Tax Blog/Blawg

In the last two weeks, various news sources have reported on a previously low-profile IRS initiative to use state land-transfer records to identify potential omissions in reporting gifts of real estate.  (Via TaxProf here and the WSJ here.)  According to the reports, the IRS is using information received from at least 16 states to identify transfers of real estate the value of which exceeded the $13,000 threshold for filing a gift tax return.  As a result, the IRS is pursuing taxpayers who made such transfers but failed to file returns.

Although this particular example of the IRS building an enforcement case through the use of non-tax sources targets individuals, corporate tax professionals should not rest too easily.  Most corporate taxpayers might not be engaged in such outright noncompliance as failing to file returns.  Nevertheless, the volume of non-tax information that is available in the public domain - especially for large, public companies - poses  potentially analogous risks to corporate taxpayers  for the positions taken on their tax returns. Beyond the traditional sources of non-tax information, such as SEC filings and court documents, news articles and press releases proliferate over the Internet.  Likewise, companies may face a new potential source of trouble in the proliferation of social networking sites.  From LinkedIn resumes to Facebook profiles, information that reflects upon a company grows by the day.

Five days ago, this would have seemed like just another April Fools'  Day joke, but it is apparently quite real.  Via the Washington Times, an excerpt:

There's at least one government function some taxpayers might not miss in a government shutdown: IRS tax audits.

A senior administration official, briefing reporters on potential effects of a shutdown, said "the performance of tax audits will be shut down or suspended for this period."

Overall, the official said he expects about 800,000 government employees to be furloughed if Congress and the president aren't able to agree on spending ...

Much confusion has existed over the past few years about filing Form TD F 90-22.1 ("FBAR") to report foreign accounts to the IRS.  To remedy this, the IRS issued pronouncements in 2009 and 2010 granting certain FBAR filing exemptions and penalty waivers.  Many of these benefits had retroactive effect.  A recent criminal case, United States v. Simon, calls into question the validity of the IRS pronouncements.  By holding that the U.S. Department of Justice may pursue criminal prosecutions in situations where the IRS publicly indicated that it would not even assert civil penalties, this ...

On February 9, 2011, the third appellate court in as many weeks issued an opinion addressing whether an overstatement of basis extends the statute of limitations for assessment to six years under section 6501(e)(1)(A).  In Burks v. United States, No. 09-11061 (Feb. 9, 2011) (opinion here), the Fifth Circuit joined the majority of circuit courts that have addressed the issue (including the Fourth, Ninth, and Federal Circuits, as well as the Tax Court) by holding that an overstatement of basis does not trigger the extended statute.  At this point, only the Seventh Circuit has held to the contrary, and the Seventh Circuit’s recent precedent lies on a broad and now-questionable reading of Fifth Circuit precedent, Phinney v. Chambers 392 F.2d 680 (5th Cir. 1968), which the Fifth Circuit confined to its narrow facts.

Yet another appellate court has weighed in on whether an overstatement of basis constitutes an omission of gross income subject to the six-year statute of limitations under Code section 6501(e)(1)(A).  Home Concrete v. United States, No. 09-2353 (4th Cir. Feb. 7, 2011). This time, the Fourth Circuit Court of Appeals sided with the Ninth (Bakersfield Energy Partners LP v. Comm’r, 568 F.3d 767 (9th Cir. 2009)) and Federal Circuits (Salman Ranch Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009)), as well as the Tax Court (Intermountain Insurance Services v. Comm’r, T.C. Memo ...

The Seventh Circuit handed the government a victory yesterday, deciding in Beard v. Comm’r that a taxpayer’s overstatement of basis can result in an omission of income under Code section 6501(e), thereby extending to six years the statute of limitations for the IRS to make an assessment, rather than the usual three.

Background

Beard involved an individual taxpayer who had engaged in a variant of the so-called “Son-of-BOSS” transaction in which the taxpayer sold short a position in a financial asset and contributed to a partnership both the proceeds of and the debt created by ...

Since codification of the economic substance doctrine in March 2010, taxpayers have expressed fears that IRS will assert the doctrine unpredictably, resulting in an in terrorem effect among taxpayers because of the lack of clear authorities interpreting the doctrine and the new 40% strict-liability penalty for falling on the wrong side of it.  To promote predictability in the exam processes, taxpayers have requested that Treasury or the IRS issue formal guidance instituting prescribed procedures to assert the penalty.  The government had declined these requests, but officials have promised queasy taxpayers that IRS will only assert the penalty after certain approvals.  For example, in September, LMSB Commissioner Heather Maloy issued a directive mandating that any assertion of the penalty during exam must be approved by the appropriate director of field operations.  Then, as reported by Tax Analysts, Associate Chief Counsel (Procedure and Administration) Deborah Butler said in October that Chief Counsel would review any notice of deficiency that applied the economic substance penalty before it was sent to the taxpayer.

One of our readers recently emailed us with a question about the application of the new Schedule UTP to deferred tax assets.  The question is straightforward enough: must uncertain positions involving deferred tax assets be reported on Schedule UTP and, if so, when must they be reported?  The explanation, thanks to confusion created by several examples in the final Schedule UTP instructions, is anything but straightforward.  Let’s start with a little background.

TaxBlawg’s Guest Commentator, David L. Bernard, is the recently retired Vice President of Taxes for Kimberly-Clark Corporation, a past president of the Tax Executives Institute, and a periodic contributor to TaxBlawg.

As the IRS sifts through dozens of comment letters on the proposed disclosure of uncertain tax positions, in-house tax officers have to wonder what's next. Over the last decade, CTO's have been hit with a barrage of new demands and worries. We have seen the rise of FIN 48 (now ASC 740-10), Sarbanes-Oxley and the resulting increased focus on controls, increasingly burdensome quarterly and annual attest firm reviews, listed transactions disclosures, the electronic filing mandate (Everson's legacy), Schedule M-3, and now the still proposed UTP disclosure.

Notwithstanding the new challenges, the number one performance metric used to judge a tax department's performance is still the effective tax rate ("ETR"). CTO's and their staffs continue to be measured by their delivery on the ETR at a time when most at the IRS seem to believe that all tax planning is bad, outside counsel is becoming more cautious, attest firms are insisting to review opinions (thus jeopardizing privilege), budgets and head count have been cut and, oh by the way, "cash is king".