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What Can The State Of Texas Do To Collect State Taxes?

What Can The State Of Texas Do To Collect State Taxes?

So, the Texas Comptroller of Public Accounts (“Comptroller”) says you owe state tax.  If the deficiency determination hasn’t yet become final, you still may be able to challenge the underlying tax liability (for more on that, read this post).  But say you don’t do that (or say the say the Comptroller has made a jeopardy determination and can begin collection action immediately)?  What happens then?

At that point, the Comptroller, acting independently or with the Attorney General of the State of Texas (“Attorney General”), may try to collect the taxes claimed to be due.  Here are some of the tools they have at their disposal.[1]

State Tax Liens

One item in the Comptroller’s arsenal is the state tax lien.  Automatically arising when a taxpayer owes tax, penalties, or interest to the state, a state tax lien attaches to all of the taxpayer’s property that is subject to execution.[2]  But, it only becomes effective against a bona fide purchaser once a notice of state tax lien is filed with the county clerk in the appropriate county.[3]

A notice of state tax lien must include the name of the taxpayer, the type of tax owed, each period for which the tax is claimed, the tax due for each period (excluding penalties, interest, and other costs), and any other relevant information.[4]  The Texas Tax Code provides that a single notice of state tax lien “is sufficient to cover all taxes administered by the Comptroller, including penalty and interest computed by reference to the amount of tax, that may have accrued before or after the filing of the notice.”[5]  Meaning that the notice may cover taxes that the notice doesn’t even mention.

State tax liens remain in effect until the taxpayer fully pays the taxes, interests, penalties, and fees that the taxpayer owes the state.[6]  Nevertheless, the Comptroller and Attorney General may agree to a partial release of a state tax lien on specific real or personal property if the taxpayer pays the Comptroller the “reasonable cash market value” of the property (such “reasonable cash market value” being determined as prescribed by the Comptroller).[7]

In order to challenge the validity of a state tax lien, a taxpayer (or any other person) must file suit in Travis County district court within 10 years of the date when the lien is filed.[8]  However, this limitations period won’t apply only if a taxpayer provides “substantive evidence” that the Comptroller “considers satisfactory” that rebuts the presumption that the taxpayer received proper notice of the taxpayer’s tax liability (so probably almost never).[9]  As result of a suit challenging the validity of a state tax, the lien will either be 1) perpetuated and foreclosed or 2) nullified.[10]

Levies

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The Foreign Tax Credit Basics

Foreign Tax Credit Basics - Lawyer Jason Freeman

U.S. taxpayers are generally taxed on their worldwide income.  But what happens when that income is also taxed by another country?  The Internal Revenue Code’s primary mechanism to alleviate this double taxation of income is the foreign tax credit.  The foreign tax credit provides U.S. taxpayers who owe taxes to a foreign country with a credit against their U.S. tax equal to the amount of qualifying foreign taxes paid or accrued.

Generally, U.S. taxpayers are entitled to a credit for income, war profits, and excess profits taxes paid or accrued during a tax year to any foreign country or U.S. possession, or any political subdivision of the country or possession. U.S. taxpayers living in certain treaty countries may be able to take an additional foreign tax credit for the foreign tax imposed on certain items of income.  In addition, note that taxpayers making an election under section 962—to be taxed at corporate rates on certain income from a controlled foreign corporation (CFC)—are required to include that income in gross income under sections 951(a) and 951A(a) and may be entitled to claim the credit based on their share of foreign taxes paid or accrued by the CFC.

Foreign Tax Credit Basics

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The Travel Act Makes It A Federal Crime To Travel, Use The Mail, Or Use Any Interstate Commerce Facility For Unlawful Activity

The Travel Act Makes It A Federal Crime To Travel, Use The Mail, Or Use Any Interstate Commerce Facility For Unlawful Activity

The Travel Act, 18 U.S.C. § 1952, makes it a federal crime to travel, use the mail, or use any facility in interstate or foreign commerce for the purpose of furthering an “unlawful activity.”

At the time of its enactment in 1961, the Travel Act was originally intended to give the federal government a leg up in the fight against organized crime. An example of the sort of situation that the Travel Act was intended to target is where a crime boss resided in one state and operated an illegal enterprise in another. In such a situation, it was feared that neither state would have jurisdiction to prosecute the crime boss for operating the illegal enterprise and, in the absence of something like the Travel Act, the conduct would go unpunished.

From its origins combating organized crime, the Travel Act has since been used in a variety of other contexts, including in conjunction with the Foreign Corrupt Practices Act (“FCPA”), as a predicate offense under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and, recently, in health care corrupt payment prosecutions.

