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TOPICS / TAX

IRS practice & procedure

Equitable Owner Equals Deduction

The Tax Court held that a married couple could deduct mortgage interest and property tax payments made from a corporate checking account on a home that was owned by their son. The court held that the taxpayers were equitable and beneficial owners of the property and that the checking account

Nexus for Sales and Use Taxes

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

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

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