Prose by Tax Pros - Another Article by Hale E. Sheppard: Recent Episodes
Hale E. Sheppard
Most tax “articles” published these days are just summaries, not substance. Their lack of context, critical thought, and practical solutions often leaves readers with more questions than answers. Breaking this trend, the articles accessible here provide rare insight about complicated tax issues, making them both interesting and understandable. Please listen in for a series of articles, written by an attorney dedicated to tax disputes and international tax, previously published in major journals, and read by professionals.
Most people are somewhat confused about Employee Retention Credit (“ERC”) issues. This is logical given the massive amount of information, much of it inaccurate, released by various sources over the past four years. Among the aspects that escape most people are the enforcement actions taken by the IRS. Understanding these is critical because taxpayers and other parties that might end up in the IRS’s crosshairs cannot effectively defend themselves if they do not know what their adversary is doing. This article, another in a long series, explores the major enforcement tactics used by the IRS thus far in challenging what it considers improper ERC claims.
Employers generally are required to withhold, deposit, and remit taxes on wages paid to their employees. They are obligated to file various returns with the IRS documenting their actions, too. Many employers hire a third-party payer (“TPP”) to handle these duties. Things often go smoothly, but issues can arise when situations get complicated. One example is when an employer files an Employee Retention Credit (“ERC”) claim through its TPP, the IRS allows it, and then it starts looking for persons to audit. This article, the latest in a long series, explains the various ERC laws and analyzes the four main sources of IRS guidance thus far about liability for tax underpayments and penalties resulting from improper ERC claims.
The IRS has focused on several different transactions in recent years, but its indignation now centers on certain positions taken by taxpayers in connection with Charitable Remainder Annuity Trusts (“CRATs”). This article describes a growing list of IRS efforts to stop what it deems abusive transactions involving CRATs. These include a legal memo, an injunction lawsuit, two Tax Court battles, a Dirty Dozen listing, and, most recently, regulations proposing to categorize items as “listed transactions.”
In its effort to win conservation easement cases, the IRS has trotted out lots of different arguments over the years. Some were rejected by the Tax Court upon arrival, others gradually disappeared as taxpayers improved pre-donation documentation to avoid “technical” flaws, and a few still exist. One of the lingering challenges centers on the character of the property on which an easement is placed. This argument has been dubbed the “inventory issue,” and the IRS is now raising it frequently. These efforts have resulted in three recent Tax Court victories for the IRS. This article examines concepts in easement disputes, key participants, legal support for the “inventory issue,” and three pivotal cases thus far.
At some point during most audits, taxpayers will ponder whether, or to what extent, they should “cooperate” with the IRS. They also might ask what, exactly, cooperation means in a particular situation. These are critical questions to which many taxpayers lack clear answers, and this type of unawareness can lead to bad decisions. This article describes duties associated with foreign accounts, standards for reducing penalties, a new case in which taxpayers were stuck with higher sanctions because they failed to fully cooperate during a voluntary disclosure program, and other contexts in which cooperation has a significant effect on IRS disputes.
Fighting over when owners of limited partnerships must pay self-employment taxes has lasted nearly five decades. This struggle is attributable to several things, including the absence of applicable regulations, rapid evolution of business entities, and more. Uncertainty has caused taxpayers to claim disparate tax positions and triggered several big-dollar cases. This article, just one in a series, explores the relevant rules, a long list of arguments advanced by taxpayers and the IRS in two pending cases, and the recent Tax Court ruling that it must apply a “functional test” to determine whether a partner in a limited partnership meets the relevant exemption.
The IRS has a limited period to enforce the rules, and taxpayers hope to go unnoticed until that opportunity has passed. Timing issues do not disappear, though, simply because taxpayers get selected for audit or approach the IRS pro-actively. Indeed, they might become more important than ever, because many interactions with the IRS involve extensions of assessment-periods, some voluntary, others compulsory. This article analyzes the divergent and surprising rules applicable to taxes, on one hand, and FBAR penalties, on the other.
The IRS recently launched its second major effort to dispense with cases involving what it calls syndicated conservation easement transactions. In order for partnerships and their partners to make intelligent decisions, they first need to understand the context. This includes the types of challenges the IRS raises in easement disputes, the terms of the initial settlement introduced back in 2020, the terms of the current settlement launched in 2024, and the types of partnerships to which the current settlement might appeal. This article covers those topics and more.
International tax disputes often create important guidance, some obvious, some not. Aroeste v. United States is a great example. That case involves the mundane issue of FBAR penalties, but it presents exciting and novel issues, too. It makes noteworthy rulings about whether dual residents can seek FBAR protection from tax treaties, whether late filing of certain information returns prevents taxpayers from claiming beneficial tax positions, and whether taxpayers must follow rules issued by way of a Notice instead of a regulation. This article, the second in a series, explores these important issues and others generated by the case.
Everyone knows that IRS is struggling to timely process and audit Employee Retention Credit (“ERC”) claims. What many people do not realize, though, is that the Tax Court issued a decision in January 2024 that might affect timing issues. This article, another in a series, discusses ERC guidance, the three-year and five-year assessment periods under current law, key Tax Court cases addressing the impact of fraud by return preparers on assessment periods of taxpayers, the broad definition of preparers, and potential effects on well-intentioned taxpayers filing improper ERC claims
The IRS is trying various methods to halt what it considers improper Employee Retention Credit (“ERC”) claims, including penalty threats. Browbeating taxpayers with potential penalties is standard stuff, but it becomes particularly interesting in the ERC context, where the IRS’s ability to carry out its warnings is questionable. This article, the latest in a series, describes the evolving ERC guidance, highlights the recurrent themes of “complexity” and taxpayer “victimization,” reviews relevant penalty-mitigation standards, and suggests that taxpayers considering their next move need to determine how much weight IRS penalty threats really deserve.
This article, the latest in a long series, describes the ERC legislation, relevant administrative guidance, evolution of the regulations addressing “transactions with contractual protection,” effects of reportable transaction status on employers and advisors, and more.
Lots of taxpayers are thinking about Employee Retention Credit (“ERC”) matters these days. Most are focused on employment tax issues, but they should be considering related tax issues, too. Specifically, they might analyze how the potential reduction or elimination of ERC amounts will affect income tax returns, when such events will occur, and what should be done in the meantime. This article, another in a series by the author, explains the relevant laws, relationship between ERCs and income taxes, timing issues, and filing “protective” amended returns as a solution.
The Employee Retention Credit (“ERC”) is a polarizing tax benefit, but there are a few things on which most everyone can seem to agree. First, guidance regarding the ERC is dense and complicated. Second, ERCs often involve big money, for employers who obtain them, professionals who assist in procuring them, and others. Third, parties working toward the mutual goal of submitting proper ERC claims sign agreements, the terms of which are sometimes subject to different interpretations. These three realities have converged to trigger disputes, with the IRS, and among various parties. This article, the latest in a long list, examines these early clashes.
Things are dynamic when it comes to the Employee Retention Credit (“ERC”). Among the most recent events is the introduction of the Voluntary Disclosure Program, which is designed for taxpayers that previously filed ERCs claims, got paid, later questioned their eligibility, and now want to give the money back with minimal financial downsides. This article, the latest in an ongoing series, compares methods used by the IRS in addressing conservation easement donations and ERCs, and then presents some questions to consider.
Congress took action to help taxpayers economically suffering because of COVID, including creating the Employee Retention Credit (“ERC”). The number of claims filed, amounts sought, and grounds for relief far surpassed what was expected. These and other factors led to problems, among them the IRS’s struggle to administer the ERC program. The IRS has experienced challenges separating the wheat from the chaff, so to speak. Therefore, following its standard playbook, the IRS has introduced both carrots and sticks, the effectiveness of which is yet to be seen. This article, the latest in a long series, summarizes the ERC laws and explores the IRS’s enforcement methods so far.
Congress took steps to protect American businesses and workers during the COVID pandemic, such as creating the Employee Retention Credit (“ERC”). The IRS, tasked with implementing the ERC, issued various types of guidance. It now relies on such guidance in reviewing, and frequently denying, ERC claims. This is particularly true when it comes to taxpayers seeking ERCs on grounds that their businesses were suspended because of a governmental order. This article, the latest in a growing list, summarizes the main laws and analyzes multiple IRS sources regarding how to treat ERC claims based on governmental orders.
Most battles over “syndicated” conservation easements focus on the partnerships that made the donations. This is logical because they took the key actions, claimed the tax deductions, and then allocated them to the partners. A recent case, Glade Creek Partner, shows that the IRS is looking at other parties, too. These include the original landowners, who contribute the property on which the easement is later donated. Why would the IRS scrutinize original landowners? How long they held the property and for what purpose directly affect the size of the charitable tax deduction.
This article explains the easement donation process, significance of property characterization, and three-round battle in Glade Creek Partner. This article observes that, in its efforts to reduce tax deductions from easements, the IRS is now looking to original landowners to determine whether the relevant property is both “long-term” and “capital gain” in nature.
Gifting can be rewarding, but it can also generate problems with the IRS. The applicable tax and information-reporting rules are complicated when foreign persons are involved. The IRS has attempted to capitalize on this reality in two recent cases, asserting large penalties against a U.S. individual receiving a gift from a foreign relative, and seeking significant gift taxes and penalties from another U.S. individual making a gift to a foreign relative. Although the IRS lost in both instances, these types of challenges serve as a warning to taxpayers to better understand international tax compliance matters, as well as potential downsides associated with participating in IRS disclosure programs.
Taxpayers often lack the time or patience to read an entire court decision. This is understandable, but it leads to problems. When taxpayers focus only on headlines, they tend to overlook important rulings that might be helpful to themselves and others. This is precisely what has happened with a recent conservation easement dispute, Mill Road 36 Henry. The ultimate outcome was not good for the taxpayer in that case, but those who persevered discovered that the Tax Court made six rulings favorable to all taxpayers involved in conservation easement disputes. This article explores the main rules concerning easement donations, key facts in Mill Road 36 Henry, and the obscure rulings advantageous to taxpayers.
Enforcement actions against alleged promotors of abusive transactions and taxpayers who participate in them are firmly linked. Therefore, effectively defending against IRS challenges requires an understanding of the overlapping rules, standards, and procedures. Many taxpayers are myopic, thinking solely about how certain events will affect them personally and immediately. This is understandable, but it rarely achieves the best overall result when it comes to multi-faceted disputes with the IRS.
This article explains unique aspects of promoter penalties, various actions the IRS takes in promoter investigations, effects of such measures on taxpayers, recent events suggesting that investigations might surge in the near future, and thoughts about the best path forward in the current environment.
If people have learned anything from the recent disputes over conservation easement donations, it is that IRS has a playbook. It involves announcing that the main problem is excessive valuation, followed by attacking essentially everything but what the donation is worth. The IRS often concludes that taxpayers should get a tax deduction of $0, and steep penalties apply.
The IRS has already experienced problems using this strategy in the easement context, and things might get harder if it plods ahead in the same manner when it comes to art donations. This article explains the general rules for donating artwork, recent IRS announcement about “promotions” of improper donation schemes, and hurdles that the IRS might encounter if it insists on applying the economic substance doctrine, alleging that art donations are worth $0, or badgering recipients of such donations.
Congress realized that taxpayers desperately needed financial help during the COVID crisis, so it created the Paycheck Protection Program and the Employee Retention Credit. Taxpayers that got dual relief are beginning to understand that enforcement actions, timeframes, and consequences differ for each. This article, the latest in a multi-part series, explains the fundamentals of these benefits, interplay between the two, and distinct mechanisms used to recoup benefits that were improperly issued to taxpayers.
For lovers of tax controversy, disputes between taxpayers and the IRS over Malta pension plans should be legendary. In short, taxpayers followed the letter of the law (i.e., the specific terms of the US-Malta treaty), the IRS detested the result, and now the IRS is implementing aggressive measures, including some that supposedly have retroactive effect. This article explores general U.S. tax treatment of foreign retirement plans, key concepts of the treaty, positions claimed by U.S. taxpayers, initial enforcement actions by the IRS, significance of the Competent Authority Arrangement, effect of the Proposed Regulations on various persons, and potential paths for taxpayers at this juncture.
Huge numbers of taxpayers have claimed Employee Retention Credits (“ERCs”) in the past few years. Some of them might know the substantive rules, but few of them likely understand the procedural nuances. This is a problem because a large percentage of clashes with the IRS ultimately turn on procedural issues.
Taxpayers and their advisors are raising many procedural questions: Has the IRS created special procedural rules for ERC cases? How long does the IRS generally have to audit ERC claims? Do extended assessment-periods apply to claims for certain quarters? What examination techniques will the IRS use? What methods can taxpayers utilize if the IRS rejects or ignores their ERC claims? Which courts will have jurisdiction over ERC litigation? Can the interplay between employment taxes and income taxes cause taxpayers to get “whipsawed” by the IRS? This article, the latest in a multi-part series, explores these critical questions and others.
It is obvious that the IRS has been scrutinizing, and will continue to pursue, those that it considers “promoters” or “enablers” of improper employee retention credit (“ERC”) claims. What is not apparent, though, is the wide range of tools at the IRS’s disposal and how they might affect not only the targets, but also the taxpayers who relied on them. This article, the latest in a series, summarizes the main ERC rules, clarifies how long ERC claims will continue, identifies imminent enforcement actions, and explores a long list of weapons that the IRS likely will use, some common, others obscure.