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The Build Back Better Act – Tax Implications For Cryptocurrencies

The Build Back Better Act – Tax Implications For Cryptocurrencies

Free Attendee Ticket – Freeman Law International Tax Symposium

On November 3, 2021, the U.S. House Budget Committee introduced the latest version of the Build Back Better legislation (the “BBB Legislation” or “BBB Act”), which makes historical investments in education, climate change, and the economy. Although much has been written on the surcharge for certain high-net-worth individuals and a global minimum tax on corporations, other proposed changes in the legislation to the tax code stand to create ripple effects throughout the crypto ecosystem. We discuss the direct and indirect tax impact of the BBB Legislation for crypto investors, miners/validators, and other players further below.

Direct Tax Impact on Cryptocurrency – Wash Sale and Constructive Sales

The BBB legislation takes further steps to treat cryptocurrencies like traditional securities by subjecting all digital assets to the (A) wash sale rules under Section 1091 and (B) constructive sale rules under Section 1295 of the Code. The new wash sale rules would be effective after December 31, 2021, and the amended constructive sale rules would apply as of the date of enactment.

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Breach Of Contract In Texas

Breach Of Contract In Texas

Contracts play an important role in day-to-day business operations and drive economic activity across the globe.  And when one party to a contract fails to live up to its obligations, the other party or parties may be damaged.  Texas law provides a cause of action for a breach of contract.  Aggrieved parties may be entitled to recover not only damages, but attorneys’ fees and costs as well.

Breach of Contract

Texas law requires the following elements to establish a breach of contract: (1) a valid contract exists; (2) the plaintiff performed or tendered performance as contractually required; (3) the defendant breached the contract by failing to perform or tender performance as required; and (4) the plaintiff sustained damages due to the breach.

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Texas Property Tax Legislative Update

Texas Property Tax Legislative Update

The Regular Session of the 87th Texas Legislature adopted a number of changes that were favorable to Taxpayers.

According to HB1090, effective 9/1/21, the appraisal districts have less time to pick up erroneously omitted real property. Previously, the districts had five years to discover and correct the roll (which includes the back taxes, penalties, and interest); this period has now been reduced to three years. The personal property time period remains unchanged, at two years.

Also effective 9/1/21, taxpayers will now have two years to correct their personal property rendition filings. These returns are filed in Texas by April 15 (or by May 15 with extension), and given the chaos of the busy season…mistakes are frequent. The courts have historically been mixed regarding the taxpayer’s ability to “correct” those filings – so the legislature has resolved any such confusion.

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Protective Refund Claims: Preserving The Right To A Tax Refund

Protective Refund Claims: Preserving The Right To A Tax Refund

When is a protective refund claim available?  Taxpayers often face uncertain outcomes in litigation or business transactions, giving rise to contingent tax refund claims.  For example, if a pending lawsuit ends in a favorable result, it may create new law that gives the taxpayer a more favorable tax position in an earlier year—creating a right to a tax refund.  A taxpayer may even be waiting for a hoped-for change in the tax laws that will result in a retroactive right to a refund.  But what if the taxpayer’s right to a refund claim will not become clear until after the statute of limitations expires on their ability to file a claim for refund with the IRS?

A protective refund claim may be the solution.

What is a Protective Refund Claim?

Protective refund claims preserve a taxpayer’s right to claim a tax refund when the taxpayer’s right to the refund is contingent on future events that may not occur until after the statute of limitations expires.  The “protective claim” concept is not contained in the Code or Treasury regulations but is instead established by case law.

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Challenging Testamentary Capacity In Texas

Challenging Testamentary Capacity In Texas

When an interested party contests the capacity of the testator, what standard do courts use to determine the validity of a will? The recent case of Neal v. Neal provides insight.  In that case, following her diagnosis of vascular dementia, a mother cut out two sons from her will, and left a third son left as the sole beneficiary. Neal v. Neal, No. 01-19-00427-CV, 2021 Tex. App. LEXIS 2051, at *1 (Tex. App. Mar. 18, 2021).

Background

In Neal, the decedent, Florene Neal, executed several wills throughout her life, devising her estate in different apportionments to her three sons: John, Randall, and David. Her first and third wills, executed in 2008 and 2011, divided her estate between John and Randall, explicitly excluding David, as he was to gain full ownership of a property that he owned as a joint tenant with right of survivorship. The second will, executed in 2009, left her estate to all three sons in equal shares. In her final will, which was executed in January 2012, Florene devised the entirety of her estate to David, and disinherited both Randall and John.

