"Editing" Information Provided to Tax Advisers Meant Taxpayer Could Not Claim Reliance on Their Advice

Wanting something to be true won’t necessarily make it true.  And, it turns out, hiring advisers to help you achieve the tax result you want, but then “editing” the information you provide them doesn’t allow you to rely on their work or get out of penalties when you are found to owe tax due to reality not comporting with your view of what should have been the reality.

This was the problem in the case of Brinkley v. Commissioner, TC Memo 2014-227, affirmed CA5, No. 15-60144.  The taxpayer in this case was an individual who was working for a technology company start-up and was given stock in the enterprise.  As is often true in such entities, the organization went out regularly to obtain new equity funding which served to dilute the interest of existing shareholders.

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Reliance on Adviser by Major League Player to File Returns and Pay Taxes Not Found Reasonable Cause to Waive Penalties

A former major league baseball discovered that certain tax related responsibilities cannot be delegated to paid advisers, as the Sixth Circuit found the taxpayer liable for penalties despite misconduct on behalf of his advisers in the case of Vaughn v. United States, CA6, Case No. 14-3858.

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IRS Issues Program Manager Technical Advice on Business Related Identity Theft

In Program Manager Technical Advice 2015-19 the IRS indicated how the agency should deal with situations that arise when there is identity theft that occurs against a business.  

While identity theft at the individual level has gotten much attention in the press, there also exist situations where a third party attempts to hijack a business’s tax identity for nefarious purposes.  For instance, the hijack can be use to create fictitious W2s that can be used to make it more difficult for the IRS to detect individual tax return refund fraud or simply to claim fraudulent refunds for the “business” in question. 

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Differences Matter - Despite IRS Loss in Brother's Case, True Gift from the 1970s Found in Later Case

Back about a month ago we wrote about the gift tax case of the Estate of Edward Redstone where the Tax Court found that, due to litigation with his father, a transfer in trust for his children was not a taxable gift.  The Court found the transfer had been for full and adequate consideration due to the issues related to the litigation and it did not matter the children had not provided such consideration.

Edward's brother Sumner also transferred shares to trust around the same time and, again, the IRS raised the gift issue.  But this time the results would be different.

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PDF With Analyis of PATH Act and Comprehensive Appropriation Act Available for Download

Now available is a 41 page PDF dealing with the provisions in the bills passed by Congress on December 18, 2015 and signed into law the same day.

The paper describes the items in those bills, including the items that were made permanent, those extended but which will eventually expire and other law changes found in these bills.

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Analysis of the Protecting Americans from Tax Increases Act of 2015

The major bill that dealt with all of the provisions Congress passed a one year extender on the prior December was the PATH Act.  This bill, in addition to extending various provisions, also added some brand new provisions to the tax law.

For the most part the bill retains those provisions that expired in 2014 with the same rules and limits for 2015.  However the act makes some of these provisions permanent, extends others through 2019 and extenders the remainder through the end of 2015.  As well, some provisions are modified for 2016 and later years.

The President signed the bill into law on December 18, 2015, making that date the “date of enactment” for provisions that reference that date.

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PATH Act of 2015 Passed by Both Houses of Congress

The Protecting Americans From Tax Hikes Act of 2015 was passed on Friday as part of a combined tax and spending bill by the Senate on Friday after the spending portion of the bill passed the House earlier that morning.

We are going to put together a summary of the bill that will be available here later, but available now are both the text of the bill and the Joint Committee on Taxation's Technical Explanation of the Bill.

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Protecting Americans from Tax Hikes Act of 2016 Summary

This summary is taken from the summary of the proposed Protecting Americans from Tax Hikes Act of 2016 that was posted on the website of the House Ways & Means Committee on December 16, 2015. At the time this was prepared the law awaited action in both Houses of Congress, but for the moment it appears very likely this will be the bill that is finally passed.

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IRS Announces Early Interaction Initiative to Identify Employers Falling Behind in Payroll Tax Deposits Earlier

In News Release 2015-136 the IRS has announced an initiative to contact businesses the service identifies as “at risk” for falling behind in payroll tax deposits.

The program, called the “Early Interaction Initiative”, is described in the release as noted below:

The initiative is designed to help employers stay in compliance and avoid needless interest and penalty charges. The initiative will seek to identify employers who appear to be falling behind on their tax payments even before an employment tax return is filed. The IRS will offer helpful information and guidance through letters, automated phone messages, other communications and in some instances, a visit from an IRS revenue officer.

