Tax Procedure: Sometimes It’s Who You Know, Not What You Know

testimony, tax courtA 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

An Entirely Different Kind of Tax Shelter Case

tax shelter 1In the typical tax shelter case, the government is on offense, seeking to blow up a tax shelter and recover taxes and penalties. Last week, a district judge addressed a very different sort of case with a very different sort of posture: The government was playing defense, as the IRS was accused of knowing participation in a breach of fiduciary duty by the plaintiffs’ accountants. Esrey v. United States, No. 16-cv-3019 (JPO), 2017 U.S. Dist. LEXIS 42300 (S.D.N.Y. Mar. 23, 2017).

The plaintiffs, William T. Esrey and Ronald T. LeMay, were the former Chief Executive Officer and Chief Operating Officer of Sprint Corporation.… Read More

Tax Shelters: The IRS Identifies Micro-Captive Insurance Schemes as a Transaction of Interest.

tax-shelters-micro-captive-trasactionsThe IRS periodically identifies tax strategies it considers abusive as “reportable transactions,” a designation that triggers disclosure obligations for material advisors involved in the transactions. See I.R.C. § 6111(a). They also must maintain lists of participants involved in reportable transactions. See I.R.C. § 6112(a). And individual taxpayers must make disclosures with their returns. See Treas. Reg. § 1.6011-4(a).

Reportable transactions come in a variety of forms. Where the IRS determines that a particular type of transaction is a tax avoidance scheme, it will designate it as a listed transaction, making all substantially similar transactions subject to the reporting and record-keeping requirements outlined above.… Read More

Partnership Taxation: The Tenth Circuit Holds that the Good Faith/Reasonable Cause Defense Should Be Determined at the Partner Level

partnership level auditTEFRA died in 2015, but the wake is still going on.

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.
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