April 7, 2014
The parties resisting summons enforcement have filed their brief in the Supreme Court in Clarke responding to the government’s opening brief. Underlying the two sets of briefs is a fundamentally different perspective on the significance of holding an evidentiary hearing at which the agent issuing the summons can be questioned about his motives. For the government, such a hearing is a big deal, and the courts should not impose that burden on the IRS on the basis of a mere allegation of an improper purpose. For the summoned parties, such a hearing is a very limited intrusion that must be … Read More
April 4, 2014
The Commissioner filed his brief in the BMC Software case last week. The brief hews closely to the Tax Court’s decision below. The brief primarily relies on the parties’ closing agreement and trumpets the finality of that agreement.
The Commissioner argues that BMC’s problem is of BMC’s own making—BMC chose to avail itself of the relief available under Rev. Proc. 99-32 and signed a closing agreement under which the accounts receivable were deemed established during the relevant testing period for the related-party indebtedness rule under section 965. And as if to suggest that BMC deserves the reduction in its section … Read More
March 25, 2014
The Supreme Court today ruled 8-0 in favor of the government in the long-running Quality Stores litigation, holding that severance payments are taxable FICA wages, even if they fall within the category of “supplemental unemployment compensation benefits” that are subject to income tax withholding under Code section 3402(o). See our prior coverage here. The Court’s opinion closely tracks the arguments made by the government in its brief.
The Court began by analyzing the definition of “wages” in the FICA statute, which it repeatedly characterizes as “broad.” That defintion — “remuneration for employment” — appears to encompass the payments at … Read More
March 3, 2014
The government has filed its opening brief in Clarke. The brief, which is quite short for a Supreme Court brief, hews closely to the arguments made in the petition for certiorari. As we noted in our previous report, the government and the parties resisting summons enforcement took a very different view at the petition stage of the quantum of evidence that formed the basis for requiring the evidentiary hearing in this case. The private parties contended that they had made “substantial allegations” that the summonses were for an improper purpose, while the government referred to those allegations as … Read More
February 27, 2014
The government has filed its opening brief in MassMutual contesting the Court of Federal Claims’ conclusion that the taxpayer could accrue the amount of certain policyholder dividends in the year before they were paid. See our prior post on this case and the New York Life case here. The government’s brief raises three distinct objections to the decision.
The primary argument is that the liability to pay the dividends was not “fixed” under the all-events test. The government contends that no individual obligation was fixed at the close of the year, even if all the premiums had been paid, … Read More
Briefing Underway in Barnes as Second Circuit Considers Application of Step-Transaction Doctrine to Impose Dividend Treatment on Movement of Foreign Cash
February 21, 2014
In Barnes Group v. Commissioner, the Tax Court (Goeke, J.) looked askance at the taxpayer’s strategy for minimizing the tax consequences of a movement of foreign cash to U.S. affiliates. As the taxpayer explained it, its foreign subsidiary in Singapore had excess cash and borrowing capacity that Barnes wanted to use to finance international acquisitions. For the time being, however, there was no suitable acquisition target, and the cash was earning only 3% in short-term deposit accounts while it could have been used more profitably in the U.S. to reduce Barnes’s expensive long-term debt. Barnes hired PricewaterhouseCoopers to help … Read More
February 12, 2014
The Federal Circuit is preparing to consider a government appeal in Massachusetts Mutual Life Ins. Co. v. United States, on an issue involving accrual of annual dividends paid by a mutual insurance company to its policyholders. This issue was also recently addressed by the Second Circuit, and it turns on an application of the “all events test.”
First, a quick refresher course. The “all events test” is described as the “touchstone” for determining when a liability has been incurred and a deduction can be accrued. Dating back to United States v. Anderson, 269 U.S. 422, 441 (1926), and … Read More
February 12, 2014
Yesterday, the D.C. Circuit unanimously held in Loving v. IRS, that the IRS lacks statutory authority to regulate tax-return preparers. See our previous coverage here. In its February 11 decision, the court characterized the IRS’s interpretation as “atextual and ahistorical,” and, more humorously, as a large elephant trying to emerge from a small mousehole.
In 2011, the IRS for the first time attempted to regulate tax-return preparers, issuing regulations requiring that paid tax-return preparers pass an initial certification, pay annual fees, and complete at least 15 hours of continuing education courses each year. The IRS estimated that the … Read More
February 3, 2014
The Supreme Court has granted certiorari in United States v. Clarke, No. 13-301, to explore the circumstances under which an entity is entitled to an evidentiary hearing before an IRS summons is enforced, so that it can question IRS officials about their motives for issuing the summons. The parties’ different views of the case are aptly captured by the dueling questions presented. The government says the case presents the question “whether an unsupported allegation” that the IRS issued a summons for an improper purpose entitles an opponent to examine IRS officials at an evidentiary hearing. The entities contesting … Read More
January 31, 2014
The Fifth Circuit has finally issued its opinion in NPR (as reflected in our prior coverage, this case was argued almost two years ago), a case involving a Son-of-BOSS tax shelter in which the district court absolved the taxpayers of penalties. The taxpayers were not as fortunate on appeal, as the Fifth Circuit handed the government a complete victory.
The court’s consideration of the two issues before the court of broadest applicability were overtaken by events — specifically, the Supreme Court’s December 2013 decision in United States v. Woods. See our report here. In line with that … Read More