Tax Notes logo

Summary Opinions for 5/16/14

Posted on May 22, 2014

684px-1996_McLaren_F1I would like to claim that SumOp was delayed this week because of our wonderful guest posts by Larry Gibbs on the loving aftermath, and Mary Gorman on third party payor regulations, but, in reality, I was just slacking.  Below you can find your long awaited summary of tax procedure items from last week:

  • In Louisiana Rest. Ass. Self Insur. Trust v. United States, the District Court for the Eastern District of Louisiana held that the Service abused its discretion by not following a TAM it issued to the taxpayer (can’t find the case for free yet, sorry).  The Court, relying on Lansons, Inc. v. Comm’r, stated the Service can retroactively change its interpretation of a law, but when the taxpayer has relied in good faith upon the Service’s position, and the change would have an inordinate adverse effect, the Service must abide by its prior position.
  • Loans related to Yachts and failure to pay the gas guzzler excise tax on the 1998 McLaren F-1 he was importing—looks like the Court has been reading my journal (queue Doogie Howser music).  In Gonzales v. United States, the Court held that the taxpayer could not have relied on the car dealer or his accountant to show reasonable cause for penalty relief from the excise taxes relating to the purchase of the car (which, after finding out he was terminally ill, he transferred to his father to satisfy a debt relating to his Yacht).  First, it was not reasonable to view the car dealer as a tax expert, upon whom one could rely (the Court did not get into credentials, but presumably he was not a CPA or LLM).  The Court found the taxpayer also could not rely on his accountant because of his accountant’s damning testimony, stating “he had never prepared an excise tax return, he [was] not familiar with the law…, and he does not advise clients on excise tax liability.”  Further, the accountant never talked to the taxpayer regarding the tax.  The case has a lengthy discussion regarding whether or not the car was subject to the luxury tax (yes) and the gas guzzler tax (yes), both of which are interesting, but beyond the scope of SumOp.
  • The IRS has issued Chief Counsel Notice 2014-002, which directs the Service to take the position in CDP cases that the existence of the amount of underlying tax is not in question under certain circumstances, thereby requiring abuse of discretion review and not de novo review.  Issues involving the validity of the assessment, the expiration of the statute of limitation, or payments and overpayment credits and their application do not include a question as to the underlying tax, and therefore receive the more deferential review.  This position is contrary to some decided Tax Court cases.
  • Lose your books and records during a move?  Not sufficient by itself for penalty relief if the IRS assesses additional tax if you can’t substantiate the tax items.  The Tax Court in Chandler v. Comm’r stated that lost records due a move was not enough, and the taxpayers should have also attempted to show that the loss was due to circumstances beyond their control and that they attempted to reasonably reconstruct the same.  The Court relied on its prior holding Mears v. Comm’r.  I’ve had this issue come up with flooding a few times.  My experience with the Service has been positive.  We attempted to prove each requirement, and my clients presented well.  In the end, we did not have any issues.
  • Last week, Keith posted on the proposed legislation that would require the Service to use private debt collection services for certain collection matters.  One of our frequent commenters, Bob Kamman, thought we should have hammered the lobbying point, instead of arguing the merits of the suggestion.  I think both are important, and others have previously touched on the lobbying aspect.  Three of the four possible companies are headquartered in the districts of the two senators advancing the bill.  I’m sure our readers are shocked.  You can find two articles on this here and here.
  • In news that is sweeping the web, but really shouldn’t surprise anyone, TIGTA has issued a report indicating there is a significant overall difference in the amount of alimony deductions taken compared to the amount of alimony reported as income.  Many recently divorced folks have suffered a bit of a financial shock, and now have different and somewhat complicated tax rules to follow.  A bad combination for tax compliance.   This seems like it should not be terribly difficult for the Service to track, and to ensure the returns match up, but perhaps I am naïve.
  • An interesting article from New Science, reported by Slate, regarding violent crimes spreading in a similar fashion to infectious disease, and how, like infectious disease, the spread can be interrupted and stopped.  I would not be surprised to see similar results with tax evasion, as the premise behind the spread is that if someone is in contact with violent crime, he or she is more likely to commit such a crime.  Seems like it could be equally applicable to tax.
  • IRS is doing limited audits on Section 409A plans, and Winston and Straw has some coverage here.  From the article, the IRS is not jumping into more complicated areas, but instead just doing someone basic reviews.
  • IRS has announced a one year pilot program to provide penalty relief for delinquent Form 5500 series retirement plans that are not covered under Title I of ERISA (not a lot – one participant plans and some foreign plans).  See Rev. Proc. 2014-32 if you desire more info.
Copy RID