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Tag Archive for Freeman Law

Innocent Spouse Relief, Equitable Factors Under Section 6015(f)

Innocent Spouse Relief, Equitable Factors Under Section 6015(f)

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.

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IRS Automated Underreporter Program, Gifts From Employer, Accuracy-Related Penalty

IRS Automated Underreporter Program, Gifts From Employer, Accuracy-Related Penalty

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.

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The IRS Assessed An FBAR Penalty Against Me: Now What?

The IRS Assessed An FBAR Penalty Against Me: Now What?

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]

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Tax Court In Brief: Charitable Contribution Deduction Regarding Champions Retreat Golf Course Conservation Easement

Tax Court In Brief: Charitable Contribution Deduction Regarding Champions Retreat Golf Course Conservation Easement

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.

Key Issues:

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Section 245A Overview And Requirements: Tax Efficient Repatriation Of A Foreign Subsidiary’s Earnings

Section 245A Overview And Requirements: Tax Efficient Repatriation Of A Foreign Subsidiary's Earnings

Section 245A: Tax Efficient Repatriation of a Foreign Subsidiary’s Earnings

United States-based international businesses are subject to complex reporting and compliance and anti-deferral regimes such as subpart F, global intangible low taxed income (“GILTI”), passive foreign investment company (“PFIC”), and the new corporate minimum tax that was enacted as part of the Inflation Reduction Act, Pub. L. 117-169 (2022).  These regimes are enforcement mechanisms to ensure that foreign earnings are taxed on a current basis in the United States at a minimum corporate tax rate. As part of Tax Reform, the United States introduced a new dividends received deduction (“DRD”) in section 245A for the foreign-source portion of dividends received by certain domestic corporations (the “Section 245A DRD”). The “participation exemption” in section 245A is the cornerstone of the new quasi-territorial tax system. Section 245A can be a powerful taxpayer favorable provision to exempt dividends and deemed dividends received from certain foreign corporations if the statutory requirements are met. Since Tax Reform the IRS and Treasury Department issued several regulation packages that clarify and limit the scope of these rules. This post is an update to our prior post on the Section 245A DRD, and explains some of the tax planning opportunities where a domestic corporate taxpayer may be able to benefit from the Section 245A DRD.

Overview of the Section 245A DRD

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Court Cases: Sales And Use Tax, Franchise Tax, Collections, Adopted Rules, Proposed Rules

Court Cases: Sales And Use Tax, Franchise Tax, Collections, Adopted Rules, Proposed Rules

Court Cases

Sales and Use Tax

Manufacturing Exemption

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.[1] 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.

Franchise Tax

Apportionment

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.

Rules

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IRS Wins Ex-Parte Petition For Another Crypto John Doe Summons

Crypto John Doe Summons

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

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Treasury Issues Proposed Regulations On IRS Appeals Procedures

Treasury Issues Proposed Regulations On IRS Appeals Procedures

Taxpayers routinely resolve their tax controversy matters without resort to litigation.  Indeed, good tax professionals will often seek to avoid costly and time-consuming litigation, if possible, by utilizing various administrative avenues within the IRS including the IRS Independent Office of Appeals (“IRS Appeals”).  Formed originally in 1927, IRS Appeals serves as a quasi-independent government agency staffed with the purpose of, among other things, resolving certain tax controversy matters in a manner fair to both the United States and the taxpayer.

However, IRS Appeals does not hear all tax controversy matters.  Rather, it has excepted from its jurisdiction certain tax matters which it feels are not within its scope of review.  Generally, this has been accomplished through a hodgepodge of administrative guidance, including publication in revenue procedures and the Internal Revenue Manual (“IRM”).

On July 1, 2019, Congress codified the objectives and purposes of IRS Appeals in the Taxpayer First Act of 2019, Pub. L. No. 116-25 (“2019 TFA”).  Thus, by statute, Congress provided that the IRS Appeals process “should be generally available to all taxpayers.”  See I.R.C. § 7803(e)(4).  Because the term “generally” denotes at least some type of exclusion, many taxpayers and tax professionals were left wondering how far the new statutory right extended.

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Schedule A And Schedule C Itemized Deductions And Documentation Requirements

Schedule A And Schedule C Itemized Deductions And Documentation Requirements

Opinion

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.

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A Win For Taxpayers—Section 6330(d)(1) Is A Nonjurisdictional Deadline

A Win For Taxpayers—Section 6330(d)(1) Is A Nonjurisdictional Deadline

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.”[1] 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.

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What Is A Section 962 Election?

The Section 962 Election

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?

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IRS Issues FBAR Reference Guide

IRS Issues FBAR Reference Guide

The IRS and FBARs

On March 30, 2022, the IRS issued Publication 5569Report of Foreign Bank & Financial Accounts (FBAR) Reference Guide.  The 12-page publication provides helpful information to both taxpayers and tax professionals regarding FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) The IRS’s issuance of Publication 5569 also shows that the IRS will continue its education campaign on FBAR compliance and filing obligations.  This article summarizes the information that is located in IRS Publication 5569.

Who Must File an FBAR?

By statute and regulation, all U.S. persons must file an annual FBAR if they have a financial interest in or signature or other authority over any financial account(s) located outside the United States, provided the aggregate balance(s) of the account(s) exceed $10,000 at any time during the calendar year.

Who is a U.S. Person?

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