Robert Smith learned the hard way: In June 2009, Smith sold his company, National Coupling, and retired; he received a $600,000 bonus, $248,246 from the sale of his stock, and $181,170 from two life insurance policies that his company had owned. Smith v. Comm’r, No. 21707-15, T.C. Memo 2017-218, 2017 Tax Ct. Memo LEXIS 217, **3 (Nov. 6, 2017). Mr. Smith expected to receive patent rights to a sprinkler design as well, but that was not addressed in the sale documents.… Read More
A sophisticated taxpayer avoided liability for an accuracy-related penalty in connection with a foreign currency options shelter because he relied upon advice from a friend and former colleague. Tucker v. Comm’r, 2017 Tax Ct. Memo LEXIS 184 (Sept. 18, 2017). While Tucker also addresses economic substance issues surrounding the shelter, the penalty determination is more intriguing.
The taxpayer, Keith Tucker, had an accounting degree and a law degree. 2017 Tax Ct. Memo LEXIS 184 at *2. After working in the tax practice at KPMG, he moved on to a variety of different business positions, serving as an investment banker, working in private equity, and holding positions as a financial services executive.… Read More
Last week, the Tax Court issued an opinion in a complicated international tax case that illustrates the principle that incorrect advice can still help a taxpayer, as it may support a defense to a penalty. Grecian Magnesite Mining, Indus. & Shipping Co. v. Comm’r, No. 19215-12, 2017 U.S. Tax Ct. LEXIS 36 (July 13, 2017).
In Grecian Magnesite, the taxpayer was a foreign corporation formed in the Hellenic Republic and based in Athens. 2017 U.S. Tax Ct. LEXIS 36 at *3. The taxpayer had an interest in Premier Chemicals, LLC (“Premier”), which was its sole connection to the United States.… Read More
Taxpayers frequently rely upon an accountant to prepare their returns, and that involves more than just filling out forms. In preparing a return, an accountant will need to make judgments about the appropriate treatment of tax items, including whether income represents capital gain or ordinary income and whether expenditures should be capitalized or treated as business expenses.
If the IRS concludes that one of these judgment calls is incorrect, the taxpayer can be exposed to penalties, such as the accuracy-related penalty under section 6662 of the Internal Revenue Code. Taxpayers frequently point to the accountant’s role in an effort to avoid liability for the penalty; the Code provides a defense where the taxpayer shows that that there was “reasonable cause” for the position taken on the return and that she acted in good faith.… Read More
While the Bipartisan Budget Act of 2015 repealed TEFRA (or the Tax Equity and Fiscal Responsibility Act of 1982) for tax years ending after December 31, 2017, courts continue to grapple with cases governed by its partnership audit and assessment procedures. Tuesday, the Tenth Circuit issued an interesting opinion on when a good faith/reasonable cause defense to a penalty determination can be raised by an individual partner in a refund action. McNeill v. United States, No. 15-8095, 2016 U.S. App. LEXIS 16343 (10th Cir. Sept. 6, 2016).
TEFRA’s audit process works like this:
- There is a partnership-level audit that results in a final partnership administrative adjustment.