FBAR Penalties and the Treasury Offset Program: Tax Court Affirms IRS’s Denial of CDP Hearing
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FBAR Penalties and the Treasury Offset Program: Tax Court Affirms IRS’s Denial of CDP Hearing

Introduction: In Jenner v. Commissioner, 163 T.C. 7 (Oct. 22, 2024), the U.S. Tax Court held that the Internal Revenue Service (“IRS”) was under no obligation to provide a husband and wife with a collection due process (“CDP”) hearing prior to offsetting Social Security benefit payments under the Treasury Offset Program (TOP). The payments were…

Tax Court Rejects Excessive Fines Clause Argument and Upholds $11 Million Form 3520 and Form 3520-A Penalties
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Tax Court Rejects Excessive Fines Clause Argument and Upholds $11 Million Form 3520 and Form 3520-A Penalties

The Mukhi v Commissioner[1] case is another example of just how severe the penalties are for failing to report certain foreign financial activity timely; in this case, it was the failure to report foreign trusts, related trust activity, and ownership of a foreign corporation on Form 3520, Form 3520-A, and Form 5471 in a timely…

Failure to File International Information Forms Allows IRS to Assess Taxpayer More Than Five Years Past Normal Statute of Limitations
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Failure to File International Information Forms Allows IRS to Assess Taxpayer More Than Five Years Past Normal Statute of Limitations

The Fairbank case demonstrates the power of IRC § 6501(c)(8) to provide the IRS the ability to assess taxpayers many years after the normal statute of limitations is closed if the taxpayer fails to file all required IRS international information reporting forms. In Fairbank v Commissioner, T.C. Memo. 2023-19, the IRS argued that, despite the…

Tax Court Sustains IRS’s Disallowance of C Corporation’s Deduction for Management Fee Paid to Shareholders

Tax Court Sustains IRS’s Disallowance of C Corporation’s Deduction for Management Fee Paid to Shareholders

Aspro, Inc. v. Commissioner, T.C. Memo 2021-8 (January 2021) is a cautionary tale for C corporations that look to zero out taxable income through post hoc management fees. In total the three shareholders received management fees in excess of a $1 million dollars a year for the years at issue (2012-2014).   Although the management…

Tax Court Holds That § 6751 Written Supervisory Approval Requirement Does Not Apply To 10% Tax on Early Distributions

Tax Court Holds That § 6751 Written Supervisory Approval Requirement Does Not Apply To 10% Tax on Early Distributions

In Grajales v Commissioner, 156 T.C. No. 3 (2021), the Tax Court held the 10% tax in section 72(t) applicable to early distributions from qualified retirement plans is not subject to § 6751(b)(1). As a result, the § 72(t) 10% tax is not subject to the written supervisory approval requirement before being asserted against the…

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Tax Court Holds Payroll Tax Filing Prevents Jurisdiction to Hear Worker Classifcation Case

Overview In Reflectxion Resources, Inc. v. Commissioner, T.C. Memo. 2020-114 (August 3, 2020)(link), the U.S. Tax Court held that a Notice of Determination of Worker Classification (“NDWC”) was not in and of itself sufficient to provide the Tax Court with jurisdiction for all payroll tax periods raised in Reflectxion Resources, Inc.’s (“Taxpayer”) petition. In order…

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Prohibited Transaction With IRA Unintentionally Saves Taxpayer from Large Tax Bill

The issue before the court was whether the taxpayer received a taxable, deemed distribution in 2014 from an account that was treated and consistently reported by the Taxpayer as an IRA even though the account entered into a number of prohibited transactions beginning in 2011. In a designated order on January 31, 2019 , Judge…

Tax Court Rejects Taxpayer’s Reasonable Cause Argument Regarding Automatic Penalties from Failure to File Forms 5471
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Tax Court Rejects Taxpayer’s Reasonable Cause Argument Regarding Automatic Penalties from Failure to File Forms 5471

Flume v. Commissioner (here) revolved around one noteworthy issue: did the taxpayer’s reliance on the advice of his tax return preparer spare the taxpayer from $110,000 in penalties for the taxpayer’s failure to report foreign investments on Form 5471? The taxpayer argued that he relied on the expertise of his tax return preparer to guide…

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Basis in Partnership Interest: Is your word good enough to support a loss deduction?

In Namen v. Commissioner[1], the taxpayer was a podiatrist in private practice. He was one of 6 members of an LLC that operated a surgical center, which closed in 2009. For federal income tax purposes, the LLC was treated as a partnership. The taxpayer claimed a loss on his personal 2009 income tax return from…

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Form is Critical: IRS Cuts Down Broker’s FICA S Corp Planning

Takeaway: While S corporations can be an effective means to reduce FICA taxes, the form of the arrangement must be consistent with the taxpayer’s intended reporting position(s). The S corporation, not the S corporation’s employee-shareholder, must be in control of the receipt of income in order shift income from the shareholder’s personal income tax return…