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Summary Opinions for 06/20/14

Posted on June 25, 2014

Last week was a fairly interesting week in the tax procedure world, with the Clarke decision and the Kuretski decision.  Both items we have followed closely.  We also finally saw the Circ. 230 regulations (I still have the disclaimer on my email), and we have to thank Michael Desmond again for his post, found here, on that topic.  In addition, there were a handful of interesting penalty cases, some new important FBAR information, and reactions to the various cases; all of which is discussed below.

  • The IRS has eased up on nonwillful failure to file FBARs. Jack Townsend’s Federal Tax Crimes blog has initial reactions here, including various other links and the salient terms. Jack also has a second post containing a summary of IRS statements on the new policies from the Service here.
  • The Fifth Circuit has again reviewed the Whitehouse Hotel LP v. Comm’r, this time vacating the Tax Court’s imposition of the gross valuation misstatement penalty under Section 6662. The underlying question in the case was the valuation of a façade easement, which the taxpayer obtained an appraisal on and had the assistance of other tax professionals. The Tax Court stated this was not sufficient because there was no evidence that the taxpayer made a separate independent investigation in good faith or asked its tax professionals to do the same. The Fifth Circuit stated the standard was too high for reliance, and that the taxpayer had shown reliance on the advice of a competent professional under the statute. I have a post this week coming on the Liftin case from the DC Circuit Court of Appeals, which I would argue takes a somewhat contrary position for reliance.
  • Estate of D. McNeely v. US is another interesting Section 6166 procedure case, where the estate initially paid estate tax for an amount greater than the tax due on the non-closely held company assets. Section 6166 is discussed in my second Knappe post here, but in a nutshell the Section allows estates to defer certain estate tax obligations on some closely held entities and then pay the tax in installments. The estate tax is due, however, on all non-closely held company interests. The estate in McNeely realized it had paid estate tax in an amount greater than required for just the non-closely held business interests, and sued for a refund. When the estate made the payment, it marked the payment as the “non-deferred” amount, but the Service stated that under Section 6403 it was allowed to apply an overpaid installment obligation against future installments. The Court found the Service had the discretion to do this under either Section 6402 or Section 6403, but there did appear to be somewhat compelling arguments against this result and some arguably contrary holdings in other district court cases.
  • The IRS has issued temporary regulations indicating the persons/entities that the Service can contract to receive summoned books, and records, and to take summoned testimony.  The regulations are not extensive, and do not provide that much guidance.
  • Another great tax procedure mind, Professor Steve Johnson, has comments on the Clarke case also on TaxProfBlog.
  • This is our 200th post!!!  Thanks to everyone for reading.  Not bad for less than a year.
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