The deadlines for seeking Employee Retention Credits (“ERCs”) are fast approaching, large numbers of claims are being filed, and fears of widespread fraud abound. What is the solution? The IRS says pumping the proverbial brakes is the way to go. It recently imposed a “moratorium” of at least three months on processing future ERC claims. The IRS made several other important announcements, too. These include the start of “enhanced compliance reviews” on all ERC claims, a “special withdrawal option” for taxpayers with pending yet unpaid claims, and a future “settlement program” for taxpayers that previously received ERCs but did not really deserve them. This article, the latest in a multi-part series, explores these recent IRS actions, fitting them into the broader context of ERC events over the past three years and into the future.
Congress introduced the employee retention credit (“ERC”) back in March 2020, some taxpayers are still making ERC claims today, and others have the ability to do so until April 2025. These protracted solicitations have triggered questions about the validity of recent ones. Some ask, for example, why taxpayers with legitimate ERC claims did not file them right away, on their original employment tax returns. One reason is that the IRS did not issue certain guidance until months after Congress enacted the relevant laws. Another is that some of that guidance had retroactive effect. This meant that taxpayers had to file amended employment tax returns, sometimes months or years after the fact, in order to take advantage of favorable modifications to the ERC rules. This article, the latest in a multi-part series, analyzes changes over time that have led to the continuation of ERC claims.
There are thousands of blogs, articles, comments, advertisements, infomercials and more about the Employee Retention Credit (“ERC”). Regardless of their slant, all these items generally have one thing in common: a disturbing lack of substance. Everything in the ERC realm seems to have devolved into sound bites based on partial information, which is not helpful for taxpayers and advisors who are looking to truly understand the situation and make informed decisions.
This article, which is the second in a multi-part series, tries to reverse this trend. It explains the reasons why Congress introduced the ERC, four laws and IRS guidance, periods during which taxpayers can still claim ERCs, initial problems detected by watchdogs, series of IRS warnings, training materials for audit personnel, consequences for taxpayers filing excessive claims, and extended assessments periods. In short, the goal of this article is to supply substance for taxpayers and advisors as the IRS implements enforcement actions.
The U.S. economy is humming along, a major disruption occurs, Congress introduces tax incentives to stabilize matters, the IRS provides guidance to implement them, some taxpayers exploit voids and ambiguities, and the IRS takes actions to halt perceived abuses. This is a timeless tale that has recently centered on the Employee Retention Credit (“ERC”). To understand the inevitable clashes, one must first appreciate the applicable rules. These are complicated, of course, deriving from several laws passed in rapid succession and administrative guidance issued on their heels. This article, the first in a multi-part series, explores the ERC rules from start to finish.
Many taxpayers desperately needed an economic injection from the government to survive massive problems caused by COVID. Needing financial benefits is one thing, but qualifying for them is another. When it came to eligibility for employee retention credits (“ERCs”), employers had to demonstrate several things, including that their total revenue dropped by a certain percentage or that a governmental mandate triggered a partial or full suspension of their business operations. The IRS is convinced that some employers are abusing the rules, relying on suspensions that did not reach the relevant thresholds. The article addresses this important issue, focusing on the impact of supply chain problems.
In life, things often are going great, until they are not. This is true in the tax world, too. Congress introduced the employee retention credit (“ERC”) in early 2020 to assist businesses struggling because of COVID. Things started positively, but they changed when the IRS began identifying significant numbers of aggressive or fraudulent claims. The IRS increased enforcement efforts. This scrutiny has already triggered finger pointing in various directions, with more on the way. This article explains the congressional and IRS guidance regarding ERCs, deadline for making claims, potential consequences facing taxpayers and advisors engaged in improper behavior, and obscure issues sparked by two recent ERC events events.
You start with the macro and then move to the micro, as time permits and need demands. This method is followed in many contexts, including taxes. Congress first introduced the employee retention credit (“ERC”) in early 2020, and then made several legislative tweaks thereafter. The IRS, likewise, issued multiple Notices over the years supplying more detail. Naturally, as time passes and unanticipated issues arise, the guidance becomes more focused, more granular. That is precisely the case with ERCs. This article summarizes the main ERC rules, prior guidance on whether governmental employers are eligible for ERCs, and a recent Chief Counsel Advice exploring the status of federal credit unions.
The IRS has argued that the existence of Tax Result Insurance might deprive an entity of partnership status, taxpayers cannot claim deductions for premiums paid, and purchasing coverage supposedly demonstrates that taxpayers lack reasonable cause for their positions, such that penalties apply.
This article explains why certain taxpayers are acquiring insurance, two major types of coverage, several challenges the IRS is now raising, and why incipient IRS actions should concern all companies offering tax-related insurance and all taxpayers obtaining policies, not just those in the easement realm.
Taxpayers with Canadian retirement plans have long faced tricky issues when it comes to U.S. income taxes and information-reporting duties. As the situation evolved over time, the IRS issued several pieces of guidance that facilitated tax-deferral and decreased disclosure obligations. The IRS ultimately announced that it would grant automatic, retroactive and prospective, tax-deferral elections. Nonetheless, the IRS continues to challenge taxpayers who fall into non-compliance.
This article explains the normal tax and reporting requirements for taxpayers with worldwide reach, special rules applicable to Canadian retirement plans, evolution of solutions offered by the IRS, and a recent Tax Court case highlighting all the key issues.
It appears that the IRS is on its way to stopping taxpayers from taking what it considers improper positions related to charitable remainder annuity trusts (“CRATs”). The IRS has prevailed in two recent cases, with the Tax Court rejecting all arguments raised by the taxpayers. Consequently, taxpayers with similar CRATs must make a critical decision. Should they hunker down and prepare to fight, or is pro-actively approaching the IRS a better option? This article supplies an overview of tax issues concerning CRATs, explains various actions taken by the IRS to halt what it deems abusive behavior, analyzes the relevant Tax Court decisions, and examines several options remaining for taxpayers with imminent CRAT problems.
The IRS has been using claims of “technical” problems as its primary weapon in attacking conservation easement donations. This often means identifying shortcomings with Deeds. In an effort to eliminate tax disputes centered on technicalities and get focused on valuation instead, groups have been asking the IRS to issue guidance for years. The IRS did not react until Congress recently forced it to do so. The IRS, pursuant to a congressional mandate, released Notice 2023-30. This article explains the main aspects of the new easement law, two relevant easement clauses, history of prior requests for a model Deed, and the narrow content of Notice 2023-30.
Disputes will arise when Congress enacts a tax incentive, it orders the IRS to supply details via regulations, the IRS publishes Notices instead, the Notices contemplate participation by multiple parties and the liberal allocation of tax benefits among them, the IRS issues guidance over the years echoing the Notices, and then the IRS suddenly changes its tune. This is exactly what has occurred when it comes to tax deductions for expenses related to Energy Efficient Commercial Building Property. This article provides an overview of Section 179D, explains various sources of IRS guidance from the past two decades, and analyzes the newest Tax Court case on point, Johnson v. Commissioner.
This article does the following:
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Explains the economic substance doctrine and the reasons why Congress codified it,
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summarizes IRS guidance over the following decade,
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reviews the authorizing Revenue Agents to challenge economic substance without first obtaining executive approval,
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identifies sources demonstrating that attacks on economic substance are on the rise, and
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highlights obstacles that the IRS will encounter if it continues down this path.
The IRS is now carrying out various enforcement campaigns. This has increased interest by taxpayers in pro-actively approaching the IRS to resolve matters on the most favorable terms possible. The IRS offers multiple programs designed to allow taxpayers to rectify specific types of non-compliance, but it has just one general program covering all types of violations, even those involving willful or possibly criminal wrongdoing. This program, called the updated voluntary disclosure practice (“UVDP”), was introduced by the IRS in 2018 and later modified in 2020 and 2022. This article explains the worldwide tax and information-reporting duties of U.S. persons, summarizes the current IRS programs available, and analyzes the five-year evolution of the UVDP.
Certain U.S. individuals who cease their relationship with the United States must pay an “exit tax.” One major problem is that some taxpayers intentionally fail to file Form 8854 (Initial and Annual Expatriation Statement) to notify the IRS of their departure, keep a low profile for a few years, and thus dodge the exit tax. Other taxpayers, particularly so-called accidental Americans, do not maintain U.S. tax compliance or properly expatriate for less nefarious reasons. The current Presidential Administration has suggested changes for both categories of taxpayers. This article analyzes the exit tax, an IRS relief program for individuals who incorrectly expatriated in the past, and pending proposals.
Taxpayers always give heaps of confidential data to the IRS when they file their mandatory tax returns and information returns, and the IRS always has a legal duty to safeguard such data. Taxpayers sometimes become victims of improper disclosures, and the IRS sometimes gets punished for its transgressions. This article introduces key legal concepts, data-protection duties of the IRS, manners by which taxpayers can sue the IRS for breaches, and the potential for taxpayers to recover not only damages, but also costs incurred in fighting the IRS. This article then analyzes the most recent case, Castillo v. United States, which holds that taxpayers might be able to obtain punitive damages from the IRS, even when they do not suffer actual damages because of the IRS’s improper disclosure of confidential data.
The IRS sometimes utilizes aggressive tactics to convince taxpayers to concede cases without significant resistance. Unbeknownst to many taxpayers, they have a powerful tool for evening the proverbial playing field with the IRS: Making a so-called “Qualified Offer.” The basic notion is that if the IRS ignores or rejects a Qualified Offer, the case goes to trial, and the court ultimately rules that the taxpayer’s liability is the same as or less than the amount in the earlier Qualified Offer, then the taxpayer may recoup reasonable fees and costs from the IRS. This article describes the general rules for seeking fee recoupment with the IRS under Section 7430, explains the unique standards applicable to Qualified Offers, and analyzes a recent Tax Court case, Lewis v. Commissioner, which establishes new parameters for Qualified Offers.
Imagine a world where you could create a retirement plan in a foreign country with which you have no affiliation, contribute appreciated property to such plan without triggering immediate taxation, face no limitations on the amount or source of contributions you can make, defer taxes on the accretion inside the plan, start taking distributions as early as age 50, and avoid tax on the majority of the distributions from the plan. Many U.S. taxpayers, relying on flexible interpretations of the bilateral treaty between Malta and the United States, took these positions for several years. The IRS put its proverbial foot down in late 2021, announcing that taxpayers were misconstruing the treaty, and that the IRS was committed to pursuing those who participated in and/or promoted such abuses. This article explains general U.S. tax treatment of foreign pensions, key aspects of the treaty, examples of taxpayers claiming auspicious results, terms of the recent Competent Authority Arrangement designed to halt future activity, declarations by the IRS of severe enforcement actions, and resolution options still available to taxpayers.
After courts held that the IRS violated the law when it issued Notice 2017-10 classifying syndicated conservation easement transactions (“SCETs”) as “listed transactions,” the IRS scrambled to salvage the situation. In particular, it released Proposed Regulations in December 2022, which centered on information-reporting requirements for those involved with SCETs. About three weeks later, Congress enacted the Secure 2.0 Act. That legislation did not address disclosure duties; rather, it identified easement donations that would get a tax deduction of $0 if their value surpassed a certain amount. The disparate objectives, timing, terminology, and standards in the Proposed Regulations and Secure 2.0 Act have caused confusion among easement stakeholders. The attached article examines the current situation, as well as the actions leading up to it.
The IRS has long used mandatory disclosures by taxpayers on Form 8886 (Reportable Transaction Disclosure Statement) to discourage participation in reportable transactions and carry out enforcement campaigns. The IRS has taken a different approach in the past, though, when it comes to taxpayers taking positions on returns that might be considered aggressive, novel and/or divergent from existing guidance. The IRS favored the carrot, offering penalty protection to taxpayers on the condition that they adequately revealed their positions. The recent Green Book shows that the current Presidential Administration is advocating all stick, and no carrot, when it comes to disclosures to the IRS. This article gives taxpayers and their advisors key information about this important, evolving issue.
Many taxpayers have strong support for positions they take on their returns, but their limited understanding of complicated tax procedures sinks them. Missing deadlines, using improper forms, sending materials to the wrong place, not getting all required signatures, and other errors can be deadly to taxpayers. The IRS is aware this reality and it often attempts to claim victory and dispense with cases at the early stages based solely on technical and procedural matters, without ever having to fight over the substance.
This article explains the penalties and unique mitigation standards applicable to information returns, describes the key aspects of tax refund actions, and analyzes recent cases, including Special Touch Home Care Services, Inc. v. United States, in demonstrating how confusion over tax procedures can trigger lost refunds.
Battles between taxpayers and IRS about whether certain workers should be treated as employees or independent contractors are constant. The procedures applicable to such disputes change frequently, though. For example, Congress and the IRS have modified the rules related to particular types of employment tax fights in Tax Court several times over the past two decades, with the most recent adjustment coming in 2022. This article explains the main categories of workers, strategies that taxpayers can use during IRS audits or administrative appeals, evolution of the rules under Section 7436 concerning litigation of employment tax issues before the Tax Court, and taxpayer-favorable issues absent from recent IRS guidance.
