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…
Tax Articles
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…
Records Needed for Partial Asset Dispositions
Taxpayers often overlook “partial asset dispositions.” Their tax advisers do too. This may be due to it being a depreciation issue that seems unimportant. It may also be that the partial asset disposition is a relatively new concept. Regardless, partial asset dispositions can save taxpayers quite a bit in taxes (it is a timing issue,…
Voluntary Disclosure to IRS of Privileged Communication
The attorney-client privilege projects confidential communications with attorneys. It allows the attorney to avoid disclosing protected communications. But what if the attorney voluntarily discloses information and the disclosure is to the IRS about a tax matter? The court addresses this in Gaetano v. United States, No. 19-1122 (6th Cir. 2019). Contents1 Facts & Procedural History2…
Using Warrants to Make Future Purchases of S Corporation Stock
Can you make a gift to charity but retain the right to pull back the value of the gift in the future, and still get a charitable deduction for the gift? The court said “no” in In Re Stapley, No. 09-47699 RLE (Bankr. N.D. Cali. 2019). The failed tax shelter included an S corporation whose…
Can the IRS Ignore the Legal Existence of a Corporation?
If a taxpayer forms a legal entity and it is taxed as a C corporation, can the IRS disregard the legal existence of the corporation and assess the corporation’s tax to the owner? The court addresses this in Russell v. Commissioner, T.C. Memo. 2019-146. Contents1 Facts & Procedural History2 Corporations are Taxed Separately3 The Sham…
The Timing Trap: Failed Installment Sales
One of the best tax planning strategies is simply to accept payment over time. This is a simple, but effective tax planning strategy as it can allow taxpayers to spread out their tax liability over time. This is possible given the installment sale rules. What happens if you sell an asset and are to receive…