T&K Tax Knowledge

Tax Court Holds Microcaptive's Policies Not Insurance

Posted by Todd Keator and Murtuza Hussain

            

In a recent case, Benjamin Avrahami v. Commissioner, 149 T.C. No. 7 (August 21, 2017), the Tax Court held that payments, including those to a microcaptive, were not for insurance and therefore were not deductible under Section 162. Furthermore, since less than half of the attempted microcaptive’s business was from issuing insurance contracts, it was not an insurance company and an election under Section 831(b) was not available.

 

Trade Preferences Extension Act of 2015 Increased Penalties on Failure to File Information Returns

Posted by Mary McNulty and Lee Meyercord 

 

        

 

The Trade Preferences Extensions Act of 2015 (the “Act”) (available here) dramatically increased penalties for failure to file information returns for returns required to be filed after December 31, 2015:

• Failure to file penalty is increased from $100 to $250 per return and the maximum annual penalty is increased from $1.5 million to $3 million.

• For failures that are corrected within 30 days, the penalty is increased from $30 to $50 per return, and the maximum annual penalty is increased from $250,000 to $500,000.

• For failures corrected after 30 days but before August 1, the penalty is increased from $60 to $100 per return, and the maximum annual penalty is increased from $500,000 to $1.5 million.

• Lower limitation on the maximum annual penalty for taxpayers with gross receipts under $5 million is increased from $500,000 to $1 million, from $75,000 to $175,000 for failures corrected within 30 days, and from $500,000 to $1.5 million for failures corrected before August 1.

• Penalty for intentional disregard is increased from $250 to $500 per return and the maximum annual penalty is increased from $1.5 million to $3 million. 

If you have any questions about the increased penalties on the failure to file information returns, please contact one of us or any of the other Tax lawyers at Thompson & Knight.

District Court Finds IRS’s Conduct in Assessing FBAR Penalties was Arbitrary and Capricious

Posted by Mary McNulty and Lee Meyercord 

 

        

 

In Moore v. United States (available here), the District Court found that the IRS’s decision to assess the maximum $10,000 FBAR penalty for each year was not arbitrary, capricious or an abuse of discretion, but the IRS’s refusal to explain the basis for the penalties was arbitrary and capricious.

Avoiding Disputes with the IRS and Beneficiaries: Recent Developments Relevant to the Family Office

Posted by Bill Mureiko, Eric Reis and Mary McNulty

                 

On March 6, 2014, Bill Mureiko, Eric Reis, and Mary McNulty discussed recent developments in avoiding disputes with the IRS and beneficiaries with the Firm’s Family Office Discussion Group.  A copy of their presentation is available here.   Topics included no-contest clauses, mandatory arbitration clauses in wills and trusts, the new IRS information document request (IDR) process that became effective on March 3, 2014, and the offshore voluntary disclosure program (OVDP).  Key points from the presentation include the following:

• A new Texas statute became effective on January 1, 2014, governing the enforceability of no-contest clauses in wills and trusts.
• The Texas Supreme Court recently decided that a beneficiary who has accepted the benefits of a trust has also agreed to all the terms of the trust, including any arbitration provisions. 
• The IRS has announced a new IDR process that clarifies and supercedes the IRS process announced on June 18, 2013, and November 4, 2013, and previously discussed here.
• The Offshore Voluntary Disclosure Program is becoming increasingly important as the IRS and the Department of Justice reach more agreements with offshore banks that will allow them to identify U.S. citizens who failed to disclose offshore bank accounts and to report income from such accounts on their U.S. tax returns.

If you have any questions about any of these topics or if you would like to join the Firm’s Family Office Discussion Group, please contact one of the authors or any of the other Tax lawyers at Thompson & Knight.

Other Common IRS Errors in Computing Interest

Posted by Bob Probasco and Mary McNulty

         

We previously discussed common interest computation errors related to credit election transfers and carrybacks. 

To avoid leaving money on the table, taxpayers also should be aware of other common errors by the IRS.  These are some example of areas where the law is settled and not in dispute but the IRS frequently makes mistakes:

• Applying the complicated rules governing whether and when to use the higher “hot interest” rate for underpayments.
• Using consistent effective dates for funds transferred from one year to another.
• Suspending underpayment interest when the taxpayer pays the amount due timely or the IRS fails to make notice and demand timely.
• Suspending underpayment interest during periods for which the IRS previously refunded overpayments without paying interest.
• Using the correct dates for manual refunds.
• Accruing interest on penalties from the due date of the return as extended, rather than the original due date.

