Tax Law Blog | IRS Tax Attorneys

With tax season in full bloom, a little reminder to avoid making false or fraudulent claims on your tax return is in order.

If you want to see what a criminal tax case looks like, the IRS makes it easy - here are the fact patterns and sentencing results of over 50 criminal tax cases from the last six months - business owners, physicians, public officer holders, ministers, and accountants included.

A primary purpose of criminal investigations is to protect the integrity of the tax system - like those listed, you will be exposed to deter others.

Overall, the IRS does not undertake a significant amount of criminal investigations - in 2008, there were 3,749 investigations initiated.  But make no mistake, this is serious territory.  Once the IRS digs in, there is a 75% chance you will be referred for prosecution.  You do not want to go there.

Having two IRS criminal investigators make an unannounced visit to you, flash a badge and request to sit down and ask you questions will make your world spin.

If an IRS Special Agent contacts you, stop.  State that you do not wish to answer any questions without retaining professional representation.  There is a right time and way to properly respond to this type of IRS investigation, and answering alone, on the spot, without understanding the implications of what is transpiring is dangerous.  The IRS may know more than you think at this point. There is no benefit to letting them compare notes.

An IRS criminal investigation can bring financial and social ruin, loss of career and incarceration.  The perceived gain from the act is simply not worth it.

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House Democrats’ version of the $825 billion recession rescue package would end billions of dollars in tax breaks the Bush administration quietly gave to banks last fall.

Already almost exclusive beneficiaries of a $700 billion Wall Street bailout, banks are largely left out of the House stimulus package that President-elect Barack Obama wants passed quickly through Congress. Those getting financial bailout money wouldn’t even be eligible for one of the main business tax breaks aimed at priming the economic pump.

Homebuilders, manufacturers, retailers and low-income families share the bulk of the $275 billion in proposed new tax cuts.

House leaders moved this week to repeal the tax break for banks even as the Senate voted to help many of those same institutions by releasing the second $350 billion of the widely unpopular Wall Street bailout. Many lawmakers are unhappy with the results after the Bush administration spent the first $350 billion, making them wary of helping banks in the stimulus package.

To address the financial industry meltdown, the Treasury Department last fall issued a new tax rule to make it more attractive for healthy banks to buy troubled ones hit hard by the mortgage crisis. It allowed healthy banks to avoid billions of dollars in taxes by offsetting their profits with the losses of the banks they acquire.

Before, the merged bank could write off only a limited amount of the losses. Removing much of the restrictions enabled the acquiring banks to make huge reductions in their tax liabilities.

In some cases, the tax breaks exceeded the cost of acquiring the troubled banks. Wells Fargo & Co., for example, made a bid to acquire Wachovia Corp., just days after the change in tax rules was issued Sept. 30. Wells Fargo paid $14.8 billion in a stock deal to buy Wachovia, but stands to reap about $20 billion in additional tax savings from the transaction, according to analyses by private tax experts.

Pittsburgh-based PNC Financial Services Group Inc. reduced its taxes by about $5.1 billion through its takeover of National City Corp., according to the analyses.

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The first thing on ,new president elect, Obama’s plate will be jump-starting the ailing U.S. economy, economists and tax experts say. “Most bets are out the window until we get the economy and the financial markets straightened out,” said William Gale, an economist.

Though a ballooning deficit has some expecting the government to increase revenues by hiking taxes soon, many economists say stimulating the economy, even if it means a record-level deficit, is more important now, for the short-term, than balancing the budget.

If Obama’s administration and Congress follow that line of thinking, then tax hikes may well wait. But spending probably won’t. The economic crisis likely means another fiscal stimulus package, many economists said. But unlike the fiscal stimulus earlier this year, a new bill probably won’t include direct rebates to a broad swath of taxpayers.
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The new Census Bureau data on income and poverty reveal that many of the economic trends in this country are a lot more favorable than America’s detractors seems to think. In 2007, overall real median family income increased to $50,233, up $600 from 2006. The real median income for intact families — mother and father in the home — rose to $78,000, an all-time high.

Although incomes fell sharply in the U.S. after the dot-com bubble burst in 2000 (and still haven’t fully recovered), these latest statistics reflect a 25-year trend of upward economic mobility. More important, Barack Obama is wrong when he states on his campaign Web site that the economic policies started by Ronald Reagan have rewarded “wealth not work.” Based on this false claim — that the rich have benefited by economic growth while others have not — he intends to raise tax rates on high-income individuals.

To be sure, there has been a massive amount of wealth created in America over the last 25 years. But tax rates were cut dramatically across the income spectrum, for rich and poor alike. The results?

