T&K Tax Knowledge

IRS Extends Filing Due Date to Match New Payment Due Date

Posted by Abbey Garber

     

After previously announcing an extension for paying income taxes, Treasury Secretary Mnuchin tweeted this morning that “we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.”

Taxpayers May Delay Paying IRS 90 Days

Posted by Abbey Garber

     

The Secretary of the Treasury announced on March 17 that individual taxpayers may defer payments to the IRS of up to $1 million (and corporations may defer paying up to $10 million) from the statutory deadline of April 15 to July 15, without being liable for interest or penalties.  This announcement was made by Secretary Mnuchin during the daily coronavirus task force press conference at the White House.  It is important to note that the filing deadline was not extended from April 15.

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.