You can find more about these, and other interest computation issues, in our 2005 article "Computing Interest on Overpayments and Underpayments: How Difficult Can It Be? Very!" and our chart of Pending Interest Cases.  If you have any questions, please contact one of us or any of the other Tax lawyers at Thompson & Knight.

IRS Audits – What You Should Know About Correcting Errors and Omissions

           

Posted by Bob Probasco and Mary McNulty

A common taxpayer question is whether they must or should tell the IRS about mistakes or omissions in the tax return after it is filed.  Generally, there is no obligation to notify the IRS or file an amended return.  The taxpayer and representative cannot make misrepresentations or misleading statements to the IRS when questions arise, but they need not point out something that the IRS did not ask about.  However, in some circumstances it may be beneficial to notify the IRS even though it is not required.  For example, the taxpayer may be able to avoid penalties by timely filing a “qualified amended return” before the IRS contacts the taxpayer concerning an audit.  There is a similar process for taxpayers in the Coordinated Industry Case (“CIC”) or for requesting changes in accounting methods.  Even if the taxpayer does not qualify under provisions to automatically avoid penalties, voluntary disclosure might help demonstrate good faith and persuade the auditor to forego penalties.  The taxpayer should discuss the advantages and disadvantages carefully with its representative.  You can find more information about this and other audit issues in Bob’s article, with Emily Parker, on "Surviving IRS Examinations and Appeals."  If you have any questions, please contact one of us or any of the other Tax lawyers at Thompson & Knight.

Fifth Circuit Concludes Statute of Limitations and Application of Enhanced Interest Are Partnership Items

               

Posted by Lee Meyercord, Mary McNulty and Bob Probasco

In Irvine v. United States, the Fifth Circuit considered whether a district court in refund litigation had jurisdiction over the Taxpayers’ claims that the IRS assessment was barred by the statute of limitations and that interest should not have been imposed at the Section 6221(c) rate.  The case demonstrated the importance of determining whether an issue must be decided in a partnership-level proceeding or a partner-level proceeding.  Raising the issue in the wrong proceeding can forfeit the taxpayer’s claim due to jurisdictional limits.

Deficiency Notice Was Valid But Tax Court Lacked Jurisdiction Over Penalties in Partner-Level Proceeding

Posted by Lee Meyercord, Mary McNulty, and Bob Probasco

Estate of Simon involved an affected item notice of deficiency issued to an indirect partner after the notice of final partnership administrative adjustment (“FPAA”) issued to the partnership was not timely challenged.  (Mary McNulty discussed the complex procedural rules for partnership audits and tax litigation in this recent presentation.)  Mr. Simon was an indirect partner in Charlevoix, a TEFRA partnership that participated in a Son-of-Boss transaction in 2000.  Charlevoix’s 2000 partnership return listed Charlevoix’s address as Mr. Simon’s residential address in Petoskey, Michigan (the Petoskey address).  In January 2001, Mr. Simon moved but did not provide the required notice of the new address for Charlevoix to the IRS.  The FPAA was mailed to the Petoskey address but was returned by the Post Office.  None of the partners knew of, or challenged, the FPAA.

Update on Supreme Court Tax Cases

Posted by Bob Probasco and Mary McNulty

There have been several developments since our blog post on "Tax Cases – Upcoming Supreme Court Term":

• The Court will hear oral arguments on the Quality Stores case on January 14th.
• On December 2nd, the Court declined to hear the Amazon.com and Overstock.com cases.
• On December 2nd, the Court issued a per curiam order granting cert in the Ford case and remanding it to the Sixth Circuit for consideration of a jurisdictional issue.
• On December 3rd, the Court issued its opinion in the Woods case, ruling for the government on both the jurisdictional issue and the penalty issue.

We’ll have more later on the Court’s actions in Ford and Woods, and will also continue to monitor developments in the Quality Stores case.  If you have any questions on these cases or issues, please contact one of us or any of the Tax attorneys at Thompson & Knight.

Supreme Court Hears Arguments in Woods Case, Focusing on TEFRA Jurisdictional Issue

In March, we discussed the Supreme Court’s decision to grant certiorari in the Woods case.  The government had asked the Court to decide a question about the interpretation of the 40% penalty for gross valuation misstatements, but the Court also asked the parties to address a complex jurisdictional issue.  Earlier this month, the Court heard oral arguments; a transcript is available here and the briefs are available here.  Most of the discussion concerned the jurisdictional question, which could have a significant impact on future tax litigation for partnerships.