Publications

Could Trump's Budget Priorities Threaten Existing Contracts?

By Claude M. Millman
New York Nonprofit Media
March 2017 Edition

Nonprofits receiving contract awards from New York City or the state should carefully monitor President Donald Trump’s budget policies for potential retroactive effects on pre-existing contracts.

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The New “Partnership Representative”

By Megan L. Brackney
Journal of Passthrough Entities
January - February 2017 Edition

Under the new Bipartisan Budget Act of 2015 (the “BBA”), there are significant changes to the partnership audit rules. Like TEFRA, the BBA requires partnership-level resolution of partnership income, gain, loss, deduction, and credits. Unlike TEFRA, under the BBA, the IRS will assess tax at the partnership level (as opposed to the partner level) based on an imputed underpayment amount at the highest applicable federal tax rate, subject to some key exceptions. The BBA also contains numerous changes to the procedures for assessment and collection of tax, and for judicial review.

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United States v. Adlman: Defining the scope of the Kovel Privilege and Work Product Doctrine

By Juliet L. Fink
The CPA Journal
January 2017 Edition

Although the attorney-client privilege has long been recognized under common law, there is no corresponding taxpayer-accountant privilege [other than a limited privilege for “tax advice” in some non-criminal matters under Internal Revenue Code (IRC) section 7525]. Criminal and civil tax cases, however, often involve complex accounting principles that may necessitate the engagement of an accountant to aid the attorney in giving effective advice to the client.

Under such circumstances, the attorney-client privilege extends to communications with the accountant for the purpose of assisting the attorney in rendering legal services to the client; this is known as the Kovel doctrine after United States v. Kovel [296 F. 2d 918 (2d Cir. 1961)]. The attorney-client privilege (and by extension, the Kovel privilege) belongs to the client, who has the burden of proving its applicability when asserting it. This applicability must be established by the existence of specific facts; a simple blanket assertion is insufficient.

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How Not to Waive Privilege When Consulting Non-Attorney Experts or Professionals

By Caroline Rule
Criminal Litigation
December 2016 Edition

Frequently, defense counsel in criminal investigations and prosecutions - particularly in tax-related prosecutions, but also in many other complex matters - cannot provide effective assistance to his or her client without consulting a non-attorney expert or professional, such as an accountant. The Second Circuit's seminal decision in United States v. Kovel, 296 F2d 918 (2d Cir. 1961), established that, if the non-attorney expert or professional is engaged by an attorney to assist the attorney in representing a client, and the services of the non-attorney expert or professional are necessary to translate, interpret, or explain client communications so that the attorney fully understands them, then communications between the attorney, the client, and the non-attorney expert or professional (hereafter, the "Kovel expert") are protected under the attorney client privilege. 

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Filing a Qualified Amended Return to Avoid Accuracy Penalties

By Megan L. Brackney
NJ Taxing Times
Winter 2016 - 2017 Edition

NEITHER THE INTERNAL REVENUE CODE (“I.R.C.”) nor Treasury Regulations requires taxpayers to file amended returns. However, the ethical rules of Circular 230, the NAEA, and the AICPA call for tax practitioners to advise their clients about errors or omissions in their tax filings. Once you have advised your client about an error, the client likely will ask you “should I correct the error, and, if so, how?” Under certain circumstances, a qualified amended return, or “QAR,” may provide a method for correcting an error without penalties.

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Complying with U.S. Requirements for Foreign Pension Plans

By Cassandra Vogel
The CPA Journal
November 2016 Edition

The migration of workers into and out of the United States is a fact of the modern interconnected world. Consequently, many U.S. taxpayers acquire an interest in a foreign pension plan or other deferred compensation arrangement during time spent working abroad. Because of the beneficial tax treatment of these plans in the originating country, a taxpayer might easily—but incorrectly—assume that there are no U.S. tax implications or reporting requirements for these foreign plans. It is a mistake to overlook a taxpayer’s interest in a foreign pension plan for U.S. tax purposes, and thus it is important to be well versed in the rules relating to foreign pensions, as well as how to bring previously non-compliant individuals into compliance.

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Tips For Navigating New York City's Integrity Disclosure Forms

By Claude M. Millman
New York Nonprofit Media
November 2016 Edition

New York City’s Vendor Information Exchange System (VENDEX) is an annoyance for organizations dependent on city funding. While it’s tempting to treat VENDEX compliance as clerical, it warrants attention from top executives. Perfect VENDEX compliance can be difficult, and complacency can lead to the filing of false data. 

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Can the Code Sec. 6700 Tax Shelter Promoter Penalty Apply to Everyday Tax Advice?

By Bryan C. Skarlatos and Megan L. Brackney
Journal of Tax Practice & Procedure
October - November 2016 Edition

Tax practitioners often give tax advice on things like how to structure an investment in a business venture, sell an asset, plan for retirement or pass wealth to the next generation. Sometimes a practitioner’s tax advice turns out to be wrong and the IRS assesses a tax deficiency against the taxpayer.

Typically, the question of whether the tax practitioner could be subject to a penalty for providing faulty advice would be governed by the standards under Code Sec.6694—i.e., whether the advice had a reasonable basis and was adequately disclosed, or was supported by substantial authority or, in the case of a tax shelter, it was reasonable to believe that the position was more likely than not to be sustained on its merits. However, another standard also could apply to the tax advisor’s advice. Under Code Sec. 6700, the IRS could attempt to impose a much larger tax shelter promoter penalty if the advisor “had reason to know” the advice was wrong. Most practitioners believe that the penalty under Code Sec. 6700 is designed for abusive tax shelters that are marketed by unscrupulous tax shelter promoters. While that appears to have been the purpose behind the enactment of Code Sec. 6700, the statute itself contains some technical yet broad language which, taken literally, possibly could apply to a wide variety of arrangements that involve tax benefits. There is nothing in the body of the statute that limits the penalty to tax practitioners or tax return preparers, defines the type of investment plan or arrangement that is covered or requires any specific marketing efforts. Thus, the IRS could attempt to argue that Code Sec. 6700 applies to ordinary tax advice if the practitioner giving the advice “knew or had reason” to know that the advice was wrong.

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Applying Civil Penalties for Willful Violations of FBAR Requirements

By Caroline Rule
The CPA Journal
October 2016 Edition 

Will the Fifth Circuit Clarify the IRS’s Burden of Proof?

District courts and other authorities disagree on whether the IRS must prove willfulness by a preponderance of the evidence or by clear and convincing evidence when seeking a civil penalty for willful failure to file a Report of Foreign Bank and Financial Accounts (FBAR). A pending appeal, Gubserv. Comm’r [No. 16-40948 (5th Cir.)], may ultimately lead to the first Federal Court of Appeals authority on the issue.

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Is It Really Over? Closing Agreements with the IRS

By Megan L. Brackney
Journal of Passthrough Entities
September - October 2016 Edition

In my last column, I discussed the IRS’s prerogative to change its mind—to approve of a tax reporting position in one year, and then assess penalties on the ground that the taxpayer was negligent or did not have substantial authority for having taken that position in a later year.1 In this column, we will look at whether the IRS’s prerogative to change its mind extends to breaching a closing agreement with a taxpayer. In the recent decision in A. Davis,2 although the IRS conceded it had breached its own closing agreement, the Court allowed the assessment of tax to stand. This column summarizes the rules for IRS closing agreements and then discusses the Davis case.

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