Tax Controversy Posts

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It is well known that single-member LLCs are disregarded for tax purposes, unless the owner elects for it to be treated as a corporation. While that is generally true, it proved to be specifically wrong for one taxpayer that operated a charter yacht. DAF Charters, LLC v. Comm’r, No. 21317, 2019 U.S. Tax Ct. LEXIS 15 (May 9, 2019). John Staluppi formed DAF Charters, LLC (“DAF” or the “Taxpayer”), a Florida limited liability company,…
Penalties and their approval have received a lot of attention from the Tax Court recently. The starting point is section 6751(b) of the Internal Revenue Code, which provides “[n]o penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.” I.R.C. § 6751(b). In March of 2017,…
When a state or local tax is invalidated in Pennsylvania it is typically based upon either the Commerce Clause of the United States Constitution, art. I, § 8, cl. 3, or the Uniformity Clause of the Pennsylvania Constitution, art. VIII, § 1. Last week, however, the Supreme Court of Pennsylvania struck down a tax relying primarily on the Fourteenth Amendment, and most of the Court’s members could not decide which part invalidated the tax. Sands
“Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.” Many would identify the quotation as the Postal Service motto, but the Postal Service does not have a motto.1 And frankly, its non-motto is not true, as a certain amount of mail simply disappears. Those familiar with Murphy’s Law2 will recognize that the more important the document, the more likely it is…
The Tax Court exists to provide taxpayers with a judicial forum to review assertions that they have underpaid their taxes without having to “pay to play.” In addition to having jurisdiction to determine whether an underpayment (technically known as a deficiency) exists, the court also has jurisdiction to award refunds in cases that are properly before it. 26 U.S.C. § 6512(b)(1). As a consequence, when the IRS issues a notice to a taxpayer indicating that…
The heirs of an estate agreed to be liable for deferred estate taxes, but then changed their minds. The government was able to collect from the heirs by asserting that it was a third party beneficiary of the heirs’ agreement to pay the deferred estate taxes. United States v. Johnson, Nos. 17-4083, 17-4093, 17-4036, 2019 U.S. App. LEXIS 9317 (10th Cir. Mar. 29, 2019). Anna Smith created a trust for her family, known as…
When taxpayers owe the federal government large sums of money, they sometimes put their property in the hands of friends and family in an effort to protect it. It’s a classic case of someone doing something stupid that he thinks is clever. It’s stupid because it’s a felony: Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other…
Section 165 of the Internal Revenue Code used to provide individuals with a tax deduction for losses that were not covered by insurance that arose “from fire, storm, shipwreck, or other casualty, or from theft.” I.R.C. § 165(c)(3). The deduction was shelved for a while in the interest of “tax reform,” but it may come back in 2025. See I.R.C. § 165(h)(5)(A). But tax cases run several years behind current law, which means we can…
When the IRS audits a taxpayer, it typically focuses on his or her records. At times, however, it may decide that it should gather evidence from others. The authority of IRS employees to contact third parties is regulated under the Internal Revenue Code, which provides as follows: An officer or employee of the Internal Revenue Service may not contact any person other than the taxpayer with respect to the determination or collection of the tax…