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?…
Tax Articles
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…
Deducting Pre-Acquisition Stock Compensation
In Qinetiq US Holdings, Inc. v. Commissioner, No. 15-2192 (4th Cir. 2017), the court addresses the situation where a taxpayer acquired a target corporation and then claimed a substantial tax deduction for expenses the target corporation had paid prior to the acquisition. There are rules intended to prevent taxpayers from being able to deduct pre-acquisition…
Taxpayer Retains Right to Tax Refund Claims Despite Bankruptcy Discharge
The bankruptcy-tax rules can present a number of opportunities. In Martin v. United States, Case No. 3:13-CV-03130 (C.D. Ill 2017), the court concludes that the taxpayers retained the right to sue the IRS for substantial tax refunds for taxes that were overpaid prior to their bankruptcy, despite having discharged their debts in bankruptcy. Bankruptcy &…
Is a Bad Debt Deduction Triggered by Cease-and-Desist Court Order
Determining the allowable tax year for a loss is a common challenge for taxpayers, often relying on identifying a triggering event. There is very little guidance as to what can qualify as a triggering event for tax purposes. In the case of a cease-and-desist order from a state regulator, does it qualify as a triggering…
S Corporation Owner Subject to Self-Employment Tax
Taxpayers often establish Subchapter S corporations to avoid Social Security and Medicare taxes on a portion of their earnings. This is a very common arrangement. The Fleischer v. Commissioner, T.C. Memo. 2016-238, court case provides an example of how the Subchapter S corporation must be structured to avoid these taxes. Facts & Procedural History In Fleisher, the…
Using IRA Funds to Settle a Probate Dispute
Inherited IRAs can present a number of challenges. In Ozimkoski v. Commissioner, T.C. Memo. 2016-228, the court considered the tax implications of a withdraw from an inherited IRA that was used to settle a probate dispute with the couple’s son. The case shows what not to do when using IRA funds to settle a probate…
Proof of Cash on Hand to Abate Failure to Pay Penalty
The failure to pay penalty is one of the most commonly assessed penalties. The penalty does not apply and can be abated or removed if the taxpayer can establish that the failure to pay is due to reasonable cause and not to willful neglect. But how do you establish reasonable cause? In C1 Design Group, LLC…
Continuation Theory: Collecting Taxes Owed by Prior Business
If a business has or expects to have a significant debt, it may transfer its assets and/or operations to a new business entity to try to avoid the debt. There are a number of non-tax cases where the courts have addressed this. The courts generally apply a “continuation” theory in these cases which asks whether…