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Summary Opinions for 2/28/2014

Posted on Mar. 3, 2014

I was wrapped up in client matters this week, and just now got a chance to review the posts we put up this week.  Les’ post on King v. Sebelius explained why courts are allowing challenges to IRS guidance under Obamacare even if there is no refund or deficiency case, and he briefly summarized the procedural aspects of the Camp proposal  and highlighted some important interest cases percolating in the courts. The post by A. Lavar Taylor on when taxpayers should be able to challenge the merits of underlying liability in CDP appeals made a forceful case for the Tax Court to reconsider its approach, and we are thankful for his contribution.  Les and Keith’s comments introducing that article are also insightful, and Keith’s prior role at IRS on the CDP reg project provides a great historical perspective.

  • The Eleventh Circuit  in Govt of USVI/Huff v. Comm’r, has joined the Third and Eighth Circuits in allowing the US Virgin Islands to intervene in cases where the Service is questioning whether taxpayers are bona fide USVI residents.  The Fourth Circuit disagreed.  Being a USVI bona fide resident provides substantial tax benefits, and the test has gone through some changes over the last decade.  This issue is complicated, and I am sure we will have a full post on it sometime in the future.  Joseph A. DiRuzzo, III of Fuerst Ittleman has litigated a handful of these cases, and has posted blog entries on his firm’s page about the issue and the USVI intervention.  The most recent post regarding the 11th Circuit case can be found here, and it has links to his prior posts.  A few years ago, I needed to get up to speed on this issue, and used his posts as my initial resource.
  •    Joe Kristan’s blog has good coverage on Judge Buch of the Tax Court actually devoting substantial ink to a case involving the arguments of a well-known tax protestor, Peter Hendrickson.  Not an important substantive holding (the case considers and applies sanctions to the taxpayer under Section 6673), but interesting that the Court decided to write a more lengthy decision since Mr. Hendrickson was so active in discussing these frivolous arguments. Judge Buch explained that written opinions are the heart of the common law system and he noted that opinions serve many purposes: “they assist attorneys in advising clients and preparing cases; they provide the lower court’s rationale when the appellate court must evaluate its decision; they inform the public of the court’s analysis; and they establish clear and articulate rules for the future.  Further discussion of the case, and praise for Judge Buch, is found at the informative Taishoff law firm blog post Cracked, where he aptly describes the taxpayer in the case as a frivolity merchant who took his lead from Hendrickson.
  • Judge Krupa in Patrick v. Comm’r, has ruled that Whistleblower proceeds under the Fair Claims Act were ordinary income, and not capital gain.  The attorneys at Robert Wood’s law firm made a valiant effort in arguing that the information was a property right being sold, but I can’t say I’m terribly surprised in the holding.  I have not really reviewed the applicable law, but my assumption would have been this was not the sale of a capital asset.  I think the appeal would be to the 9th Circuit (I could be wrong about that), which also has adverse case law (which Mr. Wood’s firm was involved in), so we may not see an appeal.
  • Big 4 accounting is being a killjoy about March Madness, informing employees not to waste bandwidth on daytime games.  No similar ban at my office (I’m in charge of technology), but I will still probably be taking daytime client meetings at Side Bar in West Chester on March 20th and 21st from noon on.
  • The 9th Circuit had a short but sweet opinion about appropriate venue for a German national and resident to bring his tax refund and whether the District Court or Circuit Court could transfer the case to the Court of Federal Claims. In Topsnik v. US, the Ninth Circuit stated that appropriate jurisdiction was in the Court of Federal Claims, and the non-resident could not sue in the District Court.  See Malajalian v. US.  28 § 1402(a)(1) provides that any action filed in a district court against the United States may proceed only in the judicial district where the plaintiff resides. The taxpayer was a resident of Germany. This rule is different for corporate taxpayers, and there is case law that indicates if the Service encourages someone to file in a District Court there may be an estoppel argument.  The taxpayer in Topsnik also requested a transfer to the Court of Federal Claims, but the Ninth Circuit said that was inappropriate, as the venue transfer statute (28 USC 1404(a)) only references a “district or division” of the district courts, which the Court of Federal Claims is not.
  • Representative Camp is not the only one suggesting legislative changes.  The AICPA has also suggested 32 modifications to the Code to simplify things.  Some of their tax procedure suggestions including adding a reasonable cause exception to Section 6707A and Section 6662A, repeal Section 7122(c)(1) 20% payment in OICs, amending Section 6051 to allow for truncated SSNs and increasing penalties on preparers who engage in fraud.
  • With all this talk about tax reform, the Congressional Research Service has provided a report on the cost of the various individual itemized deductions currently in the crosshairs.  Not surprising, home mortgage interest, real estate taxes, state and local taxes and charitable contributions make up a substantial portion of the tax revenue loss.
  • Some statistics on our collective view of cheating on taxes, with 12% or 14% of people saying cheating on taxes is okay.  This is up over the last few years.
  • The most important accounting news of the year:  An article in Times about the two PWC accountants who already know that 12 Years a Slave will win Best Picture at Sunday’s Oscars.  I am defending champion of our office Oscar pool, so I’m facing some pretty serious stress this weekend.  Last year, the only movie I had seen was Brave.  This year, I’ve bested myself, having seen none of the movies nominated (although I have heard that song from Frozen – probably evident that I have young daughters).

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