Reliance on advice of a tax attorney or CPA is a defense to some tax crimes. But what if a taxpayer merely consults with a tax attorney or CPA and does not actually rely on their advice? The recent United States v. Wright, No. 18-4087 (6th Cir. 2019) case addresses whether this defense is available…
Tax Articles
When an IRS Agent Makes a Misrepresentation
IRS agents interact with taxpayers. In doing so, they make misrepresentations as any other human does. Some are unintentional and some are intentional. But what is a taxpayer to do if the IRS agent makes a misstatement and it negatively impacts the taxpayer? The McRae v. Commissioner, T.C. Memo. 2019-163, case touches on this issue.…
Installment Sale Treatment for Mobile Home Trailers
If you buy, subdivide and sell real estate, can you seller-finance the sales and report the gain using the installment sale method? The installment sale method can defer paying tax on the sales by allowing you to recognize the gain in later tax years. As the court in the Joyner Family Limited Partnership v. Commissioner,…
Correcting an Erroneous Judgment for Unpaid Taxes
If the IRS gets a court judgment for unpaid taxes, can you challenge the judgment after it is entered? What if you can show that no tax is due? Can you fix the erroneous judgment after the fact? Can you just prepare corrected returns and file them? The court addresses this in United States v.…
Bad Debt Tax Deduction for Guarantee Payment?
When an individual or company guarantees a loan for a third party, they are essentially agreeing to assume responsibility for the debt if the borrower defaults on their payments. In some cases, the guarantor may be required to make payments to the lender on behalf of the borrower. But what happens when the guarantor has…
Foreign Trust Beneficiary Liable for a Double Tax Penalty?
Can the sole owner of a foreign trust who is also its sole beneficiary be penalized twice for not filing a single Form 3520? Can the IRS choose the higher penalty for the beneficiary in this situation? In Wilson v. United States, No. 19-cv-5037 (BMC) (E.D.N.Y. 2019), the IRS argued that it could impose pick…
Sale of Long-Term Service Contracts: Capital or Ordinary Gain?
If a taxpayer sells a business that owns long-term service contracts, is the gain attributable to the contracts subject to tax at ordinary or capital gains rates? The IRS’s recent action on decision for the Greenteam Materials Recovery Facility PN v. Commissioner, T.C. Memo. 2017-122 court case deals with this in the context of a…
Estate Plan Triggers Liability for Unpaid Taxes
Estate planning often involves transferring business interests from one generation to the next. But what if the parent owes unpaid taxes? Can the children be held liable for the unpaid taxes? What about the surviving spouse? What if they were not aware of the steps taken to avoid paying taxes? The recent United States v…
The IRS Recent Focus on S Corp Owners
The IRS has announced several new compliance campaigns focusing on S corporations. This is needed as the audit rate for S corporation is extremely low. The most recent IRS compliance campaign focuses on shareholder stock basis issues for S corporation owners. Those who have significant S corporation losses or large distributions should take time to…
Travel Expenses Allowed for Repetitive Pattern of Travel
The IRS frequently challenges travel expenses. These expenses have a higher substantiation requirement, which the IRS uses to disallow every expense no matter how reasonable or how certain it is that the expense was incurred. But what if it was exceedingly certain that the expense was incurred and there is a method for computing the…