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Summary Opinions for 12/19/14 to 1/05/15

Posted on Jan. 20, 2015

Back in the saddle after quite a few weeks off.  Holidays, home renovations, and the passing of my maternal grandfather (phenomenal guy, who will be incredibly missed by everyone who knew him) took priority over blogging.  SumOp isn’t usually that time sensitive though, so we can pack three weeks into one post.

Here are the items we found interesting that we didn’t otherwise cover over:

  • Let’s start off with Jack Townsend’s Federal Tax Crimes blog, and his post on Muncy v. Comm’r, which can be found here.  This Muncy is a gentleman who was not fond of following tax laws, and not the quaint town in north central Pennsylvania where I lived as a teenager.  Leroy Muncy created some type of fake employment agency and amazingly convinced his employer to pay his wages to this fake company in an effort to stop paying employment taxes.  I would guess he ran inflated expenses through the company to decrease his income taxes also, but that is just speculation.  When his fake employment company concept failed, he claimed he was a “sovereign living soul”, not subject to the rules of his home state of Arkansas or the United States of America. The civil court found he had failed his sovereign citizenship test (because it is made up and never recognized as a valid argument). Fast forward a few years, and there was criminal tax restitution and a potentially larger civil liability outstanding.  The Tax Court discussed the new legislation allowing immediate tax restitution on the criminal amount, and the issues that could cause in requiring a notice of deficiency for the full civil amount (which includes the criminal restitution amount).  Jack discusses the issue and provides his thoughts in the post.
  • Chief Counsel determined that employment tax liabilities and worker classifications were not partnership items under TEFRA, as they were items imposed and determined under Subtitle C, whereas TEFRA partnership items are those found under Subtitle A.  See LAFA 20145001F.  This general position has been stated before.  For an interesting discussion regarding this topic, and when related items of income may require TEFRA proceedings see CC Memo 200215053.
  • The Service shared its international tax training materials, which are found here.  There is a lot of material, and I have not gotten through it all yet.  The Service did caution that such training does not constitute pronouncements of law, and cannot be relied upon…but it will show how your agent will be approaching your audit.  Some of the units provide good overviews, while others dig down into specifics, like “Disposition of a Portion of an Integrated Hedge.”  My wife literally fell asleep when I was explaining that unit to her (or pretended to be asleep so I would stop talking).
  • The Fourth Circuit, in Wolff v. US,  in early December had a bankruptcy holding that I doubt is breaking new ground regarding preferential transfers (see Begier v. IRS. 496 US 53, cited by the 4th Cir.), but I hadn’t reviewed a case on the specific matter before.  The issue and holding, as outlined by the Court were:

whether the trustee in bankruptcy may reclaim as property of the debtor the approximately $28 million transferred by the debtor to the IRS during the 90 days preceding the filing of the bankruptcy petition. We agree with the bankruptcy court and the district court that, as a matter of law, the debtor lacked an equitable interest in the funds paid over to the IRS, and therefore we affirm the judgment.

The Fourth Circuit found that the property lacked the prerequisite of being the debtor’s property, because under applicable state law it held the funds in express trust and had no interest in the assets or discretion to use those funds for anything other than paying the government.

  • In US v. Titan International, the Service sought to obtain enforcement of its summons looking for the company’s 2009 airplane flight logs and general ledger in connection with its 2010 audit.  The taxpayer objected, as the Service has previously audited its 2009 return, and reviewed the requested documents. The taxpayer attempted to rely upon Section 7605(b), which generally states taxpayers do not have to hand over their books and records multiple times for the same year.  In Titan, the IRS argued it needed the documents to verify a 2010 deduction, and did not intend to review 2009 again.  The Court found the testimony and reasoning of the Service valid, and enforced the summons. This drives me crazy also (especially when they ask for the return), though the law (as Titan explains) gives the Service quite a bit of leeway to examine records from a previously examined year if the records relate to another possible year’s liability.
  • “Double-D Ranch” seems like a place in Nevada my wife would be very upset to find credit card receipts from, but it was apparently a far less seedy tax shelter for the one-time American Home Products (Wyeth) owner, Albert Diebold.  The Ninth Circuit found that shareholders, here the Salus Mundi Foundation, were responsible for a corporation’s taxes based on the state fraudulent conveyance statute and the transferee liability rules. See Salus Mundi Foundation v. Comm’r.   Peter Reilly has coverage at Forbes, where he loops in Frodo Baggins, all the tax shelter goodness, and the Diebold family history, found here.  If this all sounds familiar, it’s because the Second Circuit reviewed the exact same facts in Diebold Foundation v. Comm’r from 2013, which the Ninth Circuit looked to in its holding.
  • Southern District of Mississippi denied the Government’s motion to dismiss a taxpayer’s son’s action for quiet title on property the IRS was trying to foreclose its liens upon for the father’s taxes based on nominee theory; the Government argued that Sections 6325(b)(4) and Section 7426(b)(4) relating to some expedited lien remedies were the only remedies available to the taxpayer.  The Court in US v. McFarland disagreed, holding those were available remedies, but did not foreclose a quiet title action under 28 USC 2410.
  • In Larry J. Austin v. Comm’r (there was a Larry P. Austin case decided a few days later by the Tax Court – little confusing), the IRS prevailed in showing it was substantially justified in its position regarding foreign interest on accounts held in the name of the taxpayer, even though the interest was not actually taxable to the taxpayer.  Although the taxpayer prevailed on the item and amount in controversy, and met the financial thresholds for fees, the Service position was reasonable enough to prevent the imposition of costs.  A qualified offer was presumably not provided in this matter; although, there was a stipulated settlement, so the Service could have argued the concession was not the taxpayer prevailing, perhaps making such an offer useless.  We’ve discussed that before here and here (and I don’t like the court holdings very much).
  • John Doe is apparently involved in shipping, not just banking.  The DOJ has issued summonses to FedEx, DHL, and UPS to obtain information about clients who may be facilitating illegal activity resulting in tax fraud.  Robert Woods at Forbes has coverage here.
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