are located in Title 31, provisions therein govern collection. Under Title 31, the government may collect FBAR penalty assessments through various means including: (i) administrative (or tax refund) offset (collectively, “administrative offset”); (ii) wage garnishment; and/or (iii) litigation.[i]
Champions Retreat Golf Founders, LLC v. Comm’r, T.C. Memo. 2022-106 | October 17, 2022 | Pugh, J. | Dkt. No. 4868-15
Summary: This 43-page opinion is another lengthy chapter in over ten years of litigation regarding a charitable contribution deduction for the donation of a conservation easement given in 2010 by Champions Retreat to North American Land Trust (NALT) that covered about 348 acres of a private golf course designed by Gary Player, Arnold Palmer, and Jack Nicklaus. This opinion (we will call Champions III) supplements Champions Retreat Golf Founders, LLC v. Comm’r (Champions I), T.C. Memo. 2018-146, the latter of which was vacated and remanded by the U.S. Court of Appeals for the 11th Circuit in Champions Retreat Golf Founders, LLC v. Comm’r (Champions II), 959 F.3d 1033 (11th Cir. 2020). The focus of Champions III is the determination of the proper amount of the charitable deduction applicable to the charitable contribution, which required that the Tax Court value the conservation easement at the time of the donation.
Champions Retreat and the IRS’s experts agreed that the before and after method applied. However, Champions Retreat claimed a $10,427,435 charitable contribution deduction on its Form 1065, U.S. Return of Partnership Income, for the 2010 taxable year, for its grant of the easement to NALT. Champions Retreat’s claim was supported by an appraisal performed by Claud Clark III, which relied on the “before and after” method to value the easement. See Treas. Reg. § 1.170A-14(h)(3)(i), (ii). Clark concluded that the highest and best use of the property unencumbered by the easement was as a residential subdivision. The IRS, on the other hand, engaged an expert real estate appraiser, David G. Pope, who concluded that the highest and best use of the property before and after the easement grant was the operation of the golf course. Pope opined that the fair market value of the conservation easement was $20,000.
Sales and Use Tax
Hegar v. Tex. Westmoreland Coal Co., Case 21-1007 (Tex. Sept. 30, 2022)—In this case, the Texas Supreme Court denied the Comptroller’s petition for review, leaving the decision of the Third Court of Appeals in favor of the taxpayer in place. The Court of Appeals had held that equipment used to break apart lignite coal from a coal formation qualified for the manufacturing exemption from sales and use tax. The Court of Appeals disregarded the Comptroller’s argument that the manufacturing exemption didn’t apply because the equipment was used on real property to create tangible personal property, holding that there was no basis in the statute for any requirement that an input to the manufacturing process had to be tangible personal property.
Citgo Petroleum Corporation v. Hegar, 21-0997 (Tex. Sept. 30, 2022)—The Texas Supreme Court denied the taxpayer’s petition for review in this case, so the decision of the Third Court of Appeals in favor of the Comptroller remains the law of the land. The Court of Appeals had held that only the net proceeds of sales of commodity futures contracts and options on commodity futures contracts could be included in the calculation of the taxpayer’s apportionment factor for purpose of calculating Texas franchise tax.
On September 21, 2022, the U.S. District Court for the Southern District of New York granted the IRS’s ex-parte motion for leave to serve a John Doe summons to M.Y. Safra Bank after the IRS’s investigation into digital asset trading platform SFOX. The court’s order requires M.Y. Safra Bank to produce records on U.S. customers of SFOX who may owe tax on unreported cryptocurrency transactions. This follows similar IRS’s John Doe summonses against Coinbase, Inc., Circle Internet Financial, and Payward Ventures, Inc. d/b/a Kraken.
John Doe summonses are a powerful tool for the government to find unreported and underreported income from digital asset transactions. After the United States District Court for the Northern District of California permitted the IRS to serve a John Doe summons on Coinbase, Inc. the IRS sent notification letters to more than 10,000 taxpayers, advising them to file amended returns and pay back taxes. The IRS said those notifications resulted in nearly $17.6 million in assessments against taxpayers. The M.Y. Safra Bank John Doe summons is the latest attack by the IRS to find taxpayers that have unreported or underreported income from cryptocurrency transactions.
M.Y. Safra Bank John Doe Summons
Short Summary: This case involves taxpayers’ entitlement to Schedule A itemized deductions and Schedule C deductions and the taxpayers’ obligation to substantiate those expenses to which the deductions were related were paid or incurred for the 2015 and 2016 tax years. Petitioners were husband and wife that jointly filed their tax return for the years at issue. Mrs. Patitz was an account executive with a copying company and she also operated her own insurance business selling supplemental insurance policies. Mrs. Patitz’s job responsibilities for the copying company required her to travel to client sites in Central Florida. Her employer reimbursed her for travel expenses incurred outside of her home base in Jacksonville, FL. Her weekly mileage expenses only accounted for her local trips in Jacksonville. In 2015 and for part of 2016 Mr. Moody was employed as an area manager for a courier service. His service area spanned from Vero Beach, FL to Key West, FL and his job duties required him to deliver “on demand” packages to clients in the service area. He had to travel to the employer’s warehouses weekly and occasionally had to stay overnight in hotels. For the second half of 2016, Mr. Moody began a new career as a teacher in Jacksonville, FL.
Collection Due Process Hearings And Jurisdiction
Collection Due Process (“CDP”) hearings are crucial to taxpayers. Taxpayers have a right to a Collection Due Process hearing with the IRS Independent Office of Appeals before levy action is taken. According to the IRS, a “CDP hearing is an opportunity to discuss alternatives to enforced collection and permits you to dispute the amount you owe if you have not had a prior opportunity to do so.” When a taxpayer receives a notice of determination from IRS Appeals, the taxpayer has 30 days to petition the U.S. Tax Court. The U.S. Supreme Court in Boechler, P.C. v. Commissioner recently held that a Tax Court petition may still be considered by the Tax Court even if it is late.
I.R.C. § 6330(d)(1) – Collection Due Process Hearings
The statute at issue in Boechler is Section 6330(d)(1). For reference, the statutory language is reproduced below:
(d) Proceeding after hearing.—
For years, section 962 was a relatively obscure tax-planning mechanism. The Tax Cuts & Jobs Act, however, changed that, pushing the so-called section 962 election into vogue. Section 962 allows an individual shareholder of a controlled foreign corporation to elect to be taxed as a domestic C corporation. As a result, a taxpayer making a section 962 election would be taxed at a 21% rate on a controlled foreign corporation’s undistributed subpart F income and at favorable GILTI rates on GILTI inclusions from a CFC (inclusions related to global intangible low-taxed income). The election may also entitle the individual to take advantage of a deemed-paid foreign tax credit under section 960.
In effect, section 962 creates an alternative tax regime applicable to individual U.S. shareholders investing abroad through CFCs. The election is intended to put individuals who directly own foreign investments on even footing with individuals whose foreign investments are held through a domestic corporation.
What is a Section 962 Election?