Tax News

CCH (cch.taxgroup.com) reports:

  As previously reported (TAXDAY, 2009/06/15, S.14), Maine Gov. John Baldacci has signed legislation that changes the basic personal income tax structure. In addition to imposing a flat tax rate for all taxpayers and a surcharge on high-income taxpayers, the legislation repeals the personal exemptions and deductions and replaces them with a new "household credit." In addition, among other things, two more new credits are enacted, some existing credits and special taxes are repealed, and the earned income credit is made refundable. All changes apply to tax years beginning on or after January 1, 2010.

CCH (cch.taxgroup.com) reports:

  An Alaska city's personal property tax on large vessels docking in the city violated the Tonnage Clause of the U.S. Constitution, according to the U.S. Supreme Court, because the tax was based on the value of the vessels, a factor related to tonnage, and it was imposed for general revenue purposes, not for services provided. The Court did not rule on the Due Process Clause and Commerce Clause challenges that were also raised, disappointing observers who had hoped the opinion would illuminate the Court's thinking on controversial apportionment practices, such as throwback and throwout.

CCH (cch.taxgroup.com) reports:

  The Tax Court properly found that the IRS did not abuse its discretion in rejecting the offers-in-compromise of individual partners who had underreported their income in Hoyt partnership tax shelter investments. The IRS considered all of the evidence submitted, and adequately evaluated each offer-in-compromise. The offers-in-compromise were not accepted based on doubt as to collectibility or economic hardship because the taxpayers were capable of paying far more than the amount they offered. Public policy and equity considerations did not demand that the IRS accept the partners' offers on the ground that the taxpayers were victims of fraud or third-party misdeeds. Acceptance of the offers would undermine compliance with the tax laws by encouraging more taxpayers to participate in tax shelters, and would also undermine public confidence in administration of the tax laws. The IRS was also not required to consider the taxpayers' future medical needs, since their evidence regarding such needs was highly speculative.

  Moreover, the delay in determining the individual tax liabilities was due to the complexity of the tax-shelter partnerships and did not require the IRS to abate penalties and interest. Therefore, the IRS was permitted to proceed with its proposed collection actions to recover full payment of the outstanding tax liabilities. Further, the IRS's reliance on an example in the Internal Revenue Manual was not arbitrary or capricious. The IRS also had no legal obligation to consider each of the factors identified in C.G. Fargo , CA-9, 2006-1 USTC ¶50,326, 447 F3d 706, before rejecting the offers-in-compromise.

  However, the Tax Court erroneously determined that it lacked jurisdiction in the partner-level proceedings to determine whether the partnerships' transactions were tax motivated for purposes of Code Sec. 6621(c). Since the IRS included Code Sec. 6621(c) interest in its notices of determination, the Tax Court had jurisdiction to consider the partners' challenge to the amount of their liability, including liability for additional interest penalties. Further, the partnership-level records established that the partners' underpayments were attributable to a tax motivated transaction as defined in Code Sec. 6621(c) because the difference between the claimed value and the adjusted value was attributable to either an overvaluation or sham transaction. Finally, a partner-level determination with respect to whether each partner made the valuation overstatement in good faith was unnecessary because Code Sec. 6621 does not incorporate the discretionary waiver for good faith underpayments in
Code Sec. 6659(e).

  Affirming in part and vacating in part, the Tax Court, 92 TCM 114, Dec. 56,587(M), TC Memo. 2006-166.

M.W. Keller, CA-9, 2009-1 USTC ¶50,428

Other References:

 
Code Sec. 6621

  CCH Reference - 2009FED ¶39,455.58

  CCH Reference - 2009FED ¶39,455.68

 
Code Sec. 7122

  CCH Reference - 2009FED ¶41,130.29

  Tax Research Consultant

  CCH Reference - TRC PENALTY: 9,050
CCH Reference - TRC IRS: 42,056.10
CCH Reference - TRC IRS: 42,056.15
CCH Reference -
TRC IRS: 42,120
CCH Reference - TRC INDIV: 48,352

CCH (cch.taxgroup.com) reports:

  Lawmakers from the Senate Finance Committee and House Committee on Ways and Means have asked IRS Commissioner Douglas H. Shulman to suspend certain penalties assessed on small businesses while Congress works on legislation to address what they term an inequitable and unintended consequence in the tax code. The lawmakers argue that small businesses with investments in listed tax shelter transactions that are generating modest tax benefits have received tax penalties significantly larger than the tax benefits received.

  In a letter dated June 12, the lawmakers requested that Shulman "use the discretion provided to the IRS with its effective tax administration authority to suspend efforts to collect IRC [Internal Revenue Code] section 6707A liabilities ... while Congress acts to remedy this situation." Code Sec. 6707A was enacted in the American Jobs Creation Act of 2004 (P.L. 108-357) as part of a package of provisions intended to help the IRS detect, deter and shut down tax shelters.

  "When I advanced the legislation to shut down tax shelters, I did not intend to bankrupt small businesses that had no ill intent. I was focused on the big corporations that were actively seeking to hide their participation in tax shelters," said Senate Finance Committee ranking member Charles E. Grassley, R-Iowa.

  Treasury regulations require taxpayers to tell the IRS if they invest in "listed" tax shelter transactions, and Code Sec. 6707A imposes large, strict liability penalties on taxpayers who fail to disclose this information to the IRS. For listed transactions, the penalties are $100,000 for natural persons and $200,000 for others, including Subchapter C and Subchapter S corporations. The impacted companies have reported that they were never informed that their transactions were considered abusive tax shelters by the IRS

  Grassley, along with Senate Finance Committee Chairman Max Baucus, D-Mont., Ways and Means Oversight Subcommittee Chairman John Lewis, D-Ga., and ranking member Charles Boustany, R-La., pointed out that the inequitable consequences were unexpected at the time the penalty was enacted, and they plan to introduce legislation that would result in penalty amounts in more reasonable proportion to the tax benefits. They further claimed that while the penalty has helped the IRS end many abusive deals, many of the shelters being examined by the Service involve significantly smaller dollar amounts, and current penalty levels may be excessive in some circumstances.

  "I don't condone investments in tax shelters, but I also want to make sure our small businesses survive and thrive," said Baucus. "It's important we get this done as soon as possible and I urge and expect the IRS to comply with our request." Grassley was even more succinct. "The penalty should be commensurate with the transgression," he said. None of the lawmakers offered a timetable as to when they might advance legislation to change tax code.

  By Jeff Carlson, CCH News Staff

Ways and Means Oversight Subcommittee Press Release: Lawmakers Concerned About Unfair Penalties on Small Businesses

Lawmakers' Letter to IRS Commissioner Shulman
 

Tax Analysts report: