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Monster.Com’s Estate Wins Tax Court Decision on Decedent’s Variable Prepaid Forward Contracts

By: Jerald David August

Estate of Andrew J. McKelvey, Deceased, et al v. Commissioner,

148 T.C. No. 13, April 19, 2017

The decedent, Andrew J. McKelvey, was the founder and CEO of Monster Worldwide, Inc. (Monster.com), a company known for its job placement website. Mr. Mc Kelvey died on November 27, 2008. The IRS issued a statutory notice of deficiency of approximately $41,257,00 in income tax for 2008. The only issue for the Court was whether modifications made in 2008 to the decedent’s variable prepaid forward contracts (VPFCs) resulted in taxable dispositions under §1001 or under §1259. The case was tried on joint motion (fully stipulated statements of facts) without trial pursuant to T.C. Rules 50(a) and 122(a). The Tax Court found for the Petitioner-estate.

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Federal District Court For The Southern District of New York Refuses to Dismiss Criminal Indictment Against U.K. Citizen-U.S. Resident For Failing to File U.S. Income Tax Returns and FBARS

By: Jerald David August

Little v. United States: No. 1:12-cr-00647

A stern message was just issued by Judge Castel of the Southern District of New York Federal District Court against a defendant, a U.S. resident and citizen of the U.K., who claimed that he could not have known he had violated the U.S. income tax laws  as well as the FBAR provisions, because of the ambiguity of the application of such laws to him and with particular emphasis on his status under the U.S./U.K. Tax Treaty. He therefore moved for partial dismissal of a (second superseding) indictment on grounds that the charges of willful failure to file individual income tax returns, failure to file FBARs as well as obstructing justice by assisting others to avoid U.S. taxes due on their assets received through inheritance held in undeclared offshore accounts, denied him due process of law in violation of his Fifth Amendment right under the U.S. Constitution. A grand jury had previously returned a 19 count (second superseding) indictment again defendant, Michael Little, on March 18, 2013.

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Bryan C. Skarlatos presented "The Tax Man Cometh: The Criminal Tax Case" at the 2017 IRS Conference Workshop

What to Do When the IRS Shows Up? On May 3rd at the New York State Society of CPAs, we followed the journey of Joe & Mary through the IRS Process. This full-day program used a particular client's fact pattern to highlight the various areas of the IRS representation process and the opportunities and pitfalls for practitioners and their clients.

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Meeting John Doe Summonses

By Megan L. Brackney
Journal of Passthrough Entities
May - June 2017 Edition

"John Doe” summonses have been in the news again.[1] On January 24, 2017, a federal district court unsealed an order authorizing the Department of Justice (DOJ) to serve a John Doe summons upon a third party to obtain information about U.S. taxpayers who may hold offshore accounts established by Sovereign Management & Legal LTD, a Panamanian Entity.[2] The John Doe summons sought records of U.S. taxpayers who had been issued debit cards that could be used to access funds in such a manner as to hide assets offshore. Previously, another federal court authorized John Doe summonses on eight entities, including FedEx, DHL, UPS, Western Union and HSBC USA, for records that would assist the IRS in identifying U.S. taxpayers who used Sovereign’s services to establish or maintain foreign financial accounts or other offshore assets.[3] On November 30, 2016, another federal district court authorized DOJ to serve a John Doe summons on Coinbase, a virtual currency exchanger on the grounds that convertible virtual currency,[4] such as Bitcoin, is difficult to trace and there is a reasonable basis for believing that some virtual currency users have failed to comply with federal tax law. [5]

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Megan L. Brackney spoke on the panel "Now That’s Aggressive: Reportable Transaction Penalties" at the Practising Law Institute

The panel discussed the following topics over the course of the presentation:

• Now That’s Aggressive: Reportable Transaction Penalties
    o Reportable transaction understatement
    o Failure to report reportable transaction
    o Material advisor penalties 

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Bryan C. Skarlatos chaired the program "Nuts & Bolts of Tax Penalties: A Primer on the Standards, Procedures & Defenses Relating to Civil & Criminal Tax Penalties" at the Practising Law Institute

The number of accuracy-related penalties assessed against individual taxpayers increased from 58,366 in 2005 to 553,184 in 2015. That is nearly a 1,000% increase over the past decade! Are there more bad taxpayers? Or, is the IRS just getting more aggressive about asserting penalties? Regardless of the answer, responsible tax practitioners must understand what triggers a penalty assessment and how to protect their clients and themselves against such assessments. Unfortunately, accounting and law school tax classes rarely focus on penalties, leaving practitioners to pick up the relevant standards and procedures from the trial and error of daily practice.  

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Bryan C. Skarlatos spoke on the panel "Enforcement Actions" at the 2017 Blockchain Technology and Digital Currency National Institute

The 2017 Blockchain Technology and Digital Currency National Institute took place on April 10, 2017, in New York City. This special program was dedicated to in-depth analysis of the emerging legal issues and the latest legal events concerning digital currencies, like Bitcoin, and blockchain technology.

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IRS and Treasury Issue Proposed Regulations on Centralized Partnership Audits

By: Jerald David August

This post is the third of a Three Part Series of K&F Business and International Tax Developments Posts on the Proposed Regulations to the New Partnership Audit Regime which legislation is due to go into effect for all unincorporated entities treated as partnerships, in general, for taxable years beginning after December 31, 2017. Part One, which was posted on February 17, 2017, summarized the legislation which enacted the new partnership audit rules as part of The Bipartisan Budget Act of 2015, Pub. L. No. 114-74, Act §1101 (the “Budget Act”) which was signed into law on November 2, 2015, (as modified by Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113 (the “PATH Act”)). The Proposed Regulations were issued on January 18, 2017 (REG-136118-15).

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The FBA Section on Taxation hosted Albert G. Lauber of the United States Tax Court at Kostelanetz & Fink, LLP

This event was an exceptional opportunity to socialize with the New York Tax community and meet judge Albert G. Lauber. The event was completely free to participants, courtesy of the FBA Section on Taxation and Kostelanetz & Fink, LLP.

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Reasonable Cause For International Information Return Penalties - What Is The Standard?

By Henry Stow Lovejoy
The CPA Journal
April 2017 Edition

The Internal Revenue Code (IRC) requires the filing of a number of different information returns with respect to foreign entities or transactions. These “international information returns” include Form 5471 (for US persons who own shares in certain foreign corporations), Form 5472 (for U.S. corporations that are 25% owned by foreign persons), Form 8865 (for U.S. persons who are partners in certain foreign partnerships), Form 3520 (for transactions with foreign trusts and for the receipt of certain foreign gifts) and Form 8938 (for foreign assets generally). For each, there is a significant penalty for failing to timely and correctly file the form. But the penalty does not apply if the failure was due to reasonable cause (sometimes with the additional condition that the failure was not due to willful disregard). But what is “reasonable cause?”

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