Publications

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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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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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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Filing a Claim for Refund of Overpaid Tax

By Kevin M. Flynn
The CPA Journal
September 2016 Edition

Filing a claim for refund of overpaid tax invoices much more than just submitting an amended return to the IRS with an explanatory statement that more than the correct amount of tax was paid. The refund claim, if denied, will form the basis of any suit for a refund commenced in a federal district court or the U.S. Court of Federal Claims. 

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A Message from the Chair of the NYU Tax Controversy Forum

By Bryan C. Skarlatos
Journal of Tax Practice & Procedure
August - September 2016 Edition

The tax law is famously complex. When asked how many pages are in the current version of Treasury Regulations, a former senior IRS official once responded that it could not be determined because the tax law changed so frequently. One of the anomalies of our self-assessment system is that every citizen and resident is responsible for understanding and implementing this extremely complex law when they file their tax returns each year. 

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Repeal of the TEFRA Entity Level Audit Rules Under the Bipartisan Budget Act of 2015

By Jerald David August
Journal of Tax Practice & Procedure
August - September 2016 Edition

The Bipartisan Budget Act of 2015, which President Obama signed into law on November, 2015, repealed the complex and much-criticized TEFRA partnership entity-level audit (ELA) rules, including the electing large partnership rules. On December 18, 2015, Congress passed, and President Obama signed into law, the Protecting Americans from Tax Hikes (PATH) Act of 2015. This act sets forth certain corrections to the new audit rules.

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A Tax Return Do-Over?

By Michael Sardar
The CPA Journal
July 2016 Edition

It is not often in life that one is able to hit pause, rewind, and redo something that has already happened. To many taxpayers’ surprise, however, taxes are just one such area. Knowing the various options for correcting an error on a tax filing can help mitigate the many consequences of an erroneous tax return, including the elimination of penalties.

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An Update on the IRS's War Against Midco Transactions: Some Courts Hold That Taxpayer Knowledge Is Irrelevant When the IRS Uses State Constructive Fraud Theories to Prove Transferee Liability

By Bryan C. Skarlatos & Caroline Rule
Journal of Tax Practice & Procedure
June - July 2016 Edition

Last year, we wrote about the IRS’s efforts to recover unpaid taxes after a so-called “Midco” corporate transaction, under a theory of transferee liability. We discussed how courts had focused on whether the selling shareholders of a target corporation in a Midco transaction knew or should have known that the whole Midco transaction would result in the target corporation’s tax liability remaining unpaid. Such actual or constructive knowledge justified courts in applying the judicial doctrine of “substance over form” to recast the Midco transaction as a de facto liquidating distribution to the shareholders. Since then, the IRS has become more aggressive when applying states’ versions of the Uniform Fraudulent Transfer Act (“UFTA”) to recover from Midco transferees and has succeeded in recovering in some cases without having to prove knowledge, or even reason to know, on the shareholders’ part that the Midco transaction would result in unpaid corporate taxes. 

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Altera: Why the Government Can't Count on Chevron Step Two

By Jerald David August
Tax Notes
June 2016 Edition

In this report, Mr. August discusses the Tax Court’s Altera opinion and considers how an affirmance by the Ninth Circuit might affect the Chevron doctrine and Treasury rulemaking.

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Avoiding the Worst-Case Scenario: The IRS's Domestic Voluntary Disclosure Practice

By Brian P. Ketcham
The CPA Journal
June 2016 Edition

Most CPAs are now familiar with the IRS's heavily publicized Offshore Voluntary Disclosure Program (OVDP), which allows taxpayers with previously undeclared foreign assets to file amended tax returns and delinquent information returns in exchange for immunity from criminal prosecution and reduced civil penalties. Many, however, are unaware that the IRS has a long-standing policy permitting general voluntary disclosures involving domestic tax issues.

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