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Tax Law Roundup current law developments in U.S. taxation

Category Archives: Litigation/Controversy

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Partnership Audit Reform Marches Forward

Posted in General, Litigation/Controversy, Partnership/LLC, Passthrough Entity, Tax reform

As part of the current Bipartisan Budget Act of 2015, sweeping changes to the partnership audit rules could be imminent.  The new rules would greatly simplify the IRS procedures for auditing partnerships and likely increase the audit rate of partnerships.  The new rules would replace the current “TEFRA” and “Electing Large Partnership” rules with a… Continue Reading

9th Circuit Disregards Purported Related-Party Partnership

Posted in General, Joint Venture, Litigation/Controversy, Partnership/LLC, Passthrough Entity

In DJB Holding Corp. the 9th Circuit concluded that a purported related-party partnership was not a bona fide partnership for tax purposes and taxable income was redirected to the taxable C corporation performing the underlying profitable services. The ultimate taxable services were performed by the C corporation but a partnership agreement between that C corporation… Continue Reading

Court Holds Taxpayer is Partner for Self-Employment Tax After Election Out Of Subchapter K

Posted in Joint Venture, Litigation/Controversy, Partnership/LLC, self-employment tax

The Tax Court recently ruled that a taxpayer was liable for self employment tax based on its status as a partner, even though the partnership had elected out of the partnership tax rules. Although the court in Methvin v. Commissioner respected the entity’s Section 761 election out of the Subchapter K partnership tax rules, it… Continue Reading

8th Circuit Affirms In Wells Fargo – No Business Purpose to Transaction Accelerating Contingent Liabilities

Posted in Deductions, Economic Substance, Litigation/Controversy, Tax Shelters

A new 8th Circuit Wells Fargo Decision held for the IRS, denying the acceleration of deductible expenses in a “contingent-liability strategy” because the transaction lacked economic substance/business purpose.  What was the strategy? Under the strategy, Wells Fargo contributed high-basis valuable assets and deductible contingent liabilities into a subsidiary corporation in a purported tax-deferred transaction.  The… Continue Reading

IRS Wins Con-Ed LILO Case On Appeal – No Substance to Lease or Debt

Posted in Debt vs. Equity, Economic Substance, Litigation/Controversy, Tax Shelters

In a reversal of the taxpayer-favorable lower court opinion, the Appeals Court for the federal Court of Claims concluded that Consolidated Edison’s Lease-In Lease-Out (LILO) transaction did not have economic substance and the purported lease was not a “true lease”.  The IRS “listed” this particular transaction in Rev. Rul. 2002-69 and Congress further stopped these… Continue Reading

Tax Court Respects Related-Party Loan

Posted in Debt vs. Equity, General, Litigation/Controversy, Partnership/LLC

In a significant taxpayer win, the Tax Court concluded in NA General Partnership v. Commissioner that related-party loans from a U.K. corporation to its controlled U.S. subsidiary were respected as debt, and the U.S. subsidiary was entitled to $932 million of interest deductions.  The original loans were $4 billion in fixed-rate notes and $896 million in floating-rate… Continue Reading

Supreme Court Rules Against IRS in Statute of Limitation Case

Posted in General, Litigation/Controversy, Procedure, Statute of Limitations

In a much-anticipated decision, the U.S. Supreme Court voted 5-4 against the IRS and held that the three-year and not six-year statute of limitations applied to a so-called Son of BOSS tax shelter in U.S. vs. Home Concrete & Supply LLC.   This is the culmination of a series of split appeals court decisions on… Continue Reading

IRS Has Three New Wins On Tax Shelter Cases

Posted in Economic Substance, General, International, Litigation/Controversy, Partnership/LLC

The Justice Department touted three significant wins on tax shelter cases involving importing foreign built-in tax losses, foreign tax credits, and generating tax losses from “underwater” commercial leases. In the first case, Southgate Master Fund LLC v. United States, the Fifth Circuit Court of Appeals, affirmed a lower court ruling that a purported “partnership” was… Continue Reading

FBAR Voluntary Disclosure – IRS Provides Short-term Extension to September 9

Posted in Compliance, General, International, Litigation/Controversy

NOTE (Aug. 29, 2011): The IRS clarified that the Sept. 9, 2011, extension also applies to taxpayers filing delinquent FBARs pursuant to IRS Q&A 17 and 18 for the simplified program applicable to taxpayers who did not owe tax but failed to file the appropriate tax forms. _________________________________________________________ Due to Hurricane Irene, the IRS extended… Continue Reading

IRS Reminds Taxpayers of Aug. 31 Deadline for FBAR Voluntary Disclosure

Posted in Compliance, General, International, Litigation/Controversy

The IRS issued a press release reminding taxpayers that they have until August 31 to join the 2011 Offshore Voluntary Disclosure Initiative.  According to the press release, the 2011 initiative offers benefits to encourage taxpayers to come forward rather than risk detection by the IRS, observing that taxpayers hiding assets offshore who do not come… Continue Reading

D.C. Circuit Defers to IRS Regulations and Applies Six-Year Statute Of Limitations

Posted in Litigation/Controversy, Statute of Limitations

In the most recent of a series of appellate decisions, the D.C. Circuit in Intermountain Insurance, held in favor of the IRS by applying a six-year statute of limitations period as a result of an overstated partnership tax basis. In 2010, the IRS issued regulations treating over-stated tax basis as an understatement of gross income,… Continue Reading