Tax News

CCH (cch.taxgroup.com) reports:

  The Washington Department of Revenue reminds taxpayers that beginning July 26, 2009, sales or use tax applies to all digital products, regardless of how they are accessed. In addition to downloaded digital goods, the tax applies to streamed and accessed digital goods, digital automated services, and remote access software. The taxability of these goods does not depend on whether the purchaser acquires a permanent or nonpermanent right of use. The notice can be viewed on the department's Web site at
http://dor.wa.gov/Content/Home/Default.aspx.

Digital Products, Washington Department of Revenue, June 1, 2009

CCH (cch.taxgroup.com) reports:

  In an action based on taxpayers' and the IRS's motions for reconsideration of the taxpayers' prior consolidated cases arising out of the Kersting project tax shelter litigation ( L.L. Hartman , Dec. 57,431(M), TC Memo. 2008-124 (Hartman I)), the Tax Court denied the IRS's motion to reverse all factual findings that were based on an item in the IRS's privilege log that included three drafts of a proposed post-trial settlement offer and that concerned formulation and communication of that settlement offer. The three drafts were documents in the IRS's records subject to discovery that were properly includible in the record in the taxpayers's consolidated cases in Hartman I.

  In addition, the mitigating effect of the post-trial settlement offer could not be properly evaluated without consideration of the three drafts and all of the documents included in the same privilege log item were relevant to the issues in the motions to vacate in Hartman I. Because the drafts spoke for themselves, the court ordered them received into evidence as the court's exhibits rather than setting the matter for a hearing and commencing discovery procedures, which the IRS opposed.

  Background. In Hartman I, the court granted the taxpayers' motions to vacate the decisions entered in their three consolidated cases arising out of the Kersting project tax shelter litigation, which involved fraud on the court by an IRS attorney and supervisor in the process of resolving the cases. The taxpayers, who entered into a settlement after the fraud was discovered, but on terms less favorable terms than the outcome in a later Ninth Circuit appeal, were entitled to have their settlements vacated and their cases resolved on terms identical to those ordered by the appellate court.

  Generally, in order to resolve deficiencies and additions to tax assessed against hundreds of tax shelter participants, the taxpayers and other participants agreed to be bound by the outcome of selected test cases. In order to encourage the participants in one particular test case not to withdraw, IRS attorneys entered into a secret settlement (known as the "T settlement" or the "Thompson settlement") that ensured a refund sufficient to cover their attorney's fees. The Ninth Circuit eventually ruled that the IRS attorneys had committed fraud on the court by failing to disclose the "T settlement" offer to their superiors, the attorneys for other participants, and the court. As a consequence, it held that terms equivalent to the secret settlement agreement had to be extended to all test case petitioners and all others properly before the court ( J.A. Dixon, CA-9, 2003-1 USTC ¶50,194 (Dixon V)).

  This did not, however, alter the outcome for those, like the taxpayers in Hartman I, who entered into stipulated settlements after the fraud was discovered but prior to the Dixon V decision. The court in Hartman I also held that the sanction mandated by the Ninth Circuit in Dixon V should be imposed in the cases of all Kersting project petitioners in which stipulated decisions were entered on or after the commencement date of implementing the test case procedure. The court further held that, once the Hartman I decision became final, an implementation order would be issued requiring that all remaining Kersting project taxpayers against whom stipulated decisions had been entered have their accounts adjusted administratively in accordance with the Thompson settlement.

  The IRS's motion to reconsider Hartman I to strike from it findings of continuing fraud on the court beyond the original misconduct of the IRS's attorneys in the test case proceedings was determined to be moot because the court did not find such a continuing fraud beyond that committed by the IRS's trial counsel during the test case proceedings and there were no findings to strike.

  In response to the IRS's requests to delay entry of decisions in the taxpayers' cases and the implementation of any sanction in the closed cases until after the Ninth Circuit has issued its mandate in the current appeal of certain test and nontest cases, the court concluded that the decisions in those cases should not be postponed. The court, however, ruled that the implementation of the sanction in closed cases other than the cases at hand should not commence until the later of: (1) the last date a decision in any of these cases become final, (2) the date the Ninth Circuit renders its mandate in any of these cases, if and when the decisions are appealed, and (3) the date of the mandate in the test case appeal. The court also issued an order to facilitate the implementation of the sanction and ruled that, in each case in which the taxpayers have requested that the sanction be applied in their affected closed cases, the IRS will file a motion to vacate the decision.

