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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.

The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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  • Posts by George W. Connelly, Jr.
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    George Connelly is recognized as one of the leading federal tax litigators in the United States.  His practice focuses on IRS audit, collection and criminal matters including civil and criminal tax litigation matters, for clients ...

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.

Categories: Employment Tax

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 ...

Categories: Employment Tax

Anyone who has been through an IRS examination knows that the principal focus is often on the Taxpayer’s "records," and whether they are complete and accurate.  If they are not, a victim runs the risk that the IRS will propose additional tax liabilities with respect to expenses that are not proven to the satisfaction of the IRS auditor, that various receipts which may come from inactive sources are treated as income, that a 20% negligence penalty will be applied on top of the tax, and that the IRS auditor will deliver to the taxpayer an "inadequate records notice."  It is important for a business to know exactly where it has been, as well as where it is, and those reasons alone should be enough to warrant keeping complete and accurate records, but the possibility of IRS adverse action offers several more.

Given this IRS’ fixation on the quality of taxpayer's records, how good do you think the IRS' own records of its activities are?  Would you assume that they are every bit as good as they expect a taxpayer's records to be?  The answer is "not exactly."

There are a number of things that frustrate the Internal Revenue Service, ranging from not filing tax returns on time, not paying taxes when due, not providing sufficient estimated taxes, business failure to pay its employment taxes, entering into a "listed transaction," and generally saying bad things about the Agency.  Every year, IRC §6702 requires the IRS to publish a list to identify positions that it views as "frivolous" and subject to a penalty.  This year's list has been issued, and you may find it interesting.  We will try to cover the more interesting ones.

Some of my clients would tell you that there never was such a thing as a “kinder, gentler” Internal Revenue Service, but over the years different attitudes have prevailed in that organization and yes, I can attest that there was an unquestionably kinder as well as gentler organization not long ago.  For a brief time in the late 1980s, when Lawrence Gibbs was Commissioner, he encouraged IRS employees to look upon taxpayers as their “clients.”  He left the position before he had been able to transform the attitude of the organization to something along those lines.  Following the passage of the IRS Restructuring and Reform Act of 1998, as well as a reorganization, the IRS once again went on a “charm offensive,” including regularly scheduled taxpayer service days to try to help taxpayers resolve problems that didn’t seem to be working out on their own.

Categories: Administrative

For most citizens of the United States, the thought of an IRS audit is probably scarier than a root canal or a colonoscopy without anesthesia.  As a result, people will be pleased to learn that the Internal Revenue Service is in fact "audited" itself, and sometimes doesn't like the results of those audits.

The notion of auditing the IRS is probably surprising.  Most taxpayers know that from time to time their local media doubtless has someone who will find a horror story about a widow who really didn't owe any taxes but is being harassed because of a mistake made by the IRS computer, and from time to time Congress occasionally exercises its oversight over IRS operations above and beyond asking the Commissioner what he's doing about closing the "tax gap."  But these contacts are sporadic, and there's a question about their effectiveness.

This is a question I hear from a lot of clients who owe the IRS money, because either they were not able to pay everything on their tax return when it was filed, or they endured an IRS audit and adjustments were unfavorable to them.  The fact of the matter is that, outside the confines of an Offer in Compromise based on doubt as to collectability, which is governed by I.R.C. § 7122 and an analysis of the taxpayer's ability to pay the liability in full, the IRS has a lot less discretion in this area than most people think.

Let's look at interest first.  Pursuant to I.R.C. § 6601, interest generally runs from the time a tax return is due until the time the tax is paid.  One exception is an “assessable” penalty, for which case the interest runs from the date the penalty is assessed.  Internal Revenue Code § 6404(g) permits the IRS to waive interest, but two circumstances must be present.  First, this only relates to interest on income tax, so that if we're talking about estate tax, excise tax, or employment tax, there is no legal authority for the IRS to "waive" interest.  Second, there must be a showing that the interest ran as a result of some error or delay on the part of the Internal Revenue Service in the performance of a "ministerial" act.  As you can imagine, the IRS rarely admits that such a mistake has occurred, and there are disappointingly few cases in which taxpayers have successfully gone to Court and had this position overturned as an abuse of discretion.

In the last article, we focused on overcoming an accuracy penalty when the taxpayer uses and relies on tax preparation software.  Let’s see what the “rules of the road” are if he instead relies on professionals.

The case of Curcio v. Commissioner, T.C. Memo 2010-115, decided May 2010, provided a challenging situation.  It involved four taxpayers whose companies had participated in a "Section 419 Plan" where they claimed deductions as business expenses for significant life insurance premiums, and the Court rejected the deductions under the Plan.  The 419 Plan at issue was created by Daniel Carpenter, a lawyer with experience in tax and employee benefits law.  He designed the plan, drafted and approved all amendments, and secured a legal opinion by a separate lawyer.  These Taxpayers, however, did not just buy the Plan from him and rely upon his representations.

This is a two-part article intended to cover the challenges facing a taxpayer whose return is audited, producing a tax deficiency, on top of which the I.R.S. asserts a penalty.

First, a little bit of history.  Until 1982, outside of situations where the I.R.S. could prove an affirmative attempt to evade tax, the only sanction for errors on returns was the negligence penalty of I.R.C. § 6653(a).  That penalty was imposed at the rate of five percent and did not bear any interest, so that in the view of many it was an encouragement for people to play the "audit lottery," since owing the tax, that ...

As my readers know, I focus my practice on representing people who have “misunderstandings” with the Internal Revenue Service.  I can’t count the number of clients who have made a comment along the lines of “get me Geithner’s deal” since it came to light that he had some significant and frankly embarrassing tax problems while working for the International Monetary Fund.  In point of fact, making a statement like that to an IRS employee is probably one of the worst things a taxpayer could say, because the rank and file IRS employees realize that if they did what Mr. Geithner did, they would be fired on the spot.