Tax Blog/Blawg

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.

Will Employers Get a Payroll Holiday?

Senator Rob Portman, a Republican from Ohio, introduced Senate Bill 12 which would offer a temporary employer payroll tax cut.  The Portman bill proposes a one-year, 2 percentage-point reduction in the payroll taxes paid by employers.  Portman contends that such a payroll holiday would be a job-creation device.

Businesses should closely monitor this legislation because of the potential cost savings associated with it and compliance issues.

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 IRS recently announced in Notice 2011-12 that Notice 2009-91 will not apply to wages paid after December 31, 2010. 

Previously, Notice 2009-91 revised the withholding calculation rules for nonresident alien employees performing services within the United States.  Notice 2009-91 revised the rules to take into account changes made in the withholding tables to reflect the section 36A Making Work Pay Credit.  However, the Making Work Pay Credit does not apply to tax years beginning after December 31, 2010. 

Notice 2011-12 provides that for wages paid after December 31, 2010 ...

Businesses should continue to monitor this legislation because the new Form 1099 requirement will have a significant impact on compliance and legislation in this regard could alleviate some of the complexity and costs associated with the new requirement.

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 ...

Guest Post by Heather Pesikoff

Careful consideration must be given to the new rules established by section 9003 of the Patient Protection and Affordable Care Act enacted March 23, 2010 (the "Act")(Pub. L. No. 111-148). Cafeteria plans should be reviewed and, in some instances, may need to be amended to conform to the new over-the-counter medicine and drug requirements. The failure to do so may result in noncompliance including potential tax liabilities, penalties and interest.

Guest Post by Heather Pesikoff

In a unanimous decision, the Supreme Court recently ended the multi-decade debate over whether medical residents are eligible for the student FICA exception. It ruled that the exception is not applicable, medical residents are employees and therefore subject to Federal Insurance Contributions Act (FICA) taxes.

Student FICA Exception

The IRC section 312(b)(10) student exemption excepts employers from withholding and paying FICA taxes on services performed in the employ of a school, college or university if those services are performed by a ...

The Supreme Court’s decision this week in Mayo Foundation for Medical Education and Research v. United States clarifies the approach courts should take in determining the validity of IRS regulations.  The decision is a victory for the IRS, but it leaves many issues unresolved.  One thing is very clear, however: the IRS can be expected to push the decision aggressively in future challenges to its regulations.

On Friday, the Treasury Department issued final regulations under Code section 1001 relating to the modification of debt instruments.  In relevant part, the regulation provides that, following the modification of a debt instrument, the classification of the modified instrument as debt or equity for federal income tax purposes does not take into account any deterioration in the financial condition of the obligor.  Treas. Reg. § 1.1001-3(f)(7)(ii)(A).

The only public comment on the proposed regulations noted that the existing regulation does not contain rules for determining ...