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Summary Opinions for 02/14/2014

Posted on Feb. 18, 2014

In honor of Presidents’ Day (yesterday), here is a copy of the NYT’s front page the day Vice President Agnew admitted to tax fraud.  Also, a special thanks to Jamie Andree for her Valentine’s Day Innocent Spouse post.  Good stuff this week.  Updates on the IDR process, Ty Warner, and the King of Pop.  Also some new summons cases,  NPR commentary, and the depressing Treasury budget.

  • Oh, and Keith is featured in the newest edition of the Tax Lawyer, with his article, Taxation with Representation: The Creation and Development of Low-Income Taxpayer Clinics.  TaxProfBlog has coverage.
  • The new IDR process for large cases, which Keith has discussed before here, has been delayed.  Initially, the procedures were to be effective January 2, 2014, but have now been pushed out until March 3, 2014 to allow LB&I to clarify how they work.  The news release can be found here.
  • The DOJ has filed a protective appeal in the Ty Warner case relating to the sentencing of the Beanie Baby mogul. Jack Townsend’s Federal Tax Crimes Blog has a post with more details and some quotes found here.  Readers will probably recall that Mr. Warner only received probation for his substantial tax evasion.  The protective appeal does not mean the DOJ will proceed with the appeal, but is simply a notice protecting its rights while it makes a decision.  Mr. Townsend indicates in his post that although the sentence seemed light, the DOJ would likely have an uphill battle to overturn the Judge.
  • The Tax Times has a post regarding the new federal budget, and the 4.4% cut in the IRS budget for the year.  It will be interesting to see what the IRS automates this year (link is to my post last week on the increased use of automated services, and the reduced ability to get advice from a person at the Service).   USA Today had a related article about the poor customer service by the Service.
  • From the MauledAgain blog on February 14, James Maule wrote about income inequality in light of the debate about how terrible things are for the much maligned ultra-rich (except Ty Warner, who should be ecstatic about probation).   Related, here is an article about Larry Summers and the Downton Abbey economy.
  • NPR Investments, LLC –which I’m fairly certain is how Nova, The Street, and Downton Abbey get all their scratch — lost again against the Service, with the Fifth Circuit upholding the District Court’s imposition of penalties, and which found the Service acted properly in issuing a second FPAA a few months after issuing a no-change letter for the same tax year. The Miller and Chevalier blog has coverage, and a copy of the opinion here. The M&C blog did not find the FPAA item as interesting as I did, but I will still cover it in a bit of detail.  In general, Section 6223(f) provides that only one FPAA should be issued for any given year.  Taxpayer success!?!?  But, there is a provision that allows the Service to issue a second when the taxpayer is a real jerk (“absence a showing of fraud, malfeasance, or misrepresentation of a material fact”).  The Fifth Circuit found that checking the box indicating the entity was not a TEFRA partnership on its return was sufficient to meet that jerk standard.  I believe this is the only Circuit Court to have reviewed this matter.  Interestingly, reliance by the Service and the intent of the taxpayer were not particularly important in the analysis.
  • Some of this has to be sensationalized, right?  The Journal of All that is Correct and Respectable, TMZ,  is covering the tax troubles of Michael Jackson’s Estate, which apparently took the position that MJ’s net worth at death was around $7MM.  The Service, however, thought that amount was slightly closer to $1.125BB.  What a Thriller.  Dollar here, dollar there, and it starts to add up.  The Service told the estate to Beat It and doubled the penalty due to the Bad numbers under Section 6662(h)(1).  Apparently, the Service is seeking $702MM, which is enough to make you Scream.  These matters are never Black or White, and the amount will probably end up in the middle, but the estate’s position seems Dangerous and borderline (Smooth) Criminal. It is Human Nature to want to reduce your tax bill…I should stop, this is getting pretty silly.
  • A few summons orders were issued.  First, an order quashing an attempt to block the IRS from seeking information from banks in the United States that was done by the Service to assist the Competent Authority for India in investigating the taxpayer in India.  The taxpayer argued an improper purpose, but the Court found the Service statements that the competent authority request was valid was sufficient to carry the Service’s slight burden.  SCOTUS will be hearing an improper purpose case in Clarke shortly (covered in SumOp before), where it will determine if a taxpayer is entitled to a hearing after alleging improper purpose.  We will be following Clarke closely.
  • The second summons case involved a tax attorney trying to quash a summons based on confidentiality, but the case was dismissed because of procedural defects.  In Patel v. United States, decided in March of 2013, the Southern District of Florida dismissed the motion to quash because the filing party (a third party) was not entitled to file a motion to quash, which is reserved for only the taxpayer under Section 7609.
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