Too Many Clients: A Cautionary Note on Payroll Tax Cases.

When an employer falls behind on payments of taxes withheld from employees’ paychecks, the IRS tends to take prompt enforcement measures. In addition to taking action against the employer, the government will generally look at individuals associated with the employer to determine whether they are potentially liable under Section 6672 of the Internal Revenue Code, which imposes potential liability for any shortfall in withholding upon “[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

The Eleventh Circuit Looks at Valuation Misstatement Penalties.

Section 6662 of the Internal Revenue Code imposes a 20% penalty in various situations when a taxpayer is negligent; these include penalties for a “substantial valuation misstatement.” I.R.C. § 6662(b)(3). A substantial valuation misstatement occurs where the taxpayer claims a basis in property that is 150% or more of the correct value. I.R.C. § 6662(e)(1)(A). Moreover, the penalty is increased from 20% to 40% if the taxpayer overstates basis by 200% or more. I.R.C. § 6662(h)(1). Section 6662 also imposes a 20% penalty regime where a taxpayer enters into a transaction that lacks economic substance. I.R.C. § 6662(b)(6). Although there are alternative penalties, only one may be applied to a particular underpayment of tax.Read More

Tax Advisor’s Opinion May Establish Reasonable Cause for Late Filing of Estate Tax Return.

In Estate of Morton Liftin v. United States, 2011 U.S. Claims LEXIS 2169 (Nov. 8, 2011), the Court of Federal Claims ruled that a taxpayer could potentially recover a late filing penalty assessed on an estate tax return because it alleged it had relied upon counsel’s advice in delaying its filing.

Failure to file a timely tax return triggers penalties under Section 6651(a) of the Internal Revenue Code of five percent per month up to a maximum of twenty-five percent. The estate tax return is due within nine months of the decedent’s death under Section 6075(a) of the Code. In Liftin, the decedent’s spouse was a U.S.Read More