The complexities surrounding tax loss deductions can be particularly challenging for taxpayers. While claiming tax losses for worthless securities may seem like a straightforward process, the IRS often scrutinizes these deductions, raising questions about the timing and character of the loss. In many instances, the IRS challenges the year in which the loss is allowed,…
Tax Articles
Intercompany Fee Arrangement Lacks Economic Substance
If the employees and owners of a profitable C corporation set up a related entity and lease the employee-owner’s services back to the C corporation, can the C corporation deduct the payments? Taking it a step further, what if the related entity is owned by a retirement plan so that most of the payments by…
The Trade or Business Requirement for the Sec. 199A Deduction
The new Sec. 199A deduction that provides a 20 percent benefit for flow through entities has been in the news as of late. The Yaryan v. Commissioner, T.C. Memo. 2018-129, case provides an opportunity to consider one aspect of this new Sec. 199A deduction. Specifically, the Treasury released regulations that adopt a “trade or business” standard…
Litigation Award for Damage to Dairy Farm Ordinary Not Capital
If a dairy farmer receives an award for damages to the farm, is the damage award capital or ordinary? The distinction is important. Unlike ordinary income, capital gains are generally afforded lower tax rates and not subject to self-employment taxes. The court considered this fact pattern in Allen v. United States, No. 16-C-1412 (E.D. Wis. 2018). Contents1 Facts…
Whistleblower Cannot Remain Anonymous
We have previously written about the court’s position that serial whistleblowers, those who submit more than one whistleblower claim with the IRS, cannot remain anonymous when litigating the right to their whistleblower claims. In Whistleblower 7208-17 v. Commissioner, T.C. Memo. 2018-118, the court confirms that this extends to those who use public information to submit…
FBAR Not Limited to $100,000, Willfulness Upheld
There have been a number of recent court cases involving foreign bank accounts or FBAR reporting penalties. This is likely due to the significant amount of the penalty and that many do not fully appreciate the amount of liability they face if caught not complying with the FBAR rules. This is one of the most…
When Forged Signatures Suffice: The Tacit Consent Exception
A tax return has to be signed to be valid. But what if the return is signed by someone else? Is a tax return with a forged signature a valid tax return? The court addressed this in Coggin v. United States, No. 1:16-CV-106 (M.D.N.C. 2018). Contents1 Facts & Procedural History2 Tax Return Signature Requirement3 The Tacit…
Avoiding Cancellation of Debt Using Rebates or Refunds
Can taxpayers avoid cancellation of debt income by structuring debt reductions as rebates or refunds? The court touched on this issue in French v. Commissioner, T.C. Summary Opinion 2018-36. Contents1 The Facts & Procedural History2 Cancellation of Debt Income3 Refund or Rebate Concept4 Evidence of a Refund or Rebate The Facts & Procedural History The taxpayers…
Legal Construction: Taxes Tied to Activities
When Congress provides a tax benefit contingent on some activity, there is often a question as to whether the activity can be read broadly to encompass many sub-activities or has to be read narrowly. This impacts the amount of the tax benefit and how difficult it is to comply. Generally, if construed broadly, the tax…
Perception Can Be As Important as Substance in Tax Disputes
Taxpayers voluntarily submit information to the IRS. The IRS not only evaluates the substance of this information, but also the taxpayer’s candor in preparing and providing the information. The perception of candor is just as important as the substance in many cases. The Guess v. Commissioner, T.C. Memo. 2018-97, provides an example of how things can…