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Suspect Transactions (?)

It is axiomatic that a transaction between related businesses – i.e., businesses that are owned or controlled directly or indirectly by the same interests (a “controlled group”) – will generally be subject to heightened scrutiny by the IRS to ensure the transaction was not undertaken or structured for the purpose of gaining an improper tax advantage.

For example, when the IRS determines that related businesses have engaged in a transaction that lacked economic substance or a bona fide business purpose, but which generated a tax benefit, the IRS may, depending upon the facts and circumstances, void the transaction as a sham, collapse into one integrated transaction the ostensibly separate steps implemented by the related businesses, or ignore the form of the transaction to focus on its economic result, for the purposes of establishing the correct tax treatment of the transaction and ascertaining each business’s proper tax liability.[i]

Continue Reading Reallocating the Payment of Income Between Controlled Taxpayers – What if the Payment is Prohibited?
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Abusive Arrangements

As part of its enforcement efforts, the IRS annually identifies what it describes as potentially abusive transactions that taxpayers should avoid.[i] According to the agency, some of these transactions are focused on more complex arrangements that promoters market to higher-income individuals. The IRS has stated that such arrangements will likely attract additional agency compliance efforts in the future; in other words, they are on the IRS’s “enforcement radar screen.”

Among these suspect tax-motivated transactions, the IRS has included so-called “monetized installment sales” (“MIS”),[ii] which the agency claims involve the inappropriate use of the installment sale rules[iii] by a seller who, in the year of a sale of property, effectively receives the sales proceeds through purported loans.

Continue Reading Another Setback for Monetized Installment Sales?
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Determining Tax Deficiencies

As we discussed a few weeks ago,[i] the IRS is charged with enforcing the U.S. federal tax laws; i.e., it is responsible for processing tax returns and for collecting taxes. As part of its collection function, the agency may examine a taxpayer’s books, accounts, financial and other records to ensure that the information included on the taxpayer’s return for a tax year was reported correctly, and to verify that the reported amount of tax was correct.

Continue Reading Visiting the Sins of the Tax Preparer Upon the Taxpayer? The Fraud Exception to the Limitations Period on Assessment
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The Latest

Last week, an amicus brief was filed with the First Circuit Court of Appeals in support of a taxpayer’s[i] challenge to the U.S. Tax Court’s dismissal of the taxpayer’s petition[ii] for lack of jurisdiction. The Tax Court determined that the taxpayer failed to satisfy the statutory requirement that a petition be filed with the Court within 90 days after the IRS mails a Notice of Deficiency to the taxpayer if the taxpayer wants to challenge the asserted deficiency in the Tax Court.[iii]

Continue Reading Will Congress Extend the Statutory Period For Filing a Petition With the U.S. Tax Court?
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“State” of the Law

A quick review of the cannabis landscape[i] reveals that most of the tax-related activity remains at the state level. At present, most states have decriminalized the use of cannabis products; it remains illegal in only a handful. Approximately half the states permit the recreational use of such products, and almost all allow some form of medicinal use.

The taxes imposed by States in which recreational use is legal vary; for example, some tax on the basis of weight, others on the basis of THC content. Regardless of the method used, the goal is almost always to raise funds to combat addiction.

Continue Reading Cannabis Business and the QBI Deduction
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Rules

  • Winston: Two rules that cannot be broken, Jonathan. No blood on Continental grounds, and every marker must be honored. Now, while my judgment comes in the form of excommunicado, the High Table demand a more severe outcome if their traditions are refused.
  • John Wick: I have no choice?
  • Winston: You dishonor the marker, you die. You kill the holder of the marker, you die. You run, you die. This is what you agreed to, Jonathan. Do what the man asks. Be free. Then, if you want to go after him, . . .  be my guest. But until then . . .
  • John Wick: Rules.
  • Winston: Exactly. Rules. Without them, we’d live with the animals.[i]

In the fictional world of John Wicks, the High Table enforces a strict code of conduct[ii] without which the lives of its inhabitants would mimic life in a Hobbesian state of nature.[iii]

However, as dangerous and as rule-bound as life “under the Table” appears to be, it pales in comparison, both in terms of numbers and complexity, to the rules that have been promulgated for the administration of the U.S. federal system.

Continue Reading Responding Timely to A “90-Day Letter” – Is It Jurisdictional?
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C Corp
Imagine a closely held and growing start-up business (“Corp”) that was recently incorporated under state law and, so, is treated as a regular C corporation for purposes of the federal income tax.[i]

Thus, Corp will pay income tax on its taxable income,[ii] and the losses generated in Corp’s first few years of operation – not uncommon with a start-up – will be trapped within Corp and cannot be passed out to Corp’s shareholders for their own use.[iii]

Continue Reading Gifting Qualified Small Business Stock – Can You “Stack” the Section 1202 Odds In Your Favor?
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In the tax world, when someone refers to a “charitable” organization, it is likely they are using the term in its generally accepted legal sense to include not-for-profit corporations or charitable trusts that are organized and operated “exclusively”[i] for religious, charitable,[ii] scientific, literary, educational, or other specified purposes.[iii]

Continue Reading The Uncharitable Treatment of Tax-Exempt Charities? Maybe, Maybe Not
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Not Long Ago

In the months preceding the general election in 2024, the owners of many closely held businesses who had not yet given much thought to the disposition of their future estates, including their businesses,[i] decided they should meet with their attorneys and other advisers[ii] to see what steps they should consider taking to protect their wealth, which in many, if not most, cases resided primarily in their business.

What prompted many of these owners to act was a sense of urgency arising from the realization that the federal transfer tax[iii] benefits and other tax benefits made available to them by the 2017 Tax Cuts and Jobs Act[iv] were going to expire after 2025 (perhaps sooner);[v] these included the enhanced unified estate and gift tax basic exclusion amount,[vi] the increased generation-skipping transfer tax exemption amount,[vii] the reduced top marginal income tax rate for ordinary income,[viii] and others.

Continue Reading The Enactment of OBBBA: It’s Time to Plan, Not Relax – “Winter is Coming”
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Conformity

New York’s personal income tax law, like that of other states, conforms with the federal system of income taxation.[i] The reason typically given for such conformity is to simplify tax return preparation, improve compliance and enforcement, and aid in the interpretation of tax law provisions.[ii]

The most significant example of New York’s conformity to the Code[iii] is found in the state’s computation of a resident taxpayer’s state income tax liability, which begins with the taxpayer’s federal adjusted gross income, and is then modified by certain additions and subtractions which reflect New York’s unique tax treatment of certain items.[iv]

A corollary to the conformity principle requires that any changes to the taxpayer’s federal adjusted gross income[v] be accounted for in re-determining the taxpayer’s New York income tax liability.

Continue Reading Drop & Swap Like-Kind Exchange Passes Muster in New York