The IRS has been attacking syndicated conservation easement transactions (“SCETs”) for more than half a decade. These disputes often involve prolonged audits, Appeals Office conferences, Tax Court trials, and appellate litigation. Such procedures can have a huge cost, not only to the partnerships, but also to the IRS and the entire judicial system. For instance, even after diverting lots of personnel to its Compliance Campaign aimed at SCETs, the IRS acknowledged in early 2022 that it was still severely understaffed and needed to spend yet more to hire, train and integrate 200 additional attorneys. At this juncture, reviewing proposed solutions, both by the IRS and state tax authorities, for resolving SCET cases is worthwhile.
The article summarizes the rules affecting conservation easement donations, identifies the “technical” arguments on which the IRS has heavily relied, describes newer attacks by the IRS focused on appraisals, analyzes multiple sources supporting valuation of real property based on its highest and best use, and suggests that the IRS has failed to adequately explain why it, taxpayers, and/or the courts should ignore longstanding authorities.
Business has evolved more quickly than tax law, and this has led the IRS to take conflicting positions about the meaning of “limited partner.” The IRS is characterizing this term broadly or narrowly in different contexts in furtherance of its goal of always maximizing tax revenue. When it comes to the passive activity loss rules in Section 469, the IRS argues that “limited partner” must be loosely defined. However, when a case involves whether certain amounts from partnerships should be subject to self-employment taxes, the IRS argues for a tight definition of “limited partner” under Section 1402. This article, which is the third in a series, compares and contrasts the positions taken by the IRS in two important areas.
Voluntary compliance is a hallmark of the U.S. tax system; taxpayers are expected to proactively file all returns with the IRS and pay all amounts due. Many taxpayers fail to meet that commitment, of course. This is where whistleblowers come into play. If they can provide data to the IRS that leads to the collection of taxes, penalties, and interest from non-compliant taxpayers, they stand to receive a percentage of the take. This financial reality has incentivized whistleblowers to bring to the IRS’s attention taxpayers falling into various categories, including “accidental Americans.”
This article explains obligations of U.S. persons with foreign activities, describes the exit tax, identifies a special relief program for former U.S. citizens, summarizes the whistleblower process, and examines a recent Tax Court case that brings these concepts together.
Tax disputes with the IRS can last a very long time, even under normal circumstances. The duration of these battles increased because of the Coronavirus. These holdups cause taxpayers ongoing anxiety and uncertainty. They also hurt taxpayers financially, as interest charged by the IRS continues to accumulate while the fighting ensues. Taxpayers aware of this economic reality often seek potential solutions, among them making a “deposit” with the IRS to halt interest. The rules associated with doing so are complex, of course, and they prevent some taxpayers from achieving their goals. This article analyzes key issues related to making “deposits” with the IRS, using a recent Tax Court case, Ahmed v. Commissioner, as a point of reference.
When engaged in a tax dispute with a partnership, the IRS wants to gather as much data as possible from all sources, including the partners. A major impediment for the IRS is that its ability to contact partners directly (during an audit, an administrative appeal, or in preparation for Tax Court litigation) can be limited or prohibited altogether. This has not stopped the IRS from trying, though. This article explains the relevant procedural matters, provides an overview of the easement donation process and its key characters, and describes four major problems that the IRS faces in approaching individual partners, using recent court orders to illustrate the situation.
Taxpayers in tax disputes with the IRS can seek judicial review in any one of three courts, but they often choose the Tax Court. This makes sense because the Tax Court is favorable to taxpayers in many ways. For instance, the parties must work cooperatively to exchange evidence, narrow issues, and agree on facts, and pre-trial discovery demands are often minimal. Things have started changing, though, particularly when it comes to cases involving conservation easements. This article explains the IRS’s main data-gathering tools during audits, pre-trial discovery actions, general limitations on depositions of potential witnesses, and three recent Tax Court Orders allowing the IRS to conduct non-consensual depositions of various persons affiliated with partnerships that donated easements.
Creating foreign entities to safeguard assets is not necessarily problematic for U.S. taxpayers, but failing to characterize them appropriately sure is. Taxpayers have utilized foreign vehicles called “stiftungs” for decades. Various court decisions and administrative rulings over the years have concluded that certain stiftungs should be treated as trusts. This triggers the duty for taxpayers to file several information returns with the IRS, the most critical of which are Forms 3520 and Forms 3520-A. Violations lead to large penalties, endless assessment periods, and other things taxpayers want to avoid.
This article defines the concept of foreign trusts, chronicles the major cases and IRS rulings from 1955 to the present, explains the IRS’s foreign trust compliance campaign, and explores potential relief for taxpayers thanks to a recent Revenue Procedure.
The IRS believes that certain partnerships that donate conservation easements are using inflated appraisals to claim excessive tax deductions. The partnerships disagree, and battles ensue. They often entail prolonged audits, administrative appeals, and Tax Court trials. All this fighting has a large cost to the IRS, the partnerships, and the judicial system. The enclosed article provides an overview of the rules related to conservation easement donations, identifies supposed “technical” flaws that the IRS attacks, describes several Tax Court holdings that are beneficial to all partnerships, explores the use of Qualified Offers, and demonstrates that easement cases can be resolved before trial where the IRS acts reasonably by focusing on the real issue, valuation.
The IRS has drastically changed its procedures for reviewing appraisals. It first issued a memo about Section 6695A penalties, which eliminated the multi-level review procedure formerly used to safeguard appraisers against improper penalties and premature disciplinary referrals. Next, the IRS ignored several suggestions from accounting and valuation organizations about potential problems. Doubling down on its initial position, the IRS most recently issued a Chief Counsel Advisory to its personnel further reducing appraiser rights. This article, which supplements an earlier one, analyzes the main concepts around conservation easement donations, evolution of appraiser penalties, disregarded suggestions from professional organizations, and recent IRS actions depriving appraisers of historical protections.
According to the IRS, many partnerships have incorrectly treated their owners as “limited partners,” thereby allowing them to escape self-employment (“SECA”) taxes on their distributive shares. The positions taken by partnerships are based on a law enacted in 1977, which has never been updated or clarified, by Congress or the IRS. The broad scope of the “limited partner” exception from the outset, coupled with governmental inaction during the next five decades, has led to chaos. This article, the first in a series, chronicles the major events culminating in the current confusion about the application of SECA taxes to modern entities.
The IRS normally must identify non-compliance within a short period, which can be tricky if the relevant matters occurred abroad. Taxpayers who have failed to report worldwide income and assets, either accidentally or on purpose, hope that the proverbial clock runs out before the IRS takes action. This sometimes happens in domestic cases, but much less often in the international context. This article, using several recent Tax Court cases as a springboard, examines three tools at the IRS’s disposal for expanding assessment-periods against taxpayers with international violations.
