Tax Court Case | TaxConnections

02 Nov 2022

How Will The Courts Rule On This Foreign Based Sales Company Income Case?

How Will Courts Rule On Foreign Base Sales Income Case?

Whirlpool Petition For Cert

In a brief filed on October 19, 2022, the IRS asked the U.S. Supreme Court to refuse to review the decision of the Sixth Circuit affirming, in a 2-1 split decision, that $45 million earned by appliance maker Whirlpool’s controlled foreign corporation (“CFC”) in Luxembourg was foreign base company sales income taxable under Subpart F of the Internal Revenue Code.

Whirlpool’s parent company maintains that income from its Luxembourg affiliate’s sales of appliances to its Mexican subsidiary cannot be taxed under Subpart F because it was generated by two foreign affiliates manufacturing different products. However, the IRS contends that the transactions fall within the I.R.C. §954(d) definition of foreign base company sales income (“FBCSI”) earned by a U.S. parent’s CFC and are therefore taxable under Subpart F.
Facts

Through its domestic and foreign subsidiaries, Whirlpool engages in the manufacture and distribution of major household appliances, including refrigerators and washing machines, in the United States and abroad. Whirlpool International Holdings, S.a.r.l. (“WIH”), is a wholly owned subsidiary of Whirlpool organized under the laws of Luxembourg. When it filed its petition, WIH had its principal place of business in Luxembourg. Before December 31, 2010, WIH was known as Maytag Corp. (Maytag) and was likewise engaged in the manufacture and distribution of household appliances.

Written by Gregory Mitchell | Posted in Controlled Foreign Corporation • Subpart F Income

23 Sep 2021

Innocent Spouse Taxpayer Court Case

Donna M. Sutherland v. Comm’r, No. 3634-18, T.C. Memo 2021-110 | September 16, 2021 | Lauber | Dkt. No. 3634-18

Short Summary: This is an innocent spouse case in which the taxpayer, Ms. Sutherland, sought relief from joint and several liability under the equitable relief provision of 26 U.S.C. 6015(f). The Court ultimately found that the taxpayer was not entitled to the relief requested.

Key Issues:

Did the taxpayer qualify for relief from joint and several liability for the unpaid employment taxes that accrued from taxpayer’s husband’s business?

Facts and Primary Holdings:

The taxpayer was married to her husband Scott in 1990. She has a high school education and completed a few college courses. She gave birth to the couple’s only child in 1991, and after her child was born, she worked primarily at home or in Scott’s business.

Written by Jason Freeman | Posted in Innocent Spouse • Tax Court Case

06 Jul 2021

Tax Court In Brief: A Single Shareholder Corporation

Bell Capital Management, Inc. v. Commissioner, T.C. Memo. 2021-74 | June 14, 2021 | Wells, J. | Dkt. No. 21714-07

Opinion

Short Summary:

A single shareholder (“Shareholder”) owned 100% of the stock and served as the sole director for the petitioner. For a period of 5 years, petitioner paid the Shareholder wages until a change in compensation structure. Moving forward, petitioner leased the Shareholder’s services through offshore employee leasing transactions (OEL transactions). During this period, petitioner furnished Shareholder with space to perform personnel services, loaned Shareholder an automobile for business use, and provided health insurance benefits, at petitioner’s cost. Additionally, Shareholder signed petitioner’s Form 1120S, in his capacity as president. Shareholder, further, listed himself on an annual corporate registration as CEO, CFO and President, as well as, admitted such status to the SEC as part of a settlement. After the years of exclusive service to the petitioner (“Years at Issue”), Shareholder began leasing his services to other operations.

Written by Jason Freeman | Posted in Single Shareholder Corporation • Tax Court Case

02 Feb 2021

When Is the Accrual Method Available to Taxpayers? A Tax Court Case

When is the accrual method available to taxpayers?

A recent Tax Court case addresses the accrual method of accounting in the cost-of-goods-sold (COGS) contexts:

The Morning Star Packing Company, L.P., et al. v. Comm’r, T.C. Memo. 2020-142 | October 14, 2020 | Cohen A. | Dkt. Nos. 5013-15, 5015-15, 16684-16, 16842-16

Opinion

Short Summary: Petitioners sought review of the IRS’ determination that they were not entitled to increase their cost of goods sold (“COGS”) for the costs to restore, rebuild, recondition, and retest their manufacturing facilities for years of 2008 – 2011. The Tax Court found in favor of the IRS.

Key Issue: Two key issues: (1) were certain accrued production costs fixed and binding where economic performance did not occur until the year following the tax year claimed for those costs; and (2) did Petitioners’ inclusion of such production costs in COGS for the years in issue result in a more proper match against income than inclusion in the taxable year.

Written by Jason Freeman | Posted in Accrual Method • Tax Court Case

30 Oct 2020

When Is The Accrual Method Available To Taxpayers? The Tax Court In The Morning Star Packing Company Case

A Tax Court case addresses the accrual method of accounting in the cost-of-goods-sold (COGS) contexts:

The Morning Star Packing Company, L.P., et al. v. Comm’r, T.C. Memo. 2020-142 | October 14, 2020 | Cohen A. | Dkt. Nos. 5013-15, 5015-15, 16684-16, 16842-16