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Andy Hein, General Manager - Alma Telephone Company "Our company's recent and significant experience with Warinner, Gesinger & Associates came when they helped convert us from average schedule to cost reporting. In addition, WGA provided us with some strategic planning and fin

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Publisher's note: Due to the Labor Day holiday, there will be no RIA Daily Updates published on Monday, September 6th, 2010. - Category : Federal Tax Updates

“Check-the-box” election relief provided to foreign entities that mistake the number of their owners - Category : Federal Tax Updates
In a Revenue Procedure, IRS has provided relief to foreign entities that make a “check-the-box” election either to be a partnership (under the reasonable but mistaken assumption that it has more than one owner) or to be a disregarded entity (under the reasonable but mistaken assumption that it has only one owner). Rather than treat the entity as an association taxable as a corporation, in the former case, IRS will treat the original election as an election to be a disregarded entity, and in the latter case, IRS will treat the original election as an election to be a partnership.

LIFO and non-LIFO financial statement disclosures don't violate LIFO conformity rule - Category : Federal Tax Updates
In a new ruling, IRS has concluded that a taxpayer's proposed issuance of financial statements and supplemental information containing disclosures of a subsidiary's income on a LIFO and non-LIFO basis to the taxpayer's creditors and shareholders won't be a LIFO conformity violation under Code Sec. 472 and its regs.

Employers not liable for multiemployer plan's funding deficiency that later “vanished” - Category : Federal Tax Updates
In a case of first impression, the Court of Appeals for the First Circuit has held that a multiemployer plan wasn't entitled to a court order requiring participating employers to contribute additional amounts to keep the plan in compliance with the ERISA § 302 minimum funding requirement for the 2005 plan year, because, by the time the district court entered its judgment, the deficiency had “disappeared,”

Code Section 752—Partnership transactions—basis—assumption of liabilities—foreign currency options transactions—contingent obligations and liabilities—retroactive application of regs—Court of Federal Claims.
Govt. was denied motion to vacate Reg. § 1.752-6-invalidating decision made by CFC in partnership case in which taxpayers had in interim stipulated that underlying transactions lacked economic substance: govt. was basing motion on unpersuasive argument that because reg question had been mooted in this case by taxpayers' intervening stipulation, letting reg-invalidating decision stand would just prejudice govt. in its litigation position in other cases. (Murfam Farms, LLC v. U.S., Ct Fed Cl, 106 AFTR 2d ¶2010-5221Murfam Farms, LLC v. U.S., Ct Fed Cl, )

Code Section 894—Income affected by treaty–Competent Authority Agreement–U.S.-Belgium treaty.
IRS provided CAA entered into on 7/14/2010, by competent authorities of U.S. and Belgium with respect to taxation of fellowship payments made to certain researchers under U.S.-Belgium income tax treaty and protocol. (Ann. 2010-52, 2010-36 IRB 315 )

Code Section 3111—Employment taxes—refunds—counterclaims—collection; IRS right to setoff—Court of Federal Claims jurisdiction—limitations periods.
Taxpayers' motion for reconsideration of Fed. Cir.'s decision dismissing their appeal as premature was denied without discussion. (Western Management Inc v. U.S., CA Fed Cir, 106 AFTR 2d ¶2010-5217Western Management Inc v. U.S., CA Fed Cir, )

Code Section 6226—Partnerships—partnership vs. affected items—FPAAs—jurisdiction—accuracy-related penalties—Court of Federal Claims.
CFC upheld its jurisdiction in partnership-level proceeding, involving family-owned farming LLCs/partnerships' loss-generating/basis-inflating Son of BOSS/COBRA tax shelter transactions, to determine applicability of accuracy-related penalties that were triggered by adjustments to partnership gains and losses, inside bases, and other partnership, vs. affected, items. (Murfam Farms, LLC v. U.S., Ct Fed Cl, 106 AFTR 2d ¶2010-5212Murfam Farms, LLC v. U.S., Ct Fed Cl, )

Code Section 6323—Liens and levies—lien priority—deed of trust—tax liens vs. security interests—nonjudicial foreclosure sale—redemption—summary judgment.
Govt. was denied reconsideration of decision granting LLC summary judgment that federal tax liens were junior to property deed that bank obtained in nonjudicial foreclosure sale and conveyed to LLC: govt.'s reliance on definition of “security interest” in Reg. § 301.6323(h)-1(a)(2)(i), which it inadvertently neglected to bring to court's attention and now cited as restriction on definition of security interest found in Code Sec. 6323, was off base where statute wasn't ambiguous and where such restriction ignored relation back mechanism/security interest holder's protections under Maryland law. Also, LLC was granted summary judgment that 3d party/deed holder's junior lien was extinguished by ratification of foreclosure sale; and, because govt.'s claims were also extinguished by such ratification, LLC held title to property free and clear. (Wc Homes, LLC v. U.S., et al., DC MD, 106 AFTR 2d ¶2010-5215Wc Homes, LLC v. U.S., et al., DC MD, )