When all sources of income are included — wages, salaries, realized capital gains, dividends, business income and government benefits — and taxes paid are deducted, households in the lowest income quintile saw a roughly 25% increase in their living standards from 1983 to 2005. (See chart nearby; …) This fact alone refutes the notion that the poor are getting poorer. They are not.
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The Obama campaign has released this detailed tax plan, along with this summary, key facts, and comparison with the McCain tax plan.  The tax plan has attracted a lot of attention in the media and blogosphere:

U.S. News & World Report:  With Polls Close, Obama Blinks on Taxes, by James Pethokoukis:

This is a pretty big change for Obamanomics.

1. It will increase capital gains and dividend tax rates, to 20%, only for families making over $250,000. Before, Obama was hinting at rates as high as 28% for everyone.
2. On the issue of the Social Security income cap, he’s now considering a plan that would make folks earning over $250,000 pay in the range of 2% to 4% more in total (combined employer and employee) payroll taxes. Previously, there were hints at increases of from 6% to 12%.

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Professor Burke proposes extending the look-through rules of under § 1(h)(9) to partnership distributions as well as sales of partnership interests to prevent conversion of unrecaptured § 1250 gain and potentially indefinite deferral.

The proposal addresses flaws in the distribution rules as illustrated by Countryside Limited Partnership v. United States allowing tax-free treatment of a distribution of recently-acquired nonmarketable securities to a redeemed partner, coupled with shifting of basis from the securities to depreciated real property held by the partnership. Corresponding changes would be necessary to the regulations under §§ 751 and 755 when a disproportionate distribution reduces the distributee’s share of unrecaptured § 1250 gain in retained partnership property. The proposal flows from Professor Burke’s earlier commentary on Countryside.
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In August 2007, a federal court in Rhode Island quashed an IRS summons seeking tax accrual workpapers pertaining to a taxpayer’s investment in abusive tax shelters. The court held in United States v. Textron that the documents at issue were protected under the work-product doctrine, which immunizes from discovery documents prepared “in anticipation of litigation” so long as the prospect of litigation was “objectively reasonable” and the documents would not have been prepared “in substantially the same manner” irrespective of the anticipated litigation. The government has appealed the decision.

This article argues that tax accrual workpapers never deserve work-product protection, because they are prepared for regulatory rather than for litigation purposes. It also argues that in preparing tax accrual workpapers, it is not objectively reasonable for a taxpayer to anticipate litigation, because the nexus between the two events is so attenuated and fraught with contingencies that one leads to the other only a fraction of the time.

If affirmed, Textron threatens effective tax enforcement. It expands the work-product doctrine beyond its historical role of protecting the adversarial process, and it swallows the attorney-client privilege, effectively cloaking from discovery not just all legal advice but all advice pertaining to potential litigation, no matter how attenuated. In addition, the decision protects precisely the kind of abusive tax avoidance that Congress and the Treasury Department have fought to root out and punish. In the end, the decision destroys the IRS summons power, prevents the IRS from performing its regulatory function of verifying a taxpayer’s self-assessed liability, undermines recent anti-shelter efforts, and protects abusive tax avoidance.
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New York City property tax owners will find out over the next few months whether they will get a 7 percent property tax cut for the second year in a row, Mayor Michael Bloomberg said on Monday.

New York City’s economy is sliding with Wall Street’s profits and the independent mayor tried but failed to persuade the Democratic-led City Council to take back that property tax cut in the new budget that started on July 1. He and the Council agreed they might have to address that issue again in the coming months.
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The Senate today passed, by a 72-13 vote, the housing stimulus bill (H.R. 3221, The American Housing Rescue & Foreclosure Prevention Act).  The House on Thursday had approved the measure by a 272-152 vote after President Bush earlier in the day dropped his veto threat and urged Republicans to support the bill.  There are four main tax cuts in the $15.1 billion tax package:

* Refundable tax credit for first time home buyers (10% of the purchase price, up to a $7,500 credit)
* Additional standard deduction for real property taxes for non-itemizers ($500 single/$1,000 joint)
* Expansion of Gulf Opportunity Zone incentives
* Temporary increase in the low-income housing tax credit

The major tax increases in the package are:

* Information returns for merchant payment card reimbursements
* Delay implementation of worldwide allocation of interest until 2011
* Modification of the § 121 exclusion of gain on sale of a principal residence

Contact IRS Tax Attorney Ken Sheppard. He is an Experienced Tax Lawyer who services all 50 states.

Cross-border tax disputes are usually channelled through the “mutual agreement procedure”, an informal negotiation between the tax authorities of the states involved. Arbitration has been suggested as an alternative, and is starting to be instituted. Arbitration will probably be a good “stick” against over-long mutual agreements, but it also seems to exhibit “carrot” features, such as finality, independence and greater taxpayer support.

This article describes the developments and analyses the options that countries face. In the Australian context, the transfer pricing litigation environment and the FIN 48 accounting standard are considered, and the author calls on the Australian government to invite submissions on the prospect of arbitration clauses in Australia’s tax treaties.
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