TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

On July 1, the Supreme Court issued its opinion in Corner Post, Inc. v. Federal Reserve Board, 603 U.S. ____ (2024), its second major decision in four days that expanded the ability of aggrieved parties to challenge federal agency regulations, including tax regulations. Under 28 U.S.C. §2401(a), a person has six years within which to file a civil suit against the United States Government. The issue in Corner Post, Inc., was whether a person who claims injury due to final agency action has six years from the date of injury or six years from the date of final agency action within which to file a lawsuit.

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Forty years ago, the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., articulated a new test for determining the deference to be given to an agency’s interpretation of a statute. The Chevron Doctrine, as it came to be known, became a fixture of federal jurisprudence. In Mayo Foundation v. United States, the Court held that Chevron’s deferential standard applied to tax regulations.

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We are pleased to announce that Edward M. Robbins, Jr., Robert S. Horwitz and Michael Greenwade will be speaking at the upcoming Strafford webinar “Foreign Information Return Penalties After Farhy: Impact of DC Circuit Court Decision” Thursday, July 18, 2024, 10:00 a.m. – 11:50 a.m. (PST).

In Farhy v. Commissioner 160 T.C. No. 6 (T.C. Apr. 3, 2023), the Tax Court ruled that the IRS did not have the authority to assess and collect penalties under IRC Section 6038(b) for failure to file Forms 5471. On appeal, the D.C. Circuit Court overturned the Tax Court decision. This case has ramifications for other forms, including Forms 5472, 8858, 8938, 926, and perhaps even Form 3520.

International tax advisers need to know how the IRS will likely respond to this decision, how this decision impacts taxpayers in other circuits, and the impact of a potential appeal to the U.S. Supreme Court. This webinar will examine the impact of Farhy v. Commissioner on foreign information return reporting penalties and detail the actions international tax practitioners need to take in light of this case, including the recent D.C. Circuit Court ruling. 

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Beware of the latest scheme targeting clean energy tax credits, the IRS cautions on July 3, 2024 (IR-2024-182). This scheme, preying on the well-meaning yet unsuspecting, involves tax return preparers who allegedly  misrepresent the rules for claiming clean energy tax credits under the Inflation Reduction Act (IRA).

This is important not only for tax administration but for our collective efforts to move to clean energy abs combat the warning of the planet. A lot is at stake.

Clean energy tax credits are financial incentives provided by the federal government to encourage investments in renewable energy sources and energy-efficient technologies. These credits aim to reduce the nation’s reliance on fossil fuels, decrease greenhouse gas emissions, and promote the development and adoption of sustainable energy solutions. Here’s a brief overview of the key aspects of clean energy tax credits:

Types of Clean Energy Tax Credits

1.  Investment Tax Credit (ITC): This credit allows businesses and homeowners to deduct a percentage of the cost of installing renewable energy systems, such as solar panels or wind turbines, from their federal taxes. The ITC typically covers solar, wind, geothermal, and other eligible renewable energy installations.

2.  Production Tax Credit (PTC): This credit provides a per-kilowatt-hour (kWh) benefit for the first ten years of electricity generation from renewable energy projects such as wind, geothermal, and biomass.

3.  Residential Energy Efficient Property Credit: Homeowners can claim this credit for the installation of qualifying energy-efficient property in their homes, such as solar electric systems, solar water heaters, geothermal heat pumps, and small wind turbines.

4.  Energy Efficiency Tax Credits: These credits are available for improvements that reduce energy consumption, such as upgrading insulation, windows, and HVAC systems.

Under the IRA, a taxpayer can buy eligible federal income tax credits from investments in clean energy. These credits can then be used to offset the buyers federal income tax liability. The hitch is that the purchased clean energy credits can only be used to offset passive income. The problem is that some return preparers prepare for their clients individual income tax returns that improperly claim these credits to offset income from sources that are not passive, such as wages, Social Security, and withdrawals from retirement accounts.

“This is another example where scammers are trying to use the complexity of the tax law to entice people into claiming credits they’re not entitled to,” said IRS Commissioner Danny Werfel. Taxpayers should be wary of promoters pushing dubious credits like this and others. The IRS is watching out for this scam, and we urge people to use a reputable tax professional before claiming complex credits like clean energy.”

The IRS reminds taxpayers that claiming inappropriate credits can trigger future compliance actions. Individual taxpayers would then be responsible for repaying the inflated credit, plus interest and possible penalties.

Before purchasing clean energy credits under the IRA, individuals should consult a trusted tax professional to confirm their eligibility. Understanding the limitations under the passive activity rules and other parts of the tax code is crucial for avoiding these pitfalls.

The IRS continues to alert taxpayers about various scams that lure them into filing inappropriate claims for other tax credits. Notable among these are scams involving the Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes. Misleading social media advice and promoters have spurred thousands of dubious claims, leading to delayed refunds and the necessity for taxpayers to provide legitimate documentation to support these claims.

However, amidst efforts to combat fraud, legitimate users of these credits can inadvertently attract scrutiny. Often, innocent mistakes or misunderstandings about the complex eligibility criteria can trigger IRS investigations.

Accurate documentation and knowledge of the applicable tax regulations are therefore paramount. The IRS, tasked with ensuring compliance, may challenge claims that are legitimate but appear dubious or unsupported. A taxpayer whose claim of a clean energy credit is challenged should consult with a tax professional who understands the intricate rules and regulations that govern these credits.

Stay informed, stay vigilant, and consult reputable professionals when navigating the complexities of tax credits. It’s always important but in this case the future of the planet may be at stake.

Dear Colleagues-

We cordially invite you to register for the 2024 UCLA Extension Tax Controversy Institute, which will be held on October 24, 2024, at the Beverly Hills Hotel, Beverly Hills, California. The link for registration is below.

