The IRS released Action on Decision 2016-01 to disagree with a court case that held that a payment from an accounting firm to settle a claim against the firm for selling an abusive tax shelter was not taxable to the recipient. Facts & Procedural History The case is Cosentino v. Commissioner, T.C. Memo. 2014-186. In…
Tax Articles
IRS Limits Ability to Submit Informal Refund Claims During Audits
The IRS released Publication 5125, Large Business & International Examination Process, which describes the IRS audit process and the new change for taxpayers submitting informal refund claims during the audit. The Publication continues the IRS’s prior policy of cooperation, responsiveness, and transparency in conducting audits. The Publication re-iterates the IRS’s expectations for its examiners and…
Limits on IRS’s Ability to Ask for Records Multiple Times
If the IRS conducts an audit for one year and reviews records, but fails to keep the records and then conducts an audit for a second year, is the taxpayer obligated to provide a second copy of the records the IRS failed to keep from the first year? The court addressed this in United States v.…
TV Commercial Set Designer Was an Independent Contractor
In Quintanilla v. Commissioner, T.C. Memo. 2016-5, the U.S. Tax Court concluded that a set designer for TV commercials was an independent contractor and not an employee for tax purposes. This case provides a good example of factors that show that a worker is in fact an independent contractor. Facts & Procedural History Mr. Quintanilla…
R&D Credit Made Permanent & Enhanced
Congress made the research tax credit permanent and enhanced the credit. The changes are retroactive back to January 1, 2015. Temporary Nature of the R&D Credit The permanent research tax credit solves one of the ongoing problems with the credit. As critics of the credit have noted, the credit cannot provide much of an incentive…
Who Can Sign a Form 2848 Power of Attorney for an LLC
We are often asked who can sign a POA or Form 2848, Power of Attorney and Declaration of Representative, for a limited liability company or LLC? The IRS addressed this in AM 2015-004. About Form 2848 – Power of Attorney The Form 2848 allows the IRS to disclose taxpayer information to persons who represent the…
You Cannot Dodge Notice for the Trust Fund Recovery Penalty
It is almost always advisable to keep on the lookout for open correspondence from the IRS. The Haben v. Commissioner, T.C. Summary Opinion 2015-55, case provides an example. In Haben, the U.S. Tax Court concluded that a taxpayer could not contest a trust fund recovery penalty during a collection due process hearing because he had…
IRS Collections When Taxpayer’s Income Varies
In Charnas v. Commissioner, T.C. Memo. 2015-153, the U.S. Tax Court addressed whether a lawyer who had variable income from year to year was able to pay his outstanding tax debt. The court concluded that the IRS erred in not considering the variable nature of the taxpayer’s income in determining whether he could pay his…
Tax Attorney’s Brain Cancer Insufficient to Avoid Penalties
If a tax return is filed late or taxes are paid late, penalties may be imposed by the IRS. However, there are exceptions to these penalties if the taxpayer can prove that the failure was due to reasonable cause and not due to willful neglect. One might think that brain cancel might fit the bill…
LLC Owned by Self-Directed IRA Cannot Pay Wages
The U.S. Court of Appeals for the Eleventh Circuit recently affirmed Ellis v. Commissioner, which held that the payment of wages for services to a self-directed IRA owner for his services rendered to an LLC owned by a self-directed IRA was a prohibited transaction. This case provides yet another example of how not to handle…