  The court denied the taxpayers' motion to extend the sanction to participants in the Kersting tax shelters who never filed a petition in the Tax Court to contest the deficiencies determined against them or who filed a petition but settled their cases before the test case proceedings began. The fraud committed on the court did not extend the time for filing a petition after a notice of deficiency had been issued and the court never acquired jurisdiction over those taxpayers or their deficiencies. Also, a taxpayer who did not file a petition in the Tax Court did not have a case in this court to which the fraud committed by the IRS's attorneys in the test case proceeding could have attached.

  Further, the court invoked its inherent power to impose the sanction against the IRS for the harm done to the test case proceedings, which did not involve taxpayers who were not part of those proceedings. Finally, the court's inherent power is limited to imposing the sanction in those cases in which a fraud was committed and does not extend to cases where no fraud was committed (such as cases that settled before the test case proceedings began) or where no case was filed.

L.L. Hartman, TC Memo. 2009-124, Dec. 57,840(M)

Other References:

 
Tax Court Rule 161

  CCH Reference - 2009FED ¶42,321.74

  CCH Reference - 2009FED ¶42,321.76

  Tax Research Consultant

  CCH Reference - TRC LITIG: 6,592

CCH (cch.taxgroup.com) reports:

  The IRS has updated interim guidance on the process that manufacturers must use to certify property for the nonbusiness energy credit under
Code Sec. 25C, and the conditions under which homeowners may rely on the certification to claim the credit. The guidance applies to qualified property placed in service after December 31, 2008.

  The nonbusiness energy property credit was available for eligible qualified energy efficiency improvements and qualified energy property placed in service in 2006 and 2007. However, the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) extended the credit for qualified improvements and property placed in service in 2009 and 2010. The maximum credit allowed depends on the year the property is placed in service. In addition, there are specific limitations on the amount of credit allowed for certain items of property.

  A qualified energy efficiency improvement is any building envelope component of nonbusiness property that satisfies certain energy efficiency standards. This includes insulation materials, exterior windows and skylights, exterior doors, and any metal roof with appropriate pigmented coatings, or any asphalt roof with appropriate pigmented coatings or cooling granules in 2009 only. Residential energy property expenditures are expenditures made for qualified energy property that meets prescribed performance and quality, such as furnaces, boilers, heat pump water systems, central air conditioners, water heaters, and beginning in 2009, stoves using biomass fuel.

  To qualify for the credit, property must generally meet or exceed standards established by the 2000 International Energy Conservation Code (IECC) and supplements. However, additional standards apply to qualified property placed in service after 2008. For example, for buildings envelope components such as insulation materials or systems, the property must be specifically and primarily designed to reduce heat loss or gain of a home. In addition, it must meet the prescriptive criteria for such material or system established by the 2009 IECC. Other envelope components, such as exterior windows or doors, and storm windows or doors, must meet certain U factors and prescriptive criteria established by the IECC.

  Similarly, for expenditures for qualified energy property the property must meet specific energy efficiency requirements. However, for purposes of claiming the credit with respect to such property (other than a furnace with an advanced main air circulating fact), the credit is allowed only for amounts paid to purchase the property and labor costs for on-site installation.

  Manufacturers may certify eligible property as either an eligible building envelope component or qualified energy property by providing the purchaser with a certification statement that satisfies the enumerated requirements for the applicable classification. A manufacturer that certifies an item as an eligible building component or qualified energy property must retain documentation that the item satisfies the applicable requirements.

  A purchaser may rely on the manufacturer's certification that a product is qualified energy property. However, a taxpayer may rely on a manufacturer's certification that a component is an eligible building envelope component only if the component is installed in a manner consistent with the item's certification. A taxpayer is not required to attach the certification statement to the return on which the credit is claimed.

 
Notice 2006-26, I.R.B. 2006-11, 622, is superseded.

Notice 2009-53, 2009FED ¶46,390

Other References:

 
Code Sec. 25C

  CCH Reference - 2009FED ¶3843.10

  Tax Research Consultant

  CCH Reference - TRC INDIV: 57,800

Tax Analysts report: