About Jim Malone

Jim Malone is a tax attorney in Philadelphia. A Principal at Post & Schell, he focuses his practice on federal, state and local tax controversies. Learn more about Post & Schell's Tax Controversy Practice >>

Refund Litigation: Think Before You Sue…Your Choice of Forum Matters

Pfizer, Inc. v. United States Choice of venue mattersDistrict courts and the Court of Federal Claims have concurrent jurisdiction over tax refund actions. Specifically, their jurisdiction reaches the following types of claims:

  • A civil action to recover “any internal-revenue tax alleged to have been erroneously or illegally assessed or collected”;
  • A civil action to recover “any penalty claimed to have been collected without authority”; or
  • A civil action to recover “any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.”

28 U.S.C. § 1346(a)(1). Section 1346(a)(1) also serves as a waiver of sovereign immunity by the United States.… Read More

Tax Procedure: A Marijuana Dispensary Cannot Enjoin an IRS Investigation Concerning Trafficking in a Controlled Substance

Marijuana, tax, IRSMarijuana is legal for medical use in over half of the states, along with the District of Columbia. It is also legal for recreational use in eight states and the District of Columbia. At the federal level, however, marijuana is classified as a controlled substance under Schedule I of the Controlled Substances Act. This dichotomy creates a variety of tricky issues for marijuana growers and dispensaries.

One problem is that the Internal Revenue Code precludes deductions for business expenses for any trade or business “if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).” I.R.C.… Read More

Partnership Taxation: A Penalty for Failure to Treat Items in a Manner Consistent with the Partnership Return is Subject to Deficiency Procedures

partnership level auditPartnerships are subject to special audit procedures. The current operative regime is TEFRA, which has been repealed but still governs partnerships for tax years commencing prior to December 31, 2017. Under TEFRA, partners are subject to an obligation to report any partnership items on their individual returns “in a manner which is consistent with the treatment of such partnership item on the partnership return.” I.R.C. § 6222(a). Alternatively, a partner who does not wish to treat a partnership item in a consistent manner must file a notice alerting the IRS to the inconsistent treatment. I.R.C. § 6222(b). The failure to file the notice of inconsistent treatment can trigger penalties.… Read More

A Fair Decision: IRS Refusal of Hardship Waiver for Rollover Contributions is Overturned

IRA RolloverA retired New York City policeman who missed the deadline to roll over retirement plan distributions into an IRA sought a hardship waiver and asked the IRS for “a fair decision” based on his personal difficulties. He received it from the Tax Court in a precedential opinion. Trimmer v. Comm’r, Docket No. 27238-14, 2017 U.S. Tax Ct. LEXIS 15 (Apr. 20, 2017).

Mr. Trimmer worked as a New York City police officer for twenty years until he retired in April of 2011. His wife worked as a school teacher. 2017 U.S. Tax Ct. LEXIS 15 at *3. Mr. Trimmer had planned to work as a security guard with the New York Stock Exchange after retirement, but that job was not offered to him.… Read More

State and Local Taxation: Franchise Fees Must Be Apportioned for Purposes of a Business Privilege Tax

PA State and local taxIn Pennsylvania, the Local Tax Enabling Act authorizes a variety of municipalities to impose a tax “on the privilege of doing business in the jurisdiction of the local taxing authority.” 53 P.S. § 6924.301.1(a.1)(1). As with any state or local tax, the tax cannot violate the Commerce Clause; as a consequence, a local business privilege tax may only be imposed “when the tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State.” Complete Auto Transit, Inc. v.Read More

Employment Taxes: Return Information of Misclassified Employees Is Discoverable in a Worker Classification Case

Employee MisclassificationEmployers are required to deduct federal income tax from employees’ paychecks. I.R.C. § 3402(a)(1). While the employer will be liable if it fails to withhold, I.R.C. § 3403, in cases where the employees were improperly classified as independent contractors, the prospect exists that they have independently paid their income taxes directly after receiving a 1099. As a consequence, the Internal Revenue Code provides a partial defense to the employer: The employer will not be liable for income taxes to the extent that the improperly classified employees paid them, but will remain liable for any interest and penalties associated with its failure to deduct the taxes from the employees’ wages.… Read More

IRS Collections: Son-of-BOSS and a Sham Divorce, a Tax Lien Soap Opera

son-of-bossSome people will go to extraordinary measures to avoid paying their taxes. Recently, the First Circuit addressed a case where a business owner attempted to use a Son-of-BOSS tax shelter to avoid paying tax on gains from the sale of several fitness centers; when that did not work, he and his wife entered into a sham divorce, using the property settlement as a means to shelter assets from the IRS. United States v. Baker, No. 16-1415, 2017 U.S. App. LEXIS 5234 (Mar. 24, 2017). The Court of Appeals had to unravel a complex web of transactions to determine what property owned by the couple was subject to a federal tax lien.… Read More

An Entirely Different Kind of Tax Shelter Case

tax shelter 1In the typical tax shelter case, the government is on offense, seeking to blow up a tax shelter and recover taxes and penalties. Last week, a district judge addressed a very different sort of case with a very different sort of posture: The government was playing defense, as the IRS was accused of knowing participation in a breach of fiduciary duty by the plaintiffs’ accountants. Esrey v. United States, No. 16-cv-3019 (JPO), 2017 U.S. Dist. LEXIS 42300 (S.D.N.Y. Mar. 23, 2017).

The plaintiffs, William T. Esrey and Ronald T. LeMay, were the former Chief Executive Officer and Chief Operating Officer of Sprint Corporation.… Read More

The Ongoing Impact of Loving: The IRS May Not Be Able to Regulate Tax Opinions

Loving vs. IRSUnder Circular 230, the IRS regulates tax professionals in a variety of ways. For example, a tax practitioner who learns that a client has made an error in a return must promptly advise the client of the error and its consequences. 31 C.F.R. § 10.21. Among the subjects regulated under Circular 230 is written tax advice, which is subject to a reasonable practitioner standard. 31 C.F.R. § 10.37. Violations of the requirements of Circular 230 expose tax professionals to disciplinary proceedings before the IRS Office of Professional Responsibility (“OPR”). The authority of the IRS to regulate tax professionals rests on a statute that authorizes the Treasury Department to “regulate the practice of representatives of persons before the Department of the Treasury.” 31 U.S.C.… Read More

Employment Taxes: A Look at Changing Enforcement Patterns

IRS BuildingRoughly seventy percent of the federal government’s revenues come from employment taxes, including FICA and income taxes withheld from employees’ wages. Consequently, threats to that source are taken quite seriously. All employers need to be aware of the significant changes in employment tax enforcement that have increased the risks faced by the non-compliant.

Traditional Employment Tax Enforcement

Historically, the failure of an employer to comply with its employment tax obligations was generally treated as a civil tax problem to be handled by the IRS. A typical payroll tax case involved penalties for the delinquent employer. If the taxes were not paid promptly, responsible individuals would be assessed with the trust fund recovery penalty, which applies to “[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof.” I.R.C.… Read More