Tag Archives: Internal Revenue Code

The “Issue of First Impression” Defense to Penalties

The Internal Revenue Code (Code) contains various provisions regarding the imposition of penalties and additions to tax. The accuracy-related penalty under section 6662(a), which imposes a penalty equal to 20 percent of the amount of any understatement of tax, is commonly asserted on the grounds that the taxpayer was negligent, disregarded rules or regulations, or … Continue Reading

The IRS’s Assault on Section 199 (Computer Software) Doesn’t Compute

Internal Revenue Code Section 199 permits taxpayers to claim a 9 percent deduction related to the costs to develop software within the U.S. The relevant regulations and their interpretation, however, place substantial restrictions on claiming the benefit. Moreover, the regulations and the government’s position haven’t kept up with the technological advances in computer software. Before claiming … Continue Reading

Santander Holdings USA Asks the Supreme Court to Address Economic Substance Doctrine

From 2003 to 2007, Sovereign Bancorp, Inc. (Sovereign) – now known as Santander Holdings USA, Inc. (Santander) – engaged in a so-called STARS transaction with Barclays Bank. According to Santander, “[b]y engaging in the STARS transaction, Sovereign transferred some of its income tax liability from the United States to the United Kingdom,” it “secured a … Continue Reading

Tax Court Holds Section 883 Regulations Valid under Chevron Test

On March 28, 2017, the US Tax Court issued its opinion in Good Fortune Shipping SA v. Commissioner, 148 T.C. No. 10, upholding the validity of regulations issued under Internal Revenue Code (Code) Section 883. Code Section 887(a) imposes a four percent tax on a foreign corporation’s US-source gross transportation income for each year. Code … Continue Reading

IRS Opposes Granting of Certiorari in Cases Addressing Definition of Return

Two petitions for certiorari pending before the Supreme Court of the United States ask the Court to resolve the question of whether a tax return filed after an assessment by the Internal Revenue Service (IRS) is a “return” for purposes of the Bankruptcy Code (BC). The answer to this question will determine whether a bankrupt … Continue Reading

Fourth Circuit Clarifies the Role of the Collection Due Process Hearing

In Iames v. Commissioner, No. 16-1154, the US Court of Appeals for the Fourth Circuit upheld the US Tax Court’s ruling that once a taxpayer has unsuccessfully challenged his tax liability in a preassessment hearing before the Internal Revenue Service (IRS) Office of Appeals, he is precluded from challenging his tax liability in a collection … Continue Reading

APA Challenge to Notice of Deficiency: QinetiQ Affirmed

On January 6, 2017, the US Court of Appeals for the Fourth Circuit, by published opinion, affirmed the US Tax Court’s (Tax Court) earlier ruling in QinetiQ US Holdings, Inc. v. Commissioner.  We previously wrote about the case here, here, and here.  To refresh, the taxpayer had argued in Tax Court that the Notice of … Continue Reading

Court Holds Compensation Paid to Four Sons Was Not Reasonable

Reasonable compensation is a fact based analysis, and once again has been decided against the taxpayer. In Transupport, Inc. v Commissioner, T.C. Memo. 2016-216, the issue presented for decision was whether amounts deducted by the taxpayer, a distributor and supplier of aircraft engines and parts, during 2006‒2008 as compensation that was paid to the four … Continue Reading

IRS Identifies Certain 831(b) Captives As “Transactions Of Interest”

In Notice 2016-66, the Treasury Department and the Internal Revenue Service (IRS) identified a particular § 831(b) “micro-captive” transaction as a “transaction of interest” for purposes of § 1.6011-4(b)(6) of the Regulations and §§ 6111 and 6112 of the Internal Revenue Code. The notice also alerts persons involved in such transactions to certain responsibilities and … Continue Reading

IRS Issues IPU on Identifying Foreign Goodwill or Going Concern

On October 13, 2016, the Internal Revenue Service (IRS) released an LB&I International Practice Unit (IPU), available here, providing guidance to IRS agents relating to the identification of foreign goodwill or going concern value (FGWGC) for purposes of Internal Revenue Code (Code) Section 367. The IPU indicates that it was last updated on September 22, 2016. The … Continue Reading

GAO Reports on IRS Guidance Procedures

The United States Government Accountability Office (GAO) recently released a report regarding how the Internal Revenue Service (IRS) communicates tax guidance to the public.This report was prepared following bipartisan requests from members of both houses of Congress. The GAO report: (1) analyzed documents that defined IRS guidance types; (2) reviewed the IRS’s policies and procedures … Continue Reading

