Tax News

CCH (cch.taxgroup.com) reports:

  The Tax Court properly determined that the gain from the sale of stock pledged as collateral for a loan was taxable to the founding shareholder, chief executive officer and chairman of the board of a public corporation. The taxpayer's argument that the sale constituted an unlawful conversion of the stock since the shares had been reissued in the creditor's name before the sale without the taxpayer's authorization was rejected. The pledge agreement clearly gave the creditor an unrestricted right to demand payment at any time and to sell the shares to satisfy the taxpayer's outstanding debt obligation. There was no evidence that the agreement was fraudulently induced or that the creditor sold the shares for any reason other than to satisfy the taxpayer's debt.

  In addition, the IRS's application of last-in-first-out (FIFO) method to establish the taxpayer's basis in the shares was sustained. The taxpayers failed to establish that they complied with the regulations that would permit them to use the LIFO method.

  Further, the taxpayer was not entitled to a bad debt deduction for the loan he extended to the corporation because he failed to prove that the loan became worthless in the tax year at issue. The taxpayer's contention that the corporation was insolvent was insufficient to demonstrate that there was no reasonable hope of recovery of the loan. Although the corporation filed for bankruptcy, the evidence indicated that it was capable of paying some of its liabilities because its shares were still valued at more than zero.

  Affirming the Tax Court, 92 TCM 157; CCH Dec. 56,595(M); TC Memo. 2006-174.

J.S. Rendall, CA-10, 2008-2 USTC ¶50,480

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5504.203

 
Code Sec. 165

  CCH Reference - 2008FED ¶10,001.103

  CCH Reference - 2008FED ¶10,001.438

 
Code Sec. 166

  CCH Reference - 2008FED ¶10,650.352

 
Code Sec. 1012

  CCH Reference - 2008FED ¶29,336.451

  Tax Research Consultant

  CCH Reference - TRC ACCTNG: 222
CCH Reference - TRC BUSEXP: 48,252
 

CCH (cch.taxgroup.com) reports:

  Whether an employer met the worker classification safe harbor requirements under section 503 was a genuine issue of material fact and, therefore, the IRS was denied summary judgment on this issue. The IRS failed to establish that the employer did not consistently treat the salesmen as independent contractors. Although one IRS agent testified that no Forms 1099 or Form 1096 were filed by the employer for one of the tax years at issue, the employer provided copies of forms that he claimed were filed and the salesmen testified that they received them. In addition, the evidence was unclear regarding the employer's reliance on technical advice received from his attorney and the nature of that advice with respect to classification of the salesmen.

  However, the government established that federal income taxes assessed against the employer's operator and his wife and federal employment taxes assessed against the employer's operator were proper and timely. The individual gave his written consent to extend the statute of limitations and the assessments were made within the extended time. Moreover, the government was not required to send a deficiency notice to the individual prior to assessing the employment taxes and the individual consented to the assessment and collection of the income tax deficiency. Finally, the certificate of assessments and payments contained all of the necessary information and established that the taxes were properly assessed.

  The individual's argument that the assessments were incorrect because they did not reflect the innocent spouse relief granted to his wife was rejected. The innocent spouse relief granted to the individual's wife merely relieved her of her liability for the taxes at issue; it did not provide her with any type of credit or other benefit that would result in an adjustment or reduction of the tax liability owed by the non-innocent spouse.

  Federal tax liens arose on all of an individual's property at the time the tax assessments were made. The IRS produced copies of notice of federal tax lien sent to the individual by certified mail. It also treated a letter received from the individual for release of the liens as a request for a Collection Due Process hearing and ultimately denied the individual's request.

  Finally, the individual's wrongful collection action failed because he did not provide any evidence that his bank account was garnished or that he exhausted his administrative remedies before filing his claim.

R. Porter, DC Iowa, 2008-2 USTC ¶50,479

Other References:

 
Code Sec. 3401

  CCH Reference - 2008FED ¶33,538.5056

 
Code Sec. 6015

  CCH Reference - 2008FED ¶35,192.23

 
Code Sec. 6203

  CCH Reference - 2008FED ¶37,514.23

 
Code Sec. 6212

  CCH Reference - 2008FED ¶37,544.20

 
Code Sec. 6320

  CCH Reference - 2008FED ¶38,134.20

 
Code Sec. 6501

  CCH Reference - 2008FED ¶38,967.599

 
Code Sec. 7433

  CCH Reference - 2008FED ¶41,778.14

  Tax Research Consultant

  CCH Reference - TRC PAYROLL: 9,306

  CCH Reference - TRC IRS 27,212

  CCH Reference - TRC IRS 30,202.25

  CCH Reference - TRC IRS 30,254

  CCH Reference - TRC IRS 45,114

CCH (cch.taxgroup.com) reports:

  The IRS has requested comments regarding the possible expansion of the safe harbor valuation regulations under Code Sec. 475 (Reg. §1.475(a)-4) so that financial institutions headquartered outside the United States can qualify to make this election. Under the current regulations, if an eligible taxpayer makes the safe harbor election, the values of certain positions that the taxpayer reports on an eligible financial statement are treated as those positions' fair market values for purposes of Code Sec. 475. However, some internationally headquartered financial institutions have commented that the current safe harbor valuation regulations prevent them from using the safe harbor.

  The IRS requests answers to the following questions:

  (1) If the existing regulatory requirements discussed above were expanded to permit internationally headquartered financial institutions to make the election described in Reg. §1.475(a)-4(b), are a significant number of those institutions likely to make the election?

  (2) If the safe harbor were expanded to include circumstances where the values reported in the U.S. call report of a foreign bank are the same values that are reported in a mark-to-market income statement filed in the bank's home country, how will the IRS be able to match the values used for tax purposes with those on the home country income statement?

  (3) What is the relationship between the call report and the home-country income statement? Are there foreign currency translation considerations between the two? How might those be resolved so that the IRS can effectively and efficiently audit the records?

  (4) If the definition of "applicable financial statement" is expanded, should the applicable financial statement be the one filed by the foreign bank with its home country bank regulator rather than with a home country market regulator (like the SEC)?

  (5) How, if at all, does mark-to-market valuation under IFRS take expenses into account, including funding costs or any similar amount (e.g., cost of carry)?

  (6) In what circumstances is Code Sec. 475 relevant for other purposes of the tax code and in what circumstances do the policies of other sections of the code and the regulations that rely on asset values determined under Code Sec. 475 (including those determined pursuant to an election under Reg. §1.475(a)-4(b)) require special adjustment to the amount determined under Code Sec. 475?

  (7) Should the definition of "eligible method" go beyond the accounting methods that the SEC has accepted? If so, what is an appropriate (and administrable) framework for evaluating whether such a method complies with the basic criteria outlined above?

  Comments should be submitted on or before November 1, 2008, and should include a reference to Notice 2008-71.

Notice 2008-71, 2008FED ¶46,538

Other References:

 
Code Sec. 475

  CCH Reference - 2008FED ¶22,268.042

  Tax Research Consultant

  CCH Reference - TRC SALES: 45,362

Tax Analysts report: