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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource 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 tagged economic substance.

Senator Carl Levin (D-Mich.) may have tried to take a bite out of Apple (AAPL) in congressional hearings last May examining the company’s overseas tax structure, calling it “the holy grail of tax avoidance." However, it appears that more than just Irish eyes are smiling on the company these days, for in the eyes of the SEC, Apple’s efforts to minimize its tax burden are just fine thank you.  See e.g., O'Brian, Chris, "SEC reveals review of Apple's Irish tax disclosures." Los Angeles Times, 3 Oct. 2013, LATimes.com, 9 Oct. 2013.

But is that the happy end of the story for Apple and the ...

Any corporate tax executive who has ever been involved in contesting an audit adjustment knows all too well how unfavorable documents relating to the subject of the adjustment – particularly improvident comments reflected in email correspondences – can be an ongoing impediment to resolving a tax dispute from the audit phase right up to and through litigation with the IRS or Department of Justice.  When such documents exist, even where taken out of context, the government will zealously sink its teeth into them like a junkyard dog, making the prospects of reaching a reasonable ...

With the looming increase in tax rates on investment income and capital gains in particular, a large number of stock market investors have been selling long-term positions to lock in the 2012 rate, which currently tops out at 15%.  Come January 1,2013, gain on the same sale could be taxed at a rate as high as 23.8%, consisting of a long-term capital gains tax rate of 20% plus a Medicare surtax of 3.8% imposed on joint filers with AGI greater than $250,000 and single filers with AGI greater than $200,000.  (See Internal Revenue Code § 1411).

A question attracting attention as the year draws to a ...

Pennsylvania may soon join the other states that have challenged the use of the so-called Delaware Loophole, according to our colleagues at the State and Local Tax Blawg.  The legislation, contained in Pa. House Bill 2150, would disallow deductions that a parent operating corporation claims for royalty payments made to a "Delaware Holding Company."

The new limitation would not apply where the transaction is related to "a valid business purpose."  In this regard, the legislation defines a valid business purpose as, “[a] purpose, other than the avoidance or reduction of taxation ...

On December 9th, the IRS issued final regulations under Code section 881 that treat a disregarded entity as a person to determine whether a “financing arrangement” exists for purposes of applying the conduit financing regulations.  The finalized regulations may deny tax benefits otherwise available from U.S. tax treaties when a multi-party financing transaction is executed with a disregarded entity serving as an intermediary.

Code section 7701(l) permits the IRS to issue regulations that recharacterize a multi-party financing transaction (often referred to as a conduit ...

The Third Circuit yesterday issued a harshly worded rebuke to the taxpayer in Merck v. United States, No. 10-2775 (Jun. 20, 2011), affirming the District Court’s decision that the taxpayer’s swap-and-assign transaction was really a disguised loan that gave rise to Subpart F income.  (See TaxProfBlog for a link to the opinion.)

Described briefly, the transactions at issue involved a U.S. company that entered into interest rate swap contracts with a foreign bank.  The company then assigned its right to receive payments under the swaps to foreign subsidiaries in exchange for ...

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.

The passage of President Obama's health-care legislation will no doubt have long-lasting consequences for the economy in general and the health-care industry in particular.  Less noticed by the general public, but central in the minds of tax professionals, has been a single provision in the accompanying reconciliation bill that codifies the so-called "economic substance" doctrine.  Having often been introduced in bills that eventually died in the catacombs of the legislative process, many practitioners were beginning to believe that codification was a cousin of Bigfoot and the Loch Ness Monster - often spotted, but never confirmed.

Categories: Legislation

The recent decision in Bemont Investments, LLC v. United States, USDC E.D. Tex., No. 4:07-cv-00009 (March 9, 2010) is another burr in the IRS’s saddle when it comes to enforcement of the substantial valuation and gross valuation misstatement penalties.  These two penalties, particularly the 40% gross valuation misstatement penalty, are powerful weapons in the IRS’s arsenal to deter taxpayers from entering into transactions the IRS considers abusive.  Bemont, out of the District Court for the Eastern District of Texas, was a Son of BOSS case that the IRS characterized as a sham ...

Categories: Litigation