Code Section 6511—Limitations periods on refund claims—estate tax claims—extensions—equitable estoppel.
Estate's amended refund claim was time-barred: although it filed timely administrative claim within applicable Code Sec. 6511(a) period, its recovery was limited to zero under Code Sec. 6511(b)(2)(A) because payments were made outside lookback period, even when taking into account 6-month extension under Code Sec. 6081. Argument that period was extended not just for initial 6 months/not just 1-time, but again when IRS failed to respond to taxpayer's 2d extension request, was belied by fact that IRS had no authority under Code Sec. 6081 and Reg. § 20.6081-1(c) to grant 2d extension/to extend period beyond 6 months except in case where executor is abroad, which wasn't case here. So, allegation that IRS didn't inform taxpayer of 2d request's denial was irrelevant and couldn't be used to establish 2d extension. Also, to extent arguing that IRS's silence amounted to misrepresentation that extension was granted and that IRS should therefore be estopped from now denying same, taxpayer was off base because estoppel couldn't be used to effectively extend refund limitations period and/or because IRS's alleged inaction or misrepresentation didn't rise to level of affirmative misconduct sufficient to support estoppel against govt. (Dickow v. U.S., DC MA, 106 AFTR 2d ¶2010-5219Dickow v. U.S., DC MA, )

Code Section 6662—Accuracy-related gross valuation misstatement penalties—partnership transactions—tax shelters—reasonable cause; good faith—reliance on tax professionals.
Accuracy-related gross valuation misstatement penalties were upheld against family-owned farming LLCs/partnerships in respect to underpayments from loss-generating/basis-inflating Son of BOSS/COBRA tax shelter transactions that were admittedly lacking in economic substance: taxpayers failed to prove reasonable cause/good faith defense that they reasonably relied on advice of longtime advisor/CPA or tax firm/promoter. As to tax firm, reliance wasn't reasonable given firm's position vis-a-vis transactions and that any advice it gave was tainted by inherent conflict of interest. And it was clear that CPA, whose status as taxpayers' employee and whose intimate involvement in underlying transactions resulted in imputation to taxpayers of his experience and knowledge, knew or should have known of promotional materials' suspicious reference to “desired loss” and that gain-eliminating tax benefits offered by transactions were “too good to be true.” Further, transactions' abusive nature was otherwise alluded to or reflected in multiple warnings and could have easily been uncovered by independent investigation. (Murfam Farms, LLC v. U.S., Ct Fed Cl, 106 AFTR 2d ¶2010-5212Murfam Farms, LLC v. U.S., Ct Fed Cl, )

Code Section 7206—Tax crimes—filing false returns—indictments—limitations periods—evidence—prosecutorial misconduct.
Abusive tax scheme promoter's conviction for filing false return was affirmed: indictment was timely returned within 6 years of date that IRS received his untimely return. Also, promoter's claim of prosecutorial misconduct was rejected where evidence of his subsequent returns was necessary to establish that his false statement was material; evidence of unsigned return for year at issue that showed only income and didn't include deductions he included on signed return established his willfulness; and admission of IRS agent's sentencing testimony that he couldn't connect promoter's reported income to that shown on his financial ledgers had no influence on jury's verdict. (U.S. v. Hills, CA 7, 106 AFTR 2d ¶2010-5214U.S. v. Hills, CA 7, )

Code Section 7206—Tax crimes—filing false returns—U.S. Sentencing Guidelines—tax loss calculations.
Abusive tax scheme promoter's sentence for filing false return was affirmed: district court properly calculated U.S.S.G. range based on intended rather than much smaller actual tax loss amount; consideration of acquitted conspiracy conduct was permissible where sentence was primarily based on his tax fraud; and court properly considered 18 USCS 3553(a) factors and nature and circumstances of promoter's offense, noting that he was attorney whose criminal activity arose out of his effort to be elected to Congress. (U.S. v. Hills, CA 7, 106 AFTR 2d ¶2010-5214U.S. v. Hills, CA 7, )

Code Section 7206—Tax crimes—conspiracy to defraud U.S; filing false returns; tax evasion; aiding and abetting—evidence—jury instructions.
Father and son drywall contracting business owners' and their bookkeeper/controller's convictions for conspiring to defraud U.S., via scheme involving “cooked books” and false returns concealing among other things business income diverted for father's and son's personal uses/expenses, were affirmed: evidence, including that bookkeeper knew stated expenses were booked on business's accounts and that she and father and son had longstanding employment relationship, was sufficient to show they entered charged conspiracy. Also, evidence was sufficient to support additional convictions against father and son for their filing of false individual returns and for father's tax evasion; nevertheless, those convictions were vacated and remanded for new trial because of district court error in refusing to instruct jury on good faith reliance on advice of accountant defense. Further, evidence wasn't sufficient to support remaining convictions on charges that father, son and bookkeeper all aided or abetted filing of false corp. return, which return none of them saw before it was filed and in respect to preparation of which they didn't “take any action ...with expectation that it would be filed with materially false statements.” So, aiding and abetting convictions were reversed and remanded with instruction that district court enter judgment of acquittal thereon. (U.S. v. Kottwitz, CA 11, 106 AFTR 2d ¶2010-5218U.S. v. Kottwitz, CA 11, )