Taxpayers yearn for certainty, as they need it to make intelligent decisions about tax-related issues. Unfortunately, doubt has arisen in connection with Section 179D, a provision that incentivizes taxpayers to make commercial buildings more energy efficient. The unsettled state of affairs can be attributed to attempts by the IRS to disregard its longstanding guidance directly on point. This article provides an overview of Section 179D, identifies the related Compliance Campaign, explains the aggressive position recently taken by the IRS about allocation of Section 179D deductions, and analyzes a list of authorities countering the IRS’s position.
The IRS conducts large numbers of audits, the period to complete them is limited, and tax issues are becoming more complex every year. The result is that some Revenue Agents employ aggressive tactics to gather data and prepare reports. One example is issuing Summonses to third parties (i.e., somebody other than the taxpayer under audit) seeking data without first granting the taxpayer a chance to personally provide it. This article focuses on three recent items that might change the IRS’s current practice, including an amendment to Section 7602, a case of first impression in the Court of Appeals, and a recent court decision strongly criticizing inappropriate third party contacts.
Taxpayers dislike paying taxes once, and they absolutely detest paying them twice. The good news is that U.S. individuals working and/or investing abroad can often mitigate “double taxation” thanks to a few mechanisms, including foreign tax credits and bilateral tax treaties. Qualifying for these benefits can be tricky, of course. One controversial issue has been whether U.S. individuals can use foreign tax credits to offset net investment income taxes. A recent Tax Court case, Toulouse v. Commissioner, partially resolves that question, while expressly leaving open the possibility of different outcomes.
Defeating the IRS is joyous, but winning and then obligating the IRS to pay legal, accounting, expert and other fees is sublime. The mechanism for achieving this elusive double victory is found in Section 7430. This article describes key aspects of fee recoupment under Section 7430, three recent cases, procedural rules on which the IRS depends in issuing notices devoid of meaningful information, and why fee reimbursement actions might increase in the near future.
Kicking people when they are down is one thing, but doing it repeatedly is another. Several recent cases demonstrate that the IRS is doing exactly that. This process, often referred to as “stacking” penalties, means imposing multiple sanctions against the same taxpayer, for the same year, in connection with the same problem. The article explains common U.S. international tax duties, the current “compliance campaign” focused on foreign trusts, and two recent cases showing how the IRS uses penalty stacking as a serious enforcement tool.
Section 7345 authorizes the IRS, with assistance from the State Department, to deprive individuals with serious tax debts of their passports. Congress passed the law in 2015, the IRS began enforcing it in 2018, and the courts started issuing decisions in 2020. In short, the issues concerning passport deprivation as a tool for tax collection are new and quickly evolving. This article does the “heavy lifting” for readers by gathering, organizing and analyzing all major sources available thus far about the implementation of Section 7345.
U.S. taxpayers living, investing or doing business abroad often form corporations in the local country for legitimate reasons. The problem is not establishing the corporations, but rather maintaining full compliance with the IRS thereafter. This article explains Form 5471 filing duties, stringent standards applied by the IRS and courts, obscure manners in which Form 5471 violations extend assessment-periods, places where taxpayers can and cannot dispute penalties, and a recent Tax Court case, Kelly v. Commissioner, which features several of the key issues.
The IRS believes that partnerships that engage in SCETs are claiming excessive tax deductions. The partnerships, on the other hand, point to congressional support for over 50 years, large amounts of pre-donation due diligence, full disclosure to the IRS, and reliance on a long list of experts. The two sides simply disagree, which is fine. What is not okay, though, is that in attacking SCETs, the IRS is utilizing extraordinary tactics that might negatively affect all taxpayers. The article suggests that those concerned about taxpayer rights, separation of powers, environmental protection and other large-scale matters might question whether numerous “wrongs” by the IRS are achieving a “right.”
To have success against the IRS, taxpayers must understand substantive tax law and procedure. Too many are clueless about the latter, which ultimately causes their downfall. This article analyzes a recent Tax Court case, Crandall v. Commissioner, using it as a springboard for learning important lessons about the effect of Closing Agreements with the IRS, unique steps in rectifying international tax issues, and procedural questions that often arise.
Panicked people do not think clearly, and this applies to taxpayers facing large IRS liabilities. Some assume that they can escape unharmed if they can just keep the IRS at bay until they die or if they simply move their assets abroad. These theories sound good, but they are wrong because the IRS and courts have many tools for pursuing tax debts from parties related to deceased taxpayers and from those who make a run for it. This article explains international obligations that trigger liabilities, recent cases where the IRS pursued surviving spouses, executors, trustees, and fiduciaries, and the use of Repatriation Orders over time.
Getting audited by the IRS is bad enough, but having the IRS tell friends, colleagues, employers, clients and others about it can be worse. Unfortunately, the IRS does this on a regular basis through a process called making third party contacts (“TPCs”). Taxpayers often lack knowledge about TPCs, mandatory warnings, exceptions to general notice requirements, opportunities to supply data to the IRS to prevent TPCs, and various legal procedures for retrieving details about TPCs. This article addresses these critical points.
Globalization is triggering more tax disputes with the IRS, and winning such clashes requires knowledge of both substantive international tax law and complicated procedures.
The IRS continues to challenge partnerships that donate conservation easements, implementing extreme enforcement techniques as part of the process. As this article explains, the newest tactic is depriving partnerships of their general right to seek reconsideration by the Independent Office of Appeals before engaging in long, expensive, complicated tax litigation. To maximize their chances of prevailing against the IRS, taxpayers must remain hyperaware of the evolving enforcement tools.
Substance is important, but procedure is often king when it comes to disputes with the IRS. This is what taxpayers facing large penalties for not reporting foreign accounts have discovered. FBAR duties are not contained in the tax code, yet the quintessential tax agency, the IRS, audits potential violations and asserts penalties. Such disconnect has sparked a number of questions, most of which center on whether FBAR penalties can be treated as a “tax” for certain purposes. This article examines origins of the FBAR, delegations of power, key tax provisions, and four noteworthy cases providing guidance on how, when, and where to fight FBAR penalties.
The Coronavirus revealed several important things, one of which is how much people crave certainty. Aggressive enforcement actions by the IRS have increased insecurity for many taxpayers, particularly partnerships that donated conservation easements. Seeking certainty, some partnerships obtained tax insurance, and the IRS began attacking in three ways. This article analyzes the attacks and the challenges the IRS faces.
Failure by foreign corporations to file Forms 1120-F (U.S. Income Tax Return of a Foreign Corporation) triggers extreme problems. Specifically, in addition to asserting normal penalties for late filing, late payment, and late information returns, the IRS disallows business-related deductions and credits that corporations normally could claim. Thus, the IRS imposes taxes on gross income, instead of net income. This outcome is particularly harsh when one considers that many fledgling businesses operate a net loss for several years. This article explains U.S. filing duties of foreign corporations, the result in a recent Tax Court case, Adams Challenge v. Commissioner, and solutions still available to non-compliant foreign corporations.
