The Sixth Circuit Court of Appeals upheld the IC-DISC Roth IRA tax strategy in In Summa Holdings, Inc. v. Commissioner, No. 16-1712 (2017). This tax strategy allows business owners to sidestep the annual Roth IRA contribution limits, thereby allowing the taxpayers to amass sizable amounts in their Roth IRAs to grow tax-free. The case is…
Tax Articles
Relying on Tax Attorney for Filing Deadline is Reasonable Cause
It is clear that one cannot rely on a tax attorney to file a tax return for purposes of removing penalties if the return is not filed. But can you rely on an attorney if the attorney provides advice as to the wrong date for filing? The court addresses this in Estate of Hake v.…
Discount Loyalty Programs are Not Trading Stamp Companies
Accrual method taxpayers generally must recognize advance payments in taxable income in the year of receipt, because receipt satisfies the all events test. The trading stamp rules are an exception to this all-events test. These rules apply to businesses that have customer loyalty programs. The rules can result in significant tax deferral as they allow…
Planning for Tax Refunds in Bankruptcy
The In re Porter, No. 16-11831-BFK (E.D. Va. 2017) case serves as a timely reminder that taxpayers who have unpaid tax debts and who are expecting sizable tax refunds may benefit from timing the filing of their bankruptcy cases. Contents1 Facts & Procedural History2 Right to Tax Refund as of the End of the Year3…
How to Challenge an Invalid IRS Notice of Deficiency
The IRS is required to send taxpayers a notice of deficiency before it can assess additional tax. The notice itself has to put the taxpayer on notice that the IRS made a determination that there was a tax deficiency (i.e., an amount owed), the tax year, and the amount. A notice that does not include…
Does Withholding on Wages Convert the Wages to a Tax?
The U.S. Bankruptcy Court recently considered whether amounts withheld from wages in excess of the amount of the income tax liability owed is a refund of tax or a refund of wages. The case is In re Crutch, No. 15-44523-cec. (E.D.N.Y. 2017). The case is a reminder to those taxpayers who are considering bankruptcy that…
Deducting Back Taxes in Current Year for Defunct Business
Can an S corporation shareholder for a defunct business pay unpaid taxes in the current year, and have the defunct business deduct the payment in the current year? The court addresses this in Brown v. Commissioner, T.C. Memo. 2017-18. Most business owners may miss this deduction given that the business is no longer operating. Contents1 Facts…
No Reasonable Cause Defense for Some Trust Fund Penalties
The IRS is serious about unpaid employment taxes. The trust fund recovery penalty can be used to collect these taxes. This penalty makes a business tax liability a personal liability. With most penalties, the penalty can be abated for reasonable cause. But what about the trust fund penalty? Can it be abated for reasonable cause?…
Post Office Tracking Data Can Result in Tax Disputes
There have been a number of tax cases involving disputes as to when tax documents are mailed to the government. In Tildon v. Commissioner, No. 15-3838 (7th Cir. 2017), the court considered a dispute that turned on whether U.S. Postal Service tracking data is a “postmark made by the U.S. Postal Service.” Contents1 The Facts…
Transferring Property Owned by Taxpayer With Unpaid Taxes
Buyers have to be careful when purchasing property subject to an IRS lien. The recent United States v. Urioste, No. 4:15-CV-1787-VEH (N.D. Ala 2017) considered the situation where a business purchased and improved real estate that was encumbered by an IRS tax lien. Contents1 Facts & Procedural History2 Equitable Subrogation3 Unjust Enrichment4 Marshaling of the Assets5…