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Summary Opinions for 4/4/2014

Posted on Apr. 9, 2014

Heavy on the case law this week.  Important holdings regarding closing agreements and the mitigation provisions, Tax Court jurisdiction in worker classification cases, lien priority, and fraudulent information returns.  Also, an interesting marketing concept for tax prep folks — drugs.   To the roundup:

  • Jack Townsend’s Federal Tax Procedure Blog has a great write up of an interesting case, El Paso CGP company, LLC v. US, which involves the mitigation Sections of the Code allowing the Service to open closed tax years and closing agreements.  Grossly oversimplified,  the taxpayer entered into a closing agreement with the Service for multiple years.  One year, the taxpayer was entitled to a refund, and in others it owed tax.  Following a closing agreement, the Service has one year to assess and collect, or refund the amount due under the mitigation provisions.  Section 1314(b).  The Service reduced the refund by the amount owed in other years, and refunded the rest.  The taxpayer argued that each year had to be either assessed or refunded separately.  The Court found that the mitigation provisions allowed the Service to offset the debts without following the normal assessment procedures because collection was not necessary.  I was slightly surprised at the holding, and it will be interesting to see if a similar matters goes before other courts.
  • The Tax Court in SECC Corp v. Comm’r found an IRS letter classifying workers was a sufficient determination to provide it with jurisdiction to review the classification under Section 7436, and a formal Letter 3523, Notice of Determination of Worker Classification, was not required.  I would highlight J. Halpern’s concurrence, where he mentions Notice 2002-5, which evidenced the Service’s position that only the formal letter provided jurisdiction.  J. Halpern emphasized that the Court owed no deference to the Service in determining its judicial bounds, and said it would be inappropriate to let the Service decide when a taxpayer could have access to the Court.    We will hopefully have a guest post from A. Lavar Taylor, one of the lawyers involved in this matter, later in the week or early next week.  Mr. Taylor should provide additional context, and also analysis of the result.
  • SCOTUS declined to review the 7th Circuit determination in Acute Care Specialist v. US that the statute of limitations which was extended by the TMP with the Service was a partnership item, and the other partners were therefore barred from questioning it under Section 7422.
  • Apparently, 420  Multi Services , a Bronx based tax preparation service, has expanded its business services to something more profitable…you guessed it, weed.  I wonder if they do refund loans to be used on the other offerings.  Probably more than one accountant out there this week who is considering this type of profession change.
  • The District Court for Massachusetts appears to have bailed out an attorney in Deutsche Bank National Trust Company v. United States, where the attorney failed to record the proper mortgage documents for a refinanced mortgage, and the Service subsequently filed tax liens.  The Court approved the Magistrate Judge’s recommendation that the Court find the bank had met the five equitable subrogation factors under Mass. law, and that the bank had the priority of the original mortgagor and priority over the Service.
  • Hell hath no fury like an accounting partner scorned!  The Southern District of Ohio presided over a portion (apparently there were various lawsuits, as the parties were “going to war” with one and other) of the breakup of Waldman, Pitcher and Co, an accounting firm. As part of the dissolution, the remaining partner was to pay portions of the AR to a new firm created by the departing partners.  Some funds were paid over to the new company, and at the end of the year the remaining partner issued personal 1099s to the leaving partners for the full amount due as non-employee compensation; however, the full amounts were not actually collected or paid over, and the payments were not to the individuals.  The Court found that the remaining partner did this intentionally to create tax problems for the leaving partners, and to give his firm a nice deduction.  The departing partners did not include the income on their personal returns, and contacted OPR claiming he was trying to “exact a revenge that he couldn’t otherwise exact during negotiations.”  There was then a handful of additional suits and IRS proceedings regarding the transaction, including defamation, breach of contract, excessive fees, a whistleblower claim, a restraining order, a criminal complaint, breach of confidentiality, and the claim in this case for willfully filing fraudulent information returns under Section 7434.  The case here hinged on whether the remaining partner “willfully” filed the fraudulent returns.  The Court found that based on the accountant’s education, experience, and the use of post-it notes on the 1099s saying the departing partners were “going to hell”, the remaining partner had willfully filed fraudulent returns.
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