Tax Controversy Posts

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The Internal Revenue Service relies upon two separate information streams to determine the correct tax due from taxpayers: First, it relies upon the return that each taxpayer files under penalty of perjury; Second, it relies upon information returns provided by individuals and entities that have economic ties to particular taxpayers, who are required to report on those relationships. As a consequence, partnerships and S Corporations are required to file information returns. I.R.C. §§ 6031, 6037.…
At one time the Internal Revenue Code permitted a deduction for any interest, but that changed long ago. While section 163 of the Code still says that “[t]here shall be allowed as a deduction all interest paid or accrued within the taxable year on indebtedness,” I.R.C. § 163(a), now 6,899 words follow to qualify that simple declarative sentence. For example, investment interest is only deductible to the extent of investment income. I.R.C. § 163(d)(1). And…
On July 5, 2017, the Supreme Court of Pennsylvania announced a ground-breaking ruling, holding that “a taxing authority is not permitted to implement a program of only appealing the assessments of one sub-classification of properties, where that sub-classification is drawn according to property type — that is, its use as commercial, apartment complex, single-family residential, industrial, or the like.” Valley Forge Towers Apartments N., LP v. Upper Merion Area School District, 640 Pa. 489,…
Tax-exempt organizations are potentially still subject to tax. Under section 511 of the Internal Revenue Code, a tax-exempt organization must pay tax on its “unrelated business taxable income.” I.R.C. § 511(a). This unrelated business income tax, known as UBIT, is designed to reach income derived from a business that is carried on by an exempt organization, “which is not substantially related . . . to the exercise or performance by such organization of its charitable,…
It is no surprise that people cheat, but sometimes their audacity is astonishing: Faced with new limits on telemarketing for his business, one entrepreneur set up a charity to avoid the constraints of the Do-Not-Call Implementation Act. And it worked, at least for a while. Ronald Carrier was a businessman who organized Windows Plus, Inc. to provide replacement windows and other home improvement services. Giving Hearts, Inc. v. Comm’r, T.C. Memo 2019-94, 2019 Tax…
For a dead statute, TEFRA looks very much alive. TEFRA, the Tax Equity and Financial Responsibility Act of 1982, governed partnership tax matters from the 1980s until recently. It was repealed by the Bipartisan Budget Act of 2015, which went into effect for tax years beginning after December 31, 2017. Although TEFRA was repealed, it still governs a large block of cases that are in litigation, which is hardly surprising. Somewhat more surprising is that…
The United States has entered into a variety of bilateral tax treaties. As a general matter, they are designed to promote trade and avoid double taxation. But they also serve other purposes, such as providing for mutual assistance in tax administration matters. As the Fourth Circuit recently held, that means that the IRS can be deployed to collect taxes owed to another country. Retfalvi v. United States, No. 18-2158, 2019 U.S. App. LEXIS 21004 (4th…
In blackjack, you can double your bet in the middle of a hand, but then you can only draw one more card; this strategy is known as doubling down. Doubling down has acquired a secondary meaning, which is “to become more tenacious, zealous, or resolute in a position or undertaking.”  In this broader context, the wisdom of doubling down will largely depend on the wisdom of your position: If you double down on…
Nullum tempus occurrit regi, sometimes shortened to nullum tempus, is an old principle of common law. The phrase means time will not run against the king, and the point is that he is not subject to statutes of limitations like the rest of us. While we lack a king, the principle remains alive in U.S. law, surfacing recently in a penalty case against a return preparer. Armstrong v. United States, No. 18-CV-06532-LHK, 2019 U.S.…
A title is “an appellation of dignity, honor, distinction, or preeminence attached to a person or family by virtue of rank, office, precedent, privilege, attainment, or lands.” https://www.merriam-webster.com/dictionary/title. Many human beings crave titles because they suggest power and status. Ashley C. Scott is a little different: She recently argued that the title she held meant that she lacked power. Ashley argued that she lacked power because she was the secretary of a corporation controlled…