Judicial proceedings—Practice before Internal Revenue Service–disciplinary actions.
IRS announced disbarments, suspensions, and censures of attorneys, enrolled agents, and CPAs. (Ann. 2010-53, 2010-36 IRB 323 )

Judicial proceedings—Tax crimes—conspiracy to impede IRS; filing false returns—Speedy Trial Act.
District court decision rejecting abusive tax scheme promoters' Speedy Trial Act objections to delay in trial on tax crimes charges was affirmed: there was no Speedy Trial Act violation where trial commenced within 70-day deadline, when accounting for tolling in respect to pretrial motion for bill of particulars and motion to continue. Following case precedent, no showing of actual delay was required to exclude time spent in resolving pretrial motions; and ends-of-justice exclusion was warranted where court articulated adequate reasons for its decision to grant continuance, including complexity of case and necessity to allow counsel adequate preparation. Also, although 2-year delay created presumption of prejudice, evidence showed that it was mostly attributable to promoters' difficulties in securing replacement counsel and in preparing for trial; and they failed to make any specific showing how their defenses were prejudiced from delay, particularly where none were subject to pretrial incarceration. (U.S. v. Hills, CA 7, 106 AFTR 2d ¶2010-5214U.S. v. Hills, CA 7, )

Judicial proceedings—Tax crimes—conspiracy to impede IRS; filing false returns—evidence—motion to suppress—search warrants.
District court properly denied abusive tax scheme promoters' motion to suppress evidence obtained pursuant to warrant search of their office: argument that warrant authorized seizure of all files and electronic media at office was belied by fact that it specified seizure only of those electronic devices capable of storing any records that were related to promoters' alleged conspiracy and limited what could be seized from electronic media; and promoters failed to identify any particular evidence seized that wasn't authorized by warrant. Also, argument that warrant was deficient for not specifying manner in which agents were to search electronic media was foreclosed by Supreme Court precedent. (U.S. v. Hills, CA 7, 106 AFTR 2d ¶2010-5214U.S. v. Hills, CA 7, )

Judicial proceedings—Tax crimes—conspiracy to impede IRS; filing false returns—evidence—5th Amendment privilege against self-incrimination—severance.
Abusive tax scheme promoter's convictions for conspiracy to impede IRS and filing false returns were vacated and remanded: although documentary and circumstantial evidence of promoter's role in selling abusive trusts was sufficient to support her conspiracy convictions, and although her estranged husband's testimony regarding her responsibility for managing couple's finances and substantial tax benefit she received from her failure to include Schedule C trust sales income with her return for 1 year at issue established her willfulness under Code Sec. 7206(1), govt.'s references to promoter's invocation of her 5th Amendment privilege against self-incrimination in face of explicit warnings to avoid doing so were improper. While statements were made during purported discussions of co-defendant's actions, they in fact cast 5th Amendment invocations in negative light and were determinative to case outcome insofar as promoter was only defendant to invoke her 5th Amendment right. Promoter's argument that district court improperly denied her severance motion was moot. (U.S. v. Hills, CA 7, 106 AFTR 2d ¶2010-5214U.S. v. Hills, CA 7, )

Judicial proceedings—Tax claims in bankruptcy—avoidable transfers—preferential transfers—fraudulent conveyances—payroll servicing companies—liability for taxes withheld or collected—declaratory relief—standing—jurisdiction.
District court order, affirming decisions bankruptcy court made on remand and in regards to motion to alter or amend, was vacated and remanded in respect to holding that Chap. 7 trustee was entitled to avoid as preferential transfers under 11 USCS 547(b) multimillion dollar payments which Chap. 7 debtor-payroll servicing co. made to IRS within 90 days of filing bankruptcy: 90-day preference decision was based in part on erroneous underlying finding that it was undisputed/that IRS conceded that transfer constituted transfer of co.'s own interest in property; however, there had been no such concession and issue was one of material fact which should have been considered and which trustee had burden of proving. Moreover, 90-day preference decision also reflected improper summary refusal to consider govt.'s ordinary course of business defense. So case was remanded for further proceedings on foregoing. However, court was affirmed in respect to rulings against trustee on various other claims. (U.S. v. Wolff, CA 4, 106 AFTR 2d ¶2010-5205U.S. v. Wolff, CA 4, )

Foreign sub's gross receipts excluded in computing research credit - Category : Federal Tax Updates
A district court has held that a domestic parent company can properly exclude gross receipts from intercompany transactions with foreign group members when computing gross receipts for purposes of calculating the Code Sec. 41 research credit. Thus, the court granted the parent partial summary judgment.

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News & Notes

10/14/2006 - WGA 19th Annual Seminar Nov 28th - 29th, 2006 ...details

7/1/2006 - Gesinger Awarded Distinguished Associate Member Service Award ...details

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