Recovery Follows Exhaustion: A Refund Claim Gone Awry

tax refundThe Internal Revenue Code is long (but not 70,000 pages long).

It is complicated.

It is laden with ambiguities.

And it is constantly changing (because Congress loves to tinker).

But this much is clear: You cannot get a tax refund if you do not make a claim for one.

Here’s what the Code says:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.

Read More

Latvian Bank Faces Exclusion as a “Primary Money Laundering Concern” Based on North Korean Ties and Other Misdeeds

ABLV Bank, ASOn February 12, 2018, the Financial Crimes Enforcement Network (“FinCEN”), a division of the Treasury Department charged with enforcing the anti-money laundering provisions Bank Secrecy Act (“BSA”), branded ABLV Bank, AS as a “financial institution of primary money laundering concern”  and announced its intention, via a notice of proposed rulemaking, to effectively exclude ABLV Bank from the U.S. financial system by prohibiting U.S. banks from opening or maintaining correspondent accounts in ABLV Bank’s name or on its behalf. The designation of ABLV Bank as a primary money laundering concern takes effect immediately; the imposition of this prohibition against correspondent accounts will take effect when FinCEN issues a final rule after expiration of the administrative comment period on April 13, 2018.… Read More

Turnabout is Fair Play: Payments by a Hospital to Former Residents in FICA Dispute are Subject to Indemnification

N.Y. & Presbyterian Hosp. v. United StatesThe Federal Insurance Contributions Act (“FICA”), I.R.C. §§ 3101-3128, requires employers to deduct a tax from the wages paid to employees, but it has an exception for wages paid to students. See I.R.C. § 3121(b)(10). For a number of years, the question whether medical residents qualified for this exception was disputed. The official position of the IRS was that medical residents did not qualify for the student exception, but it allowed both residents and hospitals to file protective refund claims. Then on March 2, 2010, the IRS issued an announcement that it would honor refund claims previously filed for periods prior to April 1, 2005, when a relevant regulation took effect.… Read More

A Little Bit of Tax Reform: A Look at Wrongful Levies

Tax Cuts and Jobs ActCongress got something right.

In the course of enacting the Tax Cuts and Jobs Act, Pub. L. 115-97, the Senate added a provision addressing a recurring problem by extending the time to file a wrongful levy action from nine months to two years. It also gave the IRS authority to return money seized or monetary proceeds of property sold following a levy within two years of the date of levy. To put the changes in context, a bit of background is in order.

Congress has given the IRS very potent collection tools; it can impose a lien on a taxpayer’s property, and it can seize property from a taxpayer, all without a court order.… Read More

Other People’s Money: Treat It Like It’s Yours…and the Government Will Tax It Like It’s Yours

sun v. Comm'rAl Capone apparently said, “they can’t collect legal taxes from illegal money.” He later learned that they can. Last week, the Fifth Circuit provided a reminder that stolen money is income, just like money obtained through honest means. Sun v. Comm’r, No. 16-60270, 2018 U.S. App. LEXIS 1187 (5th Cir. Jan. 18, 2018).

A foreign friend sent Jerry Sun $19 million dollars to invest on his behalf in a loose arrangement that was not committed to writing. Sun spent $6 million on personal expenses, parked $4 million in the accounts of a company he controlled, and invested the balance in his own brokerage accounts where it was intermingled with his own funds.… Read More

Tax Procedure: The Tax Court Clarifies its Scope and Standard of Review for Whistleblower Cases

whistleblower, false claimsOn January 9, 2018, the Tax Court issued an important decision on the scope and standard of review in whistleblower cases, ruling that the record rule (limiting review to the agency record) would apply and then delineating specific exceptions that may apply in whistleblower cases; the court also held that IRS whistleblower determinations would be reviewed for abuse of discretion. Kasper v. Comm’r, 150 T.C. No. 2, 2018 U.S. Tax Ct. LEXIS 2 (Jan. 9, 2018).

In 2006, section 7623 of the Internal Revenue Code was amended to make changes to the regime for whistleblower awards in tax cases. Prior to the amendments, the IRS had essentially unfettered discretion, as there was no mechanism for judicial review of awards.… Read More

Exempt Organizations: The New Excise Tax on Excess Compensation

excise tax, healthcare, tax billOn December 22, 2016, the Tax Cuts and Jobs Act (the “Act”) became law. While cutting certain tax rates, the Act also imposed a new tax: There is now an excise tax applicable to exempt organizations on “excess compensation.” This new tax will apply to the following: “(1) so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus (2) any excess parachute payment paid by such an organization to any covered employee.” Pub. L. No. 115-97, § 13602 (to be codified at I.R.C.… Read More

Exemption Revoked: One Hospital’s Joint Venture Mishap

hospital joint ventureIntroduction

Joint ventures between non-profit hospitals and for-profit enterprises are fairly common in the health care industry. The arrangements, however, require careful attention, or the non-profit may put its tax exemption at risk.

PLR 201744019, released by the IRS in November 2017, illustrates the problem: On August 7, 2017, the IRS retroactively revoked the exempt status of a hospital operator as of February 1, 2011 after concluding that an agreement that it reached sometime during the 20th century meant that it was not operated exclusively for charitable purposes. The joint venture was a whole-hospital arrangement in which the exempt organization leased its land, property, and equipment to a for-profit management company which then operated in the organization’s name.… Read More

Lawyers Blaming Lawyers: A Trust Fund Tax Tale

Spizz-v.-United-StatesEmployers serve as tax collectors under the Internal Revenue Code: In addition to paying its own FICA and FUTA obligations, an employer must withhold FICA and income tax from its employees’ pay. See I.R.C. §§ 3102 (FICA “shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid”); 3402 (“every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary”).

For good measure, Congress included a mechanism to ensure compliance; if an employer fails to withhold and pay over the tax, responsible parties affiliated with the employer can be assessed with the trust fund recovery penalty under section 6672 of the Code, which makes these individuals liable if they willfully fail to assure that the taxes are paid.… Read More