Litigation over unreported foreign account is unpredictable. Many rejoiced in 2017 when a District Court determined in Bedrosian v. United States that the taxpayer was not “willful” in failing to declare a large Swiss account. They were down, though, when the same District Court, on remand, reluctantly held that the taxpayer acted “recklessly,” which sufficed. Less than one month later, the government agreed to settle willful FBAR penalty case at the last minute in Jones v. United States. Details of the settlement are confidential, but logic dictates that the government, after a string of FBAR victories and a win in Bedrosian, would not concede anything, unless it had real concerns about losing and setting precedent favorable to taxpayers. The enclosed article describes the applicable law, the two notable FBAR decisions, and where things stand with respect to willfulness.
In fighting the battle against offshore tax avoidance, the U.S. government has raised some creative arguments to establish that a taxpayer “willfully” failed to disclose foreign accounts by filing FBARs. These include the concept of “constructive knowledge,” whereby the U.S. government contends that any FBAR violation must be “willful” and thus subject to the highest possible penalty.
This notion sounded absurd to many in the tax community at the outset, but it has been embraced by several courts. Not all courts have accepted the position, though, giving hope to taxpayers that merely signing a Form 1040 will not be considered tantamount to a willful FBAR violation and the large penalties that come with it. This article examines the major cases that have analyzed the “constructive knowledge” position and what they mean to taxpayers.
Only two cases have addressed whether partnerships subject to the special proceedings created by the Tax Equity and Fiscal Responsibility Act (“TEFRA”) are able to make a qualified offer. Just one of these cases yielded a decision with precedential value, and it explained that TEFRA partnerships are entitled to file qualified offers. Nevertheless, the IRS seems entrenched in its traditional position, arguing as recently as September 2020, in a pending Tax Court case, that TEFRA partnerships are ineligible to file qualified overs, period.
This article describes the rules related to qualified offers, the two cases addressing the TEFRA partnerships issue, the current stance of the IRS, and the likely result of this standoff, now and in the future.
A long list of cases over the past decade have centered on the proper definition of “willfulness” in the context of penalties for an unfiled, incomplete, or inaccurate FinCEN Form 114. However, those cases did not address some key issues, including (i) whether the Internal Revenue Service, with help from the Department of Justice, can assess and/or collect penalties after the taxpayer who committed the FBAR violation dies, and (ii) if so, against whom can the IRS and DOJ take action, the deceased individual, a surviving spouse, the executor of the estate, beneficiaries of the estate, transferees, others?
This article analyzes a series of recent cases centered on post-death actions by the IRS and DOJ, giving special attention to the question of the survivability of FBAR penalties.
The IRS has been riding high recently because of several Tax Court victories on “technical” issues in conservation easement disputes. However, several signs exist that the tide might be turning. One of these is the recent decision by the Eleventh Circuit Court of Appeals in Pine Mountain Preserve, LLLP. This article explains the general rules related to conservation easement donations, critical facts from the case, analysis by the Tax Court, overlooked aspects of the initial decision, recent rulings by the Court of Appeals, issues that the Tax Court must now decide on remand, and the positive aspects of the case thus far for taxpayers making charitable donations.
The IRS is sending mixed messages when it comes to potential resolution of disputes involving partnerships that engaged in a so-called syndicated conservation easement transaction (SCET). On one hand, the IRS has taken several enforcement actions recently, which make it procedurally impossible for an individual partner to voluntarily resolve matters with the IRS and remain penalty-free by submitting a qualified amended return (QAR). On the other hand, the IRS commissioner issued two news releases in November and December, warning taxpayers of increased enforcement activities and “encouraging” them to file QARs. This apparent inconsistency has many in the tax community confused and unable to properly advise partners, partnerships, and others. The good news is that the regulations seem to grant the commissioner authority to modify the QAR rules as necessary. This article reviews SCET issues; explains ongoing enforcement tools; summarizes recent IRS announcements urging taxpayers to file QARs; describes the stringent QAR standards; and identifies the issues for which the tax community is seeking clarification from the IRS.
The IRS takes the stance that any error or omission in connection with Form 8283, regardless of how minor, merits a deduction of $0. The IRS has recently added new layers to this argument. It now contends that some partnerships are not properly accounting for “syndication expenses,” which leads to unwarranted deductions and/or inaccurate basis information on Form 8283, which impairs the IRS’s ability to detect non-compliance, which justifies complete disallowance of charitable deductions. This article analyzes issues relevant to this expanded position by the IRS.
Attention has been focused recently on conservation easement donations, micro-captive insurance, virtual currency, and other “hot” topics. Although not dominating the news cycle any longer, plenty of taxpayers continue hiding foreign assets, and the Internal Revenue Service (“IRS”), with help from the Department of Justice (“DOJ”), still aggressively pursues them. What is remarkable about these international actions is that they sometimes trigger three interrelated disputes, occurring in three different venues, and generating three potentially large liabilities.
Uplifted by some recent Tax Court victories on “technical” issues in conservation easement disputes, and cognizant of the enormous amount of additional cases headed its way in the coming years, the IRS announced a settlement initiative in June. The agency first described the terms of the settlement initiative through two means: a public release and private offer letters to eligible partnerships. Not surprisingly, that initial guidance had several holes. The IRS tried to plug them in October 2020 by publishing a chief counsel notice, along with a second release. This article analyzes all the information provided thus far about the settlement initiative, identifying key issues that remain unaddressed by the IRS, whether strategically or inadvertently.
This article analyzes the general rules about #iling deadlines and justifications for penalty abatement, the major cases establishing the limits of the reasonable-reliance-on-a-tax-professional defense during the paper-filing era, the new cases applying the original rules to modern times, and other aspects of tax where the rules about the extent of reliance are more flexible.
The IRS is attacking partnerships that donate conservation easements to charitable organizations and then pass along the corresponding tax deductions to their partners. In an effort to dispense with cases quickly and avoid addressing the key issue — valuation of easements — the IRS often raises a long list of technical arguments. These generally focus on unintentional flaws with the deed of conservation easement, the appraisal, or Form 8283, “Noncash Charitable Contributions.” To the dismay of many in the conservation, tax, and legal communities, the Tax Court has ruled in favor of the IRS on technical issues in several recent cases.
The IRS, leveraging the momentum from its recent victories, issued a release in late June describing a potential path to resolution (the settlement initiative). The Tax Court has a backlog of conservation easement cases, with many more to come; the IRS has limited resources; and the IRS knows that many of the technical issues it is currently exploiting are absent in transactions after 2015. Therefore, announcing the settlement initiative makes sense from the IRS’s perspective. As this article explains, however, the settlement initiative contains severe terms and creates uncertainty, which might make it unappetizing to many taxpayers.