3M Company, IRS File Reply Briefs in “Blocked Income” Case; Tax Court Orders Oral Argument

As discussed in an earlier post, 3M Co. v. Commissioner, T.C. Dkt. No. 5816-13, involves 3M Company’s (3M) challenge to the Internal Revenue Service’s (IRS) determination that Brazilian legal restrictions on the payment of royalties from a subsidiary in that country to its US parent should not be taken into account in determining the arm’s-length … Continue Reading

Sixth Circuit Defines ‘Corporation’ for Purposes of Overpayment Interest

The US Court of Appeals for the Sixth Circuit recently held in U.S. v. Detroit Medical Center that a nonprofit entity incorporated under state law falls within the definition of a ‘corporation’ for purposes of determining the interest rate applicable to tax refunds. The case is worth reading for its plain meaning analysis as well … Continue Reading

Inversions and Debt/Equity Regulations Top Treasury’s 2016–2017 Priority Guidance Plan

Yesterday, the US Department of the Treasury (Treasury) released the 2016–2017 Priority Guidance Plan (Plan) containing 281 projects that are priorities for Treasury and the Internal Revenue Service (IRS) during the period July 2016 through June 2017. The Plan contains several categories of topics, starting with consolidated returns and ending with tax-exempt bonds. The Plan also … Continue Reading

Investment Tax Credit Lessee Income Inclusion Guidance Issued

New Internal Revenue Service temporary regulations provide guidance on the income inclusion rules that apply when a lessor elects to treat a lessee as having acquired investment credit property under Treas. Reg. § 1.48-4. As expected, the new temporary regulations also provide that a partner of a lessee partnership cannot increase its basis in its … Continue Reading

Protecting Confidential Taxpayer Information in Tax Court

Taxpayers value confidentiality, particularly if there is a dispute with the IRS that involves highly-sensitive trade secrets or other confidential information. Not surprisingly, complex tax litigation often raises the question of what confidential information has to be “made public”—through discovery responses or the introduction of exhibits or testimony in a deposition or at trial—so that … Continue Reading

IRS Issues Safe Harbors under Which the IRS Will Not Assert That a Corporation Lacks the Requisite ‘Control’ for Purposes of Section 355(a)

On July 15, 2016, the Internal Revenue Service (IRS) released Rev. Proc. 2016-40. This revenue procedure provides safe harbors in which the IRS will not assert that a distributing corporation, D, lacks control of another corporation, C, within the meaning of Code section 355(a)(1)(A) when D acquires putative control of C through C’s issuance of stock and … Continue Reading

Tax Bar Has Serious and Substantial Comments to the Proposed IRC Section 385 Regulations

On April 4, 2016, the Internal Revenue Service and the US Department of the Treasury issued proposed regulations pursuant to Internal Revenue Code (IRC) section 385 addressing whether an interest in a related corporation is treated as stock or indebtedness for US federal income tax purposes (Proposed Regulations). On June 29, 2016, both the DC … Continue Reading

Tax Court Rules in Favor of Medtronic in Transfer Pricing Case Against IRS

At least a partial taxpayer victory in the Medtronic case, T.C. Memo. 2016-112. The Tax Court held that Medtronic met its burden of showing the Internal Revenue Service (IRS) abused its discretion by  making arbitrary and capricious Internal Revenue Code (IRC) Section 482 reallocations with respect to taxable income of Medtronic’s Puerto Rico subsidiary. It further … Continue Reading

“Snow Day” Case Highlights Importance of Timely Filing Requirements

On June 2, 2016, the  US Tax Court issued a unanimous court-reviewed opinion in Guralnik v. Commissioner, 146 T.C. No. 15 (available here), addressing several points related to the timely filing of court documents.  The opinion provides important reminders to taxpayers to ensure that they meeting filing deadlines.… Continue Reading

Ax v. Commissioner: The Tax Court Reaffirms that It Is Not Subject to the APA

On April 11, 2016, the US Tax Court issued its T.C. opinion in Ax v. Commissioner.  The notice of deficiency in the case determined that certain premium payments made to a captive insurance company were not established by the taxpayer to be (1) insurance expenses and (2) paid.  But this is not a run of … Continue Reading

Generic IRS Publication Fails to Satisfy the Advance Notice Requirement for Third Party Contacts

In Baxter v. United States, No. 4:15-cv-04764 (ND Cal. 2016), the Internal Revenue Service (IRS) issued a third-party summons for the petitioner’s 2011 tax year to the California Supreme Court seeking documents relating to payments made to the petitioner for his legal representation of capital defendants.  The petitioner brought a timely petition to quash the 2011 third-party … Continue Reading
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