No Quick Exit: Judgment on the Pleadings Denied in A Tax Shelter Penalty Case

tax shelterSections 6111 and 6112 of the Internal Revenue Code currently impose certain reporting obligations on individuals who are involved in “reportable transactions,” including an obligation to file information returns and maintain lists of participants. The current code provisions were substantially revised in 2004. Historically, Sections 6111 and 6112 were aimed at “tax shelter organizer[s].” See I.R.C. § 6111(a) (2003). Both the historical and the current versions of Sections 6111 and 6112 of the Code are reinforced by Sections 6707 and 6708 of the Code, which provide for the imposition of significant penalties in the event of a violation.

Last week, a district court issued an interesting decision, denying a motion for judgment on the pleadings filed by a law firm challenging penalties assessed for violations of Sections 6111 and 6112.… Read More

A Switch in Time: The Sixth Circuit Examines the Limitations Period for the Prohibited Allocation Excise Tax, Part II

ESOPOn Tuesday, September 15, I reported on a recent Sixth Circuit opinion Law Office of John H. Eggertsen, P.C. v. Commissioner, No. 14-2591, 2015 U.S. App. LEXIS 15930 (6th Cir. Sept. 8, 2015), which dealt with a substantive issue under Section 4979A of the Internal Revenue Code, as well as the relevant limitations period. The limitations issue is interesting because there were two statutes that might control and because the government flip-flopped on which should apply.

Although there was an express provision in Section 4979A, the Sixth Circuit concluded that the general assessment limitation in Section 6501(a) applied and that the excise tax was assessed on a timely basis, as the taxpayer had failed to file the requisite excise tax return.… Read More

A Switch in Time: The Sixth Circuit Examines the Limitations Period for the Prohibited Allocation Excise Tax


ESOPCongress has long favored employee stock ownership plans (ESOPs) and it has created tax incentives to promote them. But a troubling pattern emerged: a small business owner, such as a lawyer or an accountant in a solo practice, would convert her business into an S Corporation. Then she would contribute all of the shares to an ESOP, which would allocate the shares to the owner’s retirement account. The income generated in the practice passed through to the ESOP untaxed because the practice was an S Corporation. The ESOP was exempt from tax at the plan level, and the owner was exempt from tax on the income associated with the stock until the stock was distributed to her at retirement.… Read More