States have become more aggressive in claiming a seller has substantial nexus for sales and use tax purposes. They look for in-state activities, relationships and assets of unregistered businesses with customers in the state. Here are some tips to help businesses determine their sales and use tax collection obligations: Review
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TOPICS / TAX
IRS practice & procedure
Knowing But Innocent
The Tax Court held that the IRS abused its discretion in denying a stay-at-home mom’s request for innocent spouse relief because it did not consider all of the relevant factors. Chrystina Nihiser filed for relief after her husband stopped paying their taxes due to financial problems with his business. Although
More Support for Check-the-Box
Following the U.S. Supreme Court’s refusal to hear an appeal attacking the validity of “check-the-box” provisions, a district court has similarly denied a legal challenge to the default business entity classification. The plaintiff in the more recent decision, L&L Holding Co. LLC v. U.S. (101 AFTR2d 2008-2081), contested an employment
Another SILO Pulled Down
A district court upheld the IRS’s denial of deductions by two large banks from a sale in, lease out (SILO) transaction, continuing a string of victories by the Service against the one-time promoted shelter. The opinion by the court for the Northern District of Ohio against KeyCorp and PNC Financial
Lack of Records Equals Recapture
The Tax Court held that a taxpayer had to recapture the majority of his prior-year section 179 deduction since he failed to show that the business use of his GMC Suburban remained above 50% in the following tax year. His testimony of the business use of the vehicle, although considered
When (and Where) Is It Filed?
The Fourth Circuit recently upheld a Tax Court decision that a deficiency notice beat the three-year statute of limitations only because the taxpayer had hand-delivered his returns to the wrong office. The IRS is generally required by IRC § 6501(a) to assess income tax deficiencies no later than three years
Common-Law Mailbox Rule Reopened
The Third Circuit Court of Appeals has reaffirmed as still valid the “common-law mailbox rule”—that a properly mailed document is presumed to reach the IRS within normal delivery time—despite holdings by other circuits that the rule was supplanted by the 1954 Tax Code provision that allows a postmark date to
The Scholarship Trap for Foreign Students
Many U.S. colleges and universities recruit foreign students, especially for graduate programs and athletics. Such students often receive full scholarships that include room and board, making them subject to U.S. income taxes. These students may be unfamiliar with the U.S. tax system, but they need to understand
Equal Treatment for All Taxpayers
The Tax Court reversed its prior decision in a “retail tax shelter” case, granting further relief from assessments to approximately 400 taxpayers. It did so because the IRS secretly—and fraudulently—entered into more favorable settlements with some test case litigants before the test cases were decided. The action marked a reversal
Line Items
COURTS ON BOARD WITH CSX CASE At least one other court has ruled that supplemental unemployment compensation benefits (SUCBS or SUBs) paid by employers to laid-off employees are subject to FICA taxes, after the Federal Circuit so ruled in the long-running case CSX Corp. v. U.S., 101 AFTR2d 2008-1120 (see
Debt Forgiveness Taxed
Two exceptions to the general provision of IRC § 61(a)(12) recognizing income from the discharge of indebtedness were tested recently in separate cases, but the taxpayers were not successful in either. Argued before the U.S. Bankruptcy Court for the Eastern District of Tennessee, Higgins v. Commissioner involved discharge of indebtedness
Levels of Certainty
Two rulings in separate cases by the Court of Federal Claims helped clarify how penalties involving partnerships are imposed and defended against at the partnership and partner levels. Because partnerships are flow-through entities, contested partnership items were formerly litigated at the partner level. This approach, however, led to repetitive legal
Kinder, Gentler IRS Turns to Liens, Levies
In the early 1990s, IRS enforcement activities were fairly aggressive. In several well-publicized cases, individual taxpayers lost their homes and livelihoods to the IRS because of unpaid taxes. As a result, public sentiment turned against the agency, and congressional hearings were held to address the problem. Congress
Share Loans Under IRS Microscope
TAX PRACTICE In a recently released Coordinated Issue Paper (LMSB-04-1207-077), the IRS underscored how its examinations will home in on a once-favored strategy for monetizing stock gains while deferring capital gains taxes. In doing so, the Service reiterated its legal basis for why a variable prepaid forward
Cook Won’t Excuse Estate From Table
Despite contrary holdings by other circuits, the Fifth Circuit recently held fast to its earlier decision in Cook v. Commissioner to once again overrule an estate’s discounting of an annuity interest and restrict it to the valuation tables prescribed by IRC § 7520. The decedent in the recent decision, James
IRS Will Not Acquiesce in Kohler
In Action on Decision 2008-001, the Service said it would not acquiesce in the Tax Court’s allowance of a taxpayer’s contested valuation of the stock of a closely held corporation following a post-death, tax-free reorganization. The court’s 2006 decision represented a $100 million victory for family owners of privately held
Equitable Recoupment a Timeless Remedy
An amendment to IRC § 6214(b) included in the Pension Protection Act of 2006 empowers the Tax Court to apply equitable recoupment to offset overpayments of hospital insurance taxes (the Medicare portion of FICA) against income tax deficiencies, according to the court’s ruling in Menard Inc. v. Commissioner . Although
High Court: No Evasion Without Deficiency
The U.S. Supreme Court vacated a conviction for criminal tax evasion, holding that the taxpayer could argue that distributions he received were a nontaxable return of capital. If they were so characterized, then the taxpayer had no tax deficiency, which is a required element of tax evasion, the court pointed
The Liechtenstein Connection
The IRS warned that some 100 Americans were likely to be caught up in its investigation in cooperation with other countries of tax evasion in Liechtenstein. Any U.S. taxpayer hiding income and gains in the tiny principality in the European Alps would do well to “make a prompt and complete
All in the Family?
The Tax Court recently held that a note does not constitute a qualified family-owned business interest (QFOBI) for purposes of IRC § 2057, which allows an estate to deduct up to $675,000 from its value for estate tax purposes. To qualify for the deduction, the value of the QFOBI at
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