This article examines the main issues in conservation easement disputes, the arguments typically raised by the IRS, various Tax Court cases focused on conservation purpose, and a new, non-easement case that might fortify taxpayer defenses.
This article explains assessment-periods, IRS duties related to extension requests, and the findings of the recent governmental report. More importantly, it analyzes the following critical issues related to Form 872: If a taxpayer declines to grant a Form 872 during an audit, is he permanently deprived of the chance to present his case to the Appeals Office? What strategic advantages are gained by “cooperating” with the IRS? What, exactly, does “cooperating” mean in different contexts? Is not granting a Form 872 tantamount to not “cooperating” with the IRS?
In light of the IRS’s new “compliance campaign,” nonresident aliens and those involved with foreign owners of U.S. real property would be wise to contact experienced tax/legal professionals in order to explore the options for proactively rectifying any issues with the IRS on the most beneficial terms available.
The IRS often shifts its resources, focusing enforcement efforts in priority areas. In recent years, the IRS has devoted considerable attention to failures to report foreign assets, charitable deductions related to conservation easements, and captive insurance companies. While these matters tend to grab headlines, the IRS continues to plod ahead, largely unnoticed, challenging other tax issues that it finds problematic.
This article explains the general tax and information-reporting duties for U.S. taxpayers with international connections, the application of the exit tax, the details about the new RPCFC, and interesting issues triggered by the RPCFC that are likely unknown to many taxpayers.
The IRS has implemented numerous voluntary disclosure programs over the past decade for taxpayers with international tax non-compliance. Opinions vary, of course, but many taxpayers and practitioners considered the penalties imposed under such programs fairly harsh. The IRS has softened its stance considerably with the introduction of its newest program in September 2019, called Relief Procedures for Certain Former Citizens (“RPCFC”). It is designed to benefit taxpayers who were formerly U.S. citizens, have already expatriated, had little to no U.S. income tax liability in the years preceding expatriation, were not filing U.S. tax or information returns with the IRS before expatriating, did not pay the “exit tax” under Code Sec. 877A, and would not have been subject to the exit tax were it not for their non-willful violations.
Many people have grown weary of cases focused on penalties for failing to declare foreign accounts on FinCEN Form 114 (“FBAR”), which is understandable given all the attention heaped on this topic since 2008. However, the reality is that the Internal Revenue Service (“IRS”) continues to aggressively impose severe FBAR penalties, while the Department of Justice (“DOJ”) regularly files lawsuits in District Courts to collect them. These governmental actions, coupled with the colorful defenses raised by taxpayers, have created a significant amount of precedent in recent years. Court decisions are inconsistent, the IRS is capricious in following its own published guidance, and the key concept of “willfulness” is constantly evolving. Taxpayers who do not stay abreast of the evolution diminish their chances of success in fending off FBAR penalties.
In an effort to keep taxpayers and their advisors updated, this article analyzes three recent FBAR cases, Flume, Boyd, and Cohen, which contribute new material to the dialogue.
Partnerships and others under attack by the IRS as part of its “compliance campaign” against conservation easement and substantially similar transactions need to be aware of relevant Chief Counsel directives and implement appropriate defense strategies from the very start of the audit process.
This article summarizes conservation easement donations and related tax deductions, identifies the parties that the IRS is now pursuing, explains the non-disclosure rules and applicable exceptions, unpacks three IRS pronouncements attempting to justify potential violations of taxpayer protections and evidentiary rules, and reminds partnerships and others affiliated with SCETs and SSTs of the importance of understanding the IRS’s strategies and implanting processes to defend against them from the outset.
The IRS has been attacking for several years what it has labeled syndicated conservation easement transactions (“SCETs”). Among the many weapons employed by the IRS are identifying SCETs as “listed transactions” in Notice 2017-10, 2017-4 IRB 544, launching a “compliance campaign” consisting of dozens of specialized Revenue Agents, featuring SCETs on the IRS’s “dirty dozen” list, and engaging in a widespread practice of claiming that tax deductions related to SCETs should be $0 and imposing severe penalties.
Assaults on SCETs are now common knowledge, but what many fail to realize is that the IRS does not limit itself. Indeed, the IRS has also been challenging fee-simple donations of property to charities for years, applying many of the same techniques used more recently against SCETs. This article examines a relatively obscure case from yesteryear, Terrene Investments, whose importance likely will increase as tax disputes involving SCETs and fee-simple property donations increase. This case demonstrates that the IRS has a history of taking extreme positions, many of which ultimately cannot be supported before the Tax Court.
This article examines the main concepts around conservation easement donations, categories of IRS attacks against partnerships, evolution of the appraiser penalty rules, and impacts of new IRS guidance.
Unless somebody has been living under the proverbial rock the past few years, he is aware that the IRS is aggressively attacking “syndicated” partnerships that donate conservation easements to charity and claim the related tax deductions. This is common knowledge. What many people do not realize, though, is that the IRS is pursuing others involved with easement donations, and methodically changing the rules to achieve its goals. For instance, with absolutely no fanfare, the IRS released in late January 2020 what appeared to be a routine, innocuous, procedural memorandum called “Interim Guidance on IRC 6695A Penalty Case Reviews” (“Interim Guidance”). The reality is that this Interim Guidance triggers a critical change, eliminating the multi-level review procedure formerly used by the IRS to protect appraisers against improper penalties and disciplinary referrals. This article explains the main concepts around easement donations, categories of IRS attacks against partnerships, evolution of the appraiser penalty rules, and impacts of the new Interim Guidance.
Each FBAR case is unique, teaching valuable lessons about the evolving definition of “willfulness,” key procedural issues, etc. This article centers on two recent cases, Rum and Ott, and what they add to the dialogue on FBAR penalty defense.
This recording explains the evolving attacks against conservation easement deductions by the IRS, describes the scope and limitations of the Section 7525 federally authorized tax practitioner privilege, and identifies the theories recently raised by the IRS in its effort to gather all potentially pertinent data, including communications with accountants.
Hale E. Sheppard examines the conservation easement donation process and potential flaws with the IRS’s stringent position on “commercial forestry.”
This article identifies the U.S. tax and information-reporting duties triggered by holding foreign assets, explains several different disclosure programs currently offered by the IRS, reviews the original guidance from the IRS upon announcing the UVDP back in 2018, and analyzes important information added by the IRS in 2020.
This article provides an overview of the easement donation process, describes many of the well-known IRS enforcement techniques, and analyzes
the significance of the more obscure steps, largely procedural in nature, taken by the IRS lately.
Hale E. Sheppard's article explains the conservation easement donation process, main stages of a partnership tax dispute, specific data sharing duties imposed on a TMP, recent challenges by the IRS, and allegations by the partners.