You Can’t Make Tax Stuff Up: A Look at the Civil Fraud Penalty

Civil Fraud PenaltyThe Internal Revenue Code provides for penalties to deter taxpayers from underreporting their income, claiming bogus deductions, and engaging in other forms of misbehavior. For example, there is a twenty percent accuracy-related penalty that applies when a taxpayer negligently fails to follow regulations, materially understates his tax liability, or files a return with a substantial valuation misstatement. I.R.C. § 6662(a). That twenty percent penalty can be doubled if the return rests upon a gross valuation misstatement. I.R.C. § 6662(h).

For taxpayers who cross the line dividing negligent behavior from willful misconduct, there is a seventy-five percent fraud penalty. I.R.C. § 6663(a).… Read More

Tax Procedure: A Look at Summons Enforcement Proceedings

IRS BuidlingCongress has directed the Internal Revenue Service “to make the inquiries, determinations, and assessments of all taxes . . . imposed by this title.” I.R.C. § 6201(a). To make these “inquiries, determinations, and assessments,” the IRS has the authority to issue a summons for testimony or for relevant books and records. See I.R.C. § 7602(a). If the taxpayer fails to comply, the IRS can then bring a summons enforcement proceeding in district court. See I.R.C. § 7402(b) (granting jurisdiction over summons enforcement proceedings.

A summons will be enforced if the IRS can show “that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner’s possession, and that the administrative steps required by the Code have been followed.” United States v.Read More

Tax Procedure: IRS Failure to Comply with a Closing Agreement Does Not Invalidate a Tax Assessment

shutterstock_211721662The late Al Davis, former owner of the Oakland Raiders, was a big fan of a Hail Mary: Davis liked them on the football field, and he liked them in the courtroom too. Recently, his estate attempted one, arguing that a technical violation of a closing agreement by the IRS invalidated a tax assessment, but the effort fell short. Davis v. United States, 2016 U.S. App. LEXIS 1167 (9th Cir. Jan 25, 2016).

While Davis was the public face of the Oakland Raiders for many years, the team was actually owned by a limited partnership (the “Partnership”), in which Davis held the largest interest; Davis was also the president of A.D.… Read More

Tax Procedure: A Recent “Clarification” of the Tax Court Offers Little Clarity

US CongressIn its current form, the Tax Court was created by Section 951 the Tax Reform Act of 1969, which is currently codified as Section 7441 of the Internal Revenue Code and provides that “[t]here is hereby established, under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The members of the Tax Court shall be the chief judge and the judges of the Tax Court.” I.R.C. § 7441.

As part of the Consolidated Appropriations Act, 2016, Pub. L. 114-113, Congress amended a variety of provisions of the Code relevant to the Tax Court.… Read More

Tax Cases Can Be Tricky.

Suing the federal government isn’t easy; after all it generally enjoys sovereign immunity. And pursuing a tax case is harder due to the length and complexity of the Internal Revenue Code, which has a variety of traps that can snare even capable lawyers.

A recent case illustrates the point: the plaintiff, Ms. McGinley held a property that was subject to a federal tax lien due to liabilities of her former husband. To resolve that situation, the plaintiff negotiated an arrangement in which she paid the IRS an agreed amount out of the proceeds in exchange for a certificate of discharge of the tax lien.Read More