Florene died in 2015, and Randall opposed admitting the January 2012 will to probate. Randall alleged that Florene lacked testamentary capacity as a result of her vascular dementia diagnosis in August 2011. Ultimately, the court found that Florene was of sound mind when her final will was executed, and Randall appealed the probate court’s decision.

Analysis

On appeal, Randall contended that 1) Florene did not have testamentary capacity when she entered into the final will; and 2) David exerted undue influence to procure the execution of the final will.

Whether Florene had testamentary capacity

For a will to be admitted to probate, a party must first establish that the testator had testamentary capacity. A testator has testamentary capacity when, at the time of the execution of the will, she possesses sufficient mental ability to:

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The Statute Of Frauds In Texas

The Statute Of Frauds In Texas

The statute of frauds is an affirmative defense in a breach of contract suit that, where applicable, renders a contract unenforceable.[1] It exists to “prevent fraud and perjury in certain kinds of transactions by requiring agreements to be set out in a writing signed by the parties.”[2] In order to be enforceable, a contract that is subject to the statute of frauds must be in writing and signed by the person to be charged with the promise or agreement (or by someone lawfully authorized to sign for them).

The statute, in other words, bars claims arising out of unenforceable oral promises, unless the defendant’s fraud prevented the necessary writing.[3] If contract provisions that are subject to the statute of frauds are not severable from those outside the statute, the entire contract is unenforceable unless it satisfies the statute.[4]The question of whether the statute of frauds applies is a matter of law.[5] The statute of frauds does not apply to a fully executed contract.[6] Generally, the statute of frauds applies to contracts regarding marriage, suretyship, sales of real estate, goods priced at $500.00 or more under the Uniform Commerical Code (UCC), and contracts that are not performable in one year. There are, however, a few applications that are specific to Texas.

Texas-Specific Statute of Frauds Considerations

In Texas, the statute of frauds is located in chapter 26 of the Texas Business and Commerce code. Section 26.01(b) applies the statute to contracts regarding: marriage (“or on consideration of nonmarital conjugal cohabitation”), suretyship, contracts that are not to be performed within one year from the date of making the agreement, promises by an executor or administrator to answer out of his own estate for any debt or damage due from his testator or intestate, certain medical arrangements, and sales of real estate or leases of real estate for a term longer than one-year,[7] and certain payments related to mineral interests.

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Fraudulent Transfers Under Texas Law

Fraudulent Transfers Under Texas Law

Texas law prohibits a debtor who is subject to a valid judgment from moving assets out of reach of creditors in order to hinder, delay, or defraud a judgment creditor. This legal restriction applies even if the transfer takes place before the entry of a judgment against them.  A fraudulent transfer is voidable under Texas law. So, one may ask, shat is a fraudulent transfer? The Texas Uniform Fraudulent Transfer Act (TUFTA) supplies an answer.

Texas Uniform Fraudulent Transfer Act (TUFTA)

The Texas Uniform Fraudulent Transfer Act (TUFTA) prohibits a debtor from defrauding creditors by placing assets beyond their reach. The TUFTA provides creditors with legal recourse when a debtor engages in a fraudulent transfer. Where a debtor engages in a fraudulent transfer,[1]a creditor may void the transfer.

What Is a Fraudulent Transfer?

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A Summary Of The IRS’ Streamlined Filing Compliance Procedures

A Summary Of The IRS’ Streamlined Filing Compliance Procedures

The IRS’ streamlined filing procedures were first offered by the IRS on September 1, 2012.  Since that time, the IRS has made several revisions.  A current summary of the IRS’ Streamlined Filing Compliance Procedures is discussed below.

Do I Qualify for the IRS’ Streamlined Filing Compliance Procedures?

To qualify for the IRS’ Streamlined Filing Compliance Procedures (either Domestic or Foreign), taxpayers must meet the following initial requirements:

  1. The taxpayer must be an individual taxpayer or an estate of an individual taxpayer.
  2. The taxpayer must certify in a narrative under penalties of perjury that the conduct was not willful. The relevant conduct requiring certification relates to not only the failure to report income and/or pay tax, but also to submit all required information returns, including FBARs (e., FinCEN Form 114).
  3. The IRS must not have initiated a civil and/or criminal investigation of the taxpayer for any tax year.
  4. The taxpayer must have a valid Taxpayer Identification Number (e., TIN).

For streamlined filings under the IRS’ Domestic procedure, the taxpayer must also meet the following requirements:

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