The Institute has long been recognized as one of the premier tax controversy programs in the United States. Last year was an amazing conference with record attendance. We look forward to another sell out event as we celebrate the Institute’s 40th Anniversary.

This year we are honored to announce that Internal Revenue Service Commissioner Danny Werfel will again be joining us as our luncheon keynote speaker. 

We are also pleased to announce that Chief Judge Kathleen Kerrigan of the United States Tax Court will be joining us this year as one of our featured speakers.

We are also excited to announce that this year’s recipient of the Bruce I. Hochman Award will be Erin M. Collins, the IRS National Taxpayer Advocate. 

Continuing the tradition of exceptional speakers covering cutting edge topics and issues facing the tax controversy practitioner, this year’s topics will include-

 The Investigation, Assertion, and Defense of Civil Fraud Penalties

The IRS’s New Enforcement Effort on Partnerships – It’s Time to [re]-Learn Subchapter K

Fool’s Gold or the Real Thing – Employee Retention Credit Civil and Criminal Enforcement  

Superman’s Krypto – The IRS’s Focus on Civil and Criminal Enforcement of Cryptocurrency

Let’s Come to An Agreement – the Benefits and Pitfalls of Alternative Dispute Resolution of Tax Controversies 

IRS Collection Procedures and Best Practices – What the IRS and Practitioners Are Doing in 2024

Please join us and celebrate 40 years of the Institute. 
Registration is now open here or call (310) 206-7247.

Steven Toscher and Sandra R. Brown, Co-Chairs
2024 UCLA Extension Tax Controversy Institute
Hochman Salkin Toscher Perez P.C.
toscher@taxlitigator.com

We are pleased to announce that Robert S. Horwitz and Carneil Wilson (Dentons) will be speaking at the upcoming Beverly Hills Bar Association webinar “Moore v. US: What’s Next for International Taxation and American Shareholders” Tuesday, July 9, 2024, 12:30 a.m. – 1:30 p.m. (PST).

The U.S. Supreme Court has upheld the constitutionality of the Mandatory Repatriation Tax in Moore v. United States, confirming that Congress’s authority includes attributing the realized and undistributed income of an American-controlled foreign corporation to the entity’s American shareholders and taxing them on their portions of that income.

A panel of leading tax law practitioners will break down the 7-2 decision and explore its potential effects on international taxation and American businesses.

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Consistent with its efforts to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, and large corporations, on June 17, 2024, the IRS unveiled a series of documents taking aim at basis shifting transactions by related-party partnerships. These documents are:

• IRS Fact Sheet FS 2024-21, which announces the new IRS program;

• Revenue Ruling 2024-14, identifying transactions the IRS claims lack economic substance;

• Notice 2024-54, previewing planned regulations; and

• Proposed regulations that identify certain types of basis-shifting transactions as transactions of interest, which are a form of reportable transaction (REG-124593-23).

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We are pleased to announce that Edward M. Robbins, Jr. will also be speaking on June 26th at the Agostino & Associates International and Domestic Tax Controversy Update at the Bergen Community College at the Meadowlands. BBQ to follow at The Green at Hackensack Court Square on the topic of Farhy Update, Aroeste, Malta Pensions and what it portends for IRS enforcement, Moore

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In Connelly v. United States, the U.S. Supreme Court examined an estate-tax issue involving how to value life insurance proceeds received by a closely held corporation upon a principal shareholder’s death. Typically, such proceeds are used by the corporation to buy back shares from the deceased shareholder’s estate, thereby keeping the corporation in the family. The parties stipulated that the insurance proceeds were an asset that increased the value of the corporation. The Court had to decide whether the corporation’s contractual obligation to purchase the deceased shareholder’s shares offset the life insurance proceeds.

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Founded in 1960, Hochman Salkin Toscher Perez, P.C., is internationally recognized as the preeminent tax law firm on the West Coast. The reputation of the firm for excellence and integrity in the tax community is unparalleled. The firm specializes in federal and state civil and criminal tax litigation, tax controversies and tax disputes with the federal, state, and local taxing authorities and white collar criminal defense, and has received many notable decisions on behalf of its clients before the Federal Appellate Courts, the Federal District Courts, the Bankruptcy Courts, the United States Tax Court, and various state courts, including the California Franchise Tax Board California Department of Tax and Fee Administration and the
California Employment Development Department.

We are pleased to invite you to the

 16th Annual NYU Tax Controversy Forum
to be held June 27 and 28
Westin New York, Times Square

You do not want to miss this program.

Two of our principals will be speaking on the following topics:

Michel R. Stein
Challenging Civil Penalties – Recent Developments
June 27

Sandra R. Brown
Handling Employee Retention Credit Audits and Investigations – Coloring in the Lines
June 28

For 16 years, the NYU School of Professional Studies Tax Controversy Forum has brought together government representatives and expert private practitioners to share their perspectives on a variety of topics involving federal tax audits, appeals, and litigation. The forum covers a wide range of controversy work, from procedural seminars to substantive programs, international issues, ethical problems, current enforcement initiatives, sensitive audits, and civil and criminal tax penalties.

Please Join Us.

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Founded in 1960, Hochman Salkin Toscher Perez P.C., is internationally recognized as the preeminent tax law firm on the West Coast. The reputation of the firm for excellence and integrity in the tax community is unparalleled. The firm specializes in federal and state civil and criminal tax litigation, tax controversies and tax disputes with the federal, state, and local taxing authorities and white collar criminal defense, and has received many notable decisions on behalf of its clients before the Federal Appellate Courts, the Federal District Courts, the Bankruptcy Courts, the United States Tax Court, and various state courts, including the California Franchise Tax Board and the California State Board of Equalization.