The IRS describes how the program will operate as follows:

…[T]he new IRS initiative will monitor deposit patterns and identify employers whose payments decline or are late. Employers identified under this initiative may receive a letter reminding them of their payroll tax responsibilities and asking that they contact the IRS to discuss the situation. In addition, some employers may receive automated phone messages from the IRS providing information and assistance. Where appropriate, an IRS revenue officer will also contact some of these employers at their place of business.

IRS Debuts Estate Transcript System to Replace Routine Issuance of Closing Letters to Estates

As was noted earlier in 2015, the IRS has now provided a transcript alternative to the issuance of closing letters for Forms 706.  The details of obtaining the transcript is found on the IRS website at https://www.irs.gov/irspup/Businesses/Small-Businesses-%26-Self-Employed/Transcripts-in-Lieu-of-Estate-Tax-Closing-Letters.

The IRS had earlier announced that the agency would no longer be issuing closing letters to estates that had filed Form 706 for forms filed on or after June 1, 2015.  While the initial announcement had indicated there would be a method to request a closing letter, the IRS later suggested at an ABA conference that it would create a transcript system to replace estate closing letters. 

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Impact of Obergefell Decision on Retirement and Health and Welfare Plans Detailed by IRS

In Notice 2015-86 the IRS issued guidance regarding the effect of the U.S. Supreme Court’s ruling in Obergefell v. Hodges on retirement plans and health and welfare benefit plans.

Generally the ruling notes that since the federal government was required to recognize same sex marriages that were valid at the time entered to following 2013’s decision by the United States Supreme Court in the case of United States v. Windsor there is a very limited impact of the Obergefell decision.

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Taxpayer Allowed to Increase Credit Carryover Based on Credits Not Claimed in Closed Year

Advisers at times treat the statute of limitations related to tax returns as being broader than it actually is, believing that once a year is closed there is no ability for either the IRS or a taxpayer to make a change to an item on that return.  As PLR 201548006 points out, that’s not the case.  And, in this case, that works out to the taxpayer’s advantage.

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Stock Received in Demutualization Has Zero Basis per Ninth Circuit, Creating Split with Federal Circuit

In the case of Dorrance v. United States, CA9, 116 AFTR 2d ¶2015-5505, reversing DC Arizona, 111 AFTR 2d 2013-1280 a divided panel concluded that stock received from demutualization of an insurance company has a basis of zero.  Note that this viewpoint is at odds with the holding of Federal Circuit Court of Appeals in the case of Fisher v. United States, 102 AFTR 2d 2008-5608 (2008), affd 105 AFTR 2d 2010-35 (2009) creating a split in the circuits on this issue.

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Analysis Found in 2002 PLR Represents Proper Treatment of ERP Software Costs in the View of the IRS Chief Counsel's Office

The IRS took the interesting step of formally “blessing” a private letter ruling as “still valid” with regard to other taxpayers in Chief Counsel Advice 201549024.  That is interesting because a private letter ruling is only binding with regard to the taxpayer who requested it, but it illustrates the fact that this “somewhat but not quite formal” guidance is still important to understand.

The issue in this case relates to how enterprises deal with expenses related to Enterprise Resource Planning (ERP) software.  The IRS had issued PLR 200236028 that provided information on what the IRS position was the requirements to capitalize such costs and the periods over which the costs could be recovered. 

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Alternative Minimum Tax Applies Despite Taxpayer's Unique Circumstances in His Job

Life is unfair, and the tax law often becomes part of that unfairness.  But the mere fact that a result may be unfair is not enough to change its result as the taxpayer discovered in the case of Vargas v. Commissioner, TC Summary Opinion 2015-69.

Mr. Vargas filed a married filing separate return for 2013, reporting total adjusted gross income of $67,045, exemptions for himself and his son of $7,800 and itemized deductions that included $40,978 of employee business expenses.  Mr. Vargas was a pilot flying internationally was expected to incur significant unreimbursed expenses.

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IRS Reminds Preparers to Check EFIN Information and Monitor Use

The IRS has reminded those participating in the electronic filing program about their responsibilities with regard to their EFIN number in Fact Sheet FS-2015-27.

The IRS has expressed concern about legitimate EFIN accounts being “hijacked” by those perpetrating tax refund fraud by filing fraudulent returns and has indicated that the agency expects EFIN holders to take actions to secure and monitor their accounts at IRS e-services.

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