Top 5 Tax Controversy Posts of 2017

2017 bankTax Controversy Posts covered a number of interesting developments in 2017. The five most popular included a tax shelter case, a look at a particularly disastrous exempt organization audit, an Affordable Care Act case, and two transferee cases. They are linked below.

My personal favorite is #4, where the Ninth Circuit held that a bankruptcy trustee could use one of the favorite tools of the IRS, transferee liability, to recoup tax payments made by the debtor.

-Jim Malone

#1. Tax Shelters: The Government Prevails Against Santander
The IRS and the Tax Division of the Department of Justice have expended significant effort fighting tax shelters, and they have enjoyed many successes in that endeavor. The one blot on the government’s record was a case against Santander Holdings, the successor to Sovereign Bancorp. Initially, the taxpayer had prevailed on a summary judgment motion in the trial court, but the First Circuit reversed in December 2016.

#2. Flirting with Disaster: A Look at How Tax-Exempt Status Can be Revoked
An October 10, 2017 decision by the Tax Court illustrates the adverse impact that revocation can have on a tax-exempt organization. The Court held that interest started to accrue as of the date when an exempt organization should have filed a corporate income tax return for the 2002 tax year, even though its exemption was revoked years later.

#3. Tax Refund Claims: ACA Reinsurance Mandate Payments – Not Taxes That Can Be Recovered Through Refund Action
A July 21, 2017 district court case decided under the Affordable Care Act held that a mandatory reinsurance contribution imposed upon a self-funded, self-administered group health plan was not a tax recoverable through a refund action.

#4. A Litte Sauce for the Gander: Ninth Circuit Holds a Bankruptcy Trustee Can Recoup Tax Payments from IRS as Fraudulent Transfers
Most states have a version of the Uniform Fraudulent Transfer Act, or its predecessor, the Uniform Fraudulent Conveyance Act. On August 31, 2017, the Ninth Circuit ruled that the IRS is also subject to these laws, holding that a bankruptcy trustee could rely on state law to recoup tax payments made to the IRS.

#5. Tax Procedure: A Minority Shareholder is Responsible for Corporate Taxes Following the Majority Shareholders’ Fraud 

William Kardash was a minority shareholder in a Florida company involved in the construction industry; the majority shareholders were skimming cash from the company, apparently without his knowledge or complicity. Kardash wound up with a significant tax bill for the company’s taxes, as the Eleventh Circuit ruled on August 4, 2017 that he was liable as a transferee under section 6901 of the Internal Revenue Code and applicable state law.


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