Tax Blog/Blawg

Change is inevitable, particularly in the tax arena.  The world evolves at such a quick pace that the IRS frequently finds itself playing catch up.  Examples of this abound, but a recent event of interest involves the IRS’s attempt to deprive certain taxpayers of losses because of their decision to conduct business through limited liability companies (“LLCs”).

Congress, focused on combating “tax shelters” in the 1980’s, passed Section 469(h)(2).  This provision creates a legal presumption that a taxpayer who owns an interest in a limited partnership, as a limited ...

During a course that I taught about tax treaties at last week’s TEI Houston Tax School, one audience member asked whether the exchange-of-information provisions of U.S. tax treaties apply not only to the federal government but also to state and local governments.   I had to confess that I did not know the answer of the top of my head.  However, I took a quick look at the question later in the week.

By way of background, in each income tax treaty with foreign jurisdictions, the United States negotiates an “exchange of information and administrative assistance” provision.  This ...

It is not uncommon for sought-after job seekers to receive what appears to be an offer that is too good to be true:  in addition to a good compensation and benefits package, the employer proposes to make a loan to the applicant, and to forgive the entire amount if the person stays employed for a particular term—such as five years.  Sometimes the game plan is not in writing, and is left to “wink wink, nudge nudge” in terms of the likelihood that the loan will be forgiven if the person stays employed that length of time.

These arrangements are not in any way “illegal,” but as Robert and ...

On February 14, the Financial Crimes Enforcement Network (FINCEN) issued Notice 2012-1, which extends the 2011 and 2012 FBAR filing deadline for certain individuals to June 30, 2013.  The notice extends relief previously granted by FINCEN to employees and officers with signature authority over bank accounts owned by subsidiaries of certain regulated entities (e.g., banks, commodity traders, and investment advisors).  See Notice 2012-1; Notice 2011-1; Notice 2011-2; 31 C.F.R. § 1010.350(f)(2).

For those keeping score, the government has tinkered with the FBAR filing ...

Many Canadians migrate south each year and become U.S. residents or citizens.  Along with the cold weather, they may also leave behind local retirement account, such as a Canadian registered retirement savings plan ("RRSP") or a Canadian registered retirement income fund (“RRIF”).  Preserving this Canadian nest egg is generally a good thing.  Indeed, it is hard to find fault with financial planning for the golden years.  This egg could turn a little rotten, though, if the person fails to appreciate the relevant U.S. tax obligations.  Unfortunately, due to the disparate treatment of ...

The difference between what taxpayers should pay and what they actually pay the IRS is called the “tax gap.”  A significant portion of the tax gap is attributable to non-compliance with employment tax laws, including worker misclassification.  The IRS is currently conducting a three-year research project, which entails an additional 6,000 random employment tax audits.  This research will inevitably lead to the conclusion that worker misclassification is rampant and depriving the federal government of billions of dollars in tax revenues each year.  Therefore, the IRS likely ...

Back in the era of beepers, being "on call" evoked imagery of importance.  Indeed, those people required by their job to carry a beeper, along with those who did so voluntary, displayed the devices with a noticeable degree of smugness.  The positive aspects of this status symbol aside, anyone who has been obligated to carry a beeper or its modern equivalent (e.g., BlackBerry, iPhone, PalmPilot, etc.) understands that being constantly reachable is often more of a curse than a blessing.

Many jobs mandate that a person respond to messages within a certain period of time, minimize travel so ...

The Supreme Court’s decision in Mayo Foundation for Medical Education and Research v. United States means that tax practitioners must be more sensitive to administrative law and judicial deference to administrative rules.  This includes gaining some familiarity with the Administrative Procedure Act (APA) and the major cases that deal with judicial deference to administrative action, starting with Chevron USA Inc. v. Natural Resources Defense Council Inc.  While the Supreme Court spends a lot more time considering issues of administrative law rather than tax law, the many ...

The tax code is best known for its strict rules, but it also features hundreds of taxpayer-favorable elections.  The first step to evaluating and possibly taking advantage of these elections is being aware of their existence.  Unfortunately, taxpayers and/or their advisors sometimes overlook an election or fail to follow the related procedures.  A classic example is the so-called "aggregation election," under which taxpayers who qualify as real estate professionals can choose to combine all their interests in real estate endeavors for purposes of the passive activity rules in ...

Nearly all taxpayers will face penalties by the IRS at some point, regardless of their sophistication level and size.  Accordingly, tax practitioners, even those who claim not to get involved in traditional "collection" activities, must understand key aspects of abatement and collection procedures in order to effectively advise their clients.  This is particularly true given that the IRS persists in taking extreme positions in the Tax Court, such as the always-say-never approach, that are contrary to the majority of existing legal authorities.  A recent example is Custom Stairs & ...

Pennsylvania may soon join the other states that have challenged the use of the so-called Delaware Loophole, according to our colleagues at the State and Local Tax Blawg.  The legislation, contained in Pa. House Bill 2150, would disallow deductions that a parent operating corporation claims for royalty payments made to a "Delaware Holding Company."

The new limitation would not apply where the transaction is related to "a valid business purpose."  In this regard, the legislation defines a valid business purpose as, “[a] purpose, other than the avoidance or reduction of taxation ...