Prose by Tax Pros - Another Article by Hale E. Sheppard

The IRS has been using claims of “technical” problems as its primary weapon in attacking conservation easement donations. This often means identifying shortcomings with Deeds. In an effort to eliminate tax disputes centered on technicalities and get focused on valuation instead, groups have been asking the IRS to issue guidance for years. The IRS did not react until Congress recently forced it to...

Disputes will arise when Congress enacts a tax incentive, it orders the IRS to supply details via regulations, the IRS publishes Notices instead, the Notices contemplate participation by multiple parties and the liberal allocation of tax benefits among them, the IRS issues guidance over the years echoing the Notices, and then the IRS suddenly changes its tune. This is exactly what has occurred whe...

This article does the following: Explains the economic substance doctrine and the reasons why Congress codified it, summarizes IRS guidance over the following decade, reviews the authorizing Revenue Agents to challenge economic substance without first obtaining executive approval, identifies sources demonstrating that attacks on economic substance are on the rise, and highlights obstacles that the...

The IRS is now carrying out various enforcement campaigns. This has increased interest by taxpayers in pro-actively approaching the IRS to resolve matters on the most favorable terms possible. The IRS offers multiple programs designed to allow taxpayers to rectify specific types of non-compliance, but it has just one general program covering all types of violations, even those involving willful or...

Certain U.S. individuals who cease their relationship with the United States must pay an “exit tax.” One major problem is that some taxpayers intentionally fail to file Form 8854 (Initial and Annual Expatriation Statement) to notify the IRS of their departure, keep a low profile for a few years, and thus dodge the exit tax. Other taxpayers, particularly so-called accidental Americans, do not maint...

Taxpayers always give heaps of confidential data to the IRS when they file their mandatory tax returns and information returns, and the IRS always has a legal duty to safeguard such data. Taxpayers sometimes become victims of improper disclosures, and the IRS sometimes gets punished for its transgressions. This article introduces key legal concepts, data-protection duties of the IRS, manners by wh...

The IRS sometimes utilizes aggressive tactics to convince taxpayers to concede cases without significant resistance. Unbeknownst to many taxpayers, they have a powerful tool for evening the proverbial playing field with the IRS: Making a so-called “Qualified Offer.” The basic notion is that if the IRS ignores or rejects a Qualified Offer, the case goes to trial, and the court ultimately rules that...

Imagine a world where you could create a retirement plan in a foreign country with which you have no affiliation, contribute appreciated property to such plan without triggering immediate taxation, face no limitations on the amount or source of contributions you can make, defer taxes on the accretion inside the plan, start taking distributions as early as age 50, and avoid tax on the majority of t...

After courts held that the IRS violated the law when it issued Notice 2017-10 classifying syndicated conservation easement transactions (“SCETs”) as “listed transactions,” the IRS scrambled to salvage the situation. In particular, it released Proposed Regulations in December 2022, which centered on information-reporting requirements for those involved with SCETs. About three weeks later, Congress...

The IRS has long used mandatory disclosures by taxpayers on Form 8886 (Reportable Transaction Disclosure Statement) to discourage participation in reportable transactions and carry out enforcement campaigns. The IRS has taken a different approach in the past, though, when it comes to taxpayers taking positions on returns that might be considered aggressive, novel and/or divergent from existing gui...

Many taxpayers have strong support for positions they take on their returns, but their limited understanding of complicated tax procedures sinks them. Missing deadlines, using improper forms, sending materials to the wrong place, not getting all required signatures, and other errors can be deadly to taxpayers. The IRS is aware this reality and it often attempts to claim victory and dispense with c...

Battles between taxpayers and IRS about whether certain workers should be treated as employees or independent contractors are constant. The procedures applicable to such disputes change frequently, though. For example, Congress and the IRS have modified the rules related to particular types of employment tax fights in Tax Court several times over the past two decades, with the most recent adjustme...

The IRS has been attacking syndicated conservation easement transactions (“SCETs”) for more than half a decade. These disputes often involve prolonged audits, Appeals Office conferences, Tax Court trials, and appellate litigation. Such procedures can have a huge cost, not only to the partnerships, but also to the IRS and the entire judicial system. For instance, even after diverting lots of person...

The article summarizes the rules affecting conservation easement donations, identifies the “technical” arguments on which the IRS has heavily relied, describes newer attacks by the IRS focused on appraisals, analyzes multiple sources supporting valuation of real property based on its highest and best use, and suggests that the IRS has failed to adequately explain why it, taxpayers, and/or the cour...

Business has evolved more quickly than tax law, and this has led the IRS to take conflicting positions about the meaning of “limited partner.” The IRS is characterizing this term broadly or narrowly in different contexts in furtherance of its goal of always maximizing tax revenue. When it comes to the passive activity loss rules in Section 469, the IRS argues that “limited partner” must...

Voluntary compliance is a hallmark of the U.S. tax system; taxpayers are expected to proactively file all returns with the IRS and pay all amounts due. Many taxpayers fail to meet that commitment, of course. This is where whistleblowers come into play. If they can provide data to the IRS that leads to the collection of taxes, penalties, and interest from non-compliant taxpayers, the...

Tax disputes with the IRS can last a very long time, even under normal circumstances. The duration of these battles increased because of the Coronavirus. These holdups cause taxpayers ongoing anxiety and uncertainty. They also hurt taxpayers financially, as interest charged by the IRS continues to accumulate while the fighting ensues. Taxpayers aware of this economic reality of...

When engaged in a tax dispute with a partnership, the IRS wants to gather as much data as possible from all sources, including the partners. A major impediment for the IRS is that its ability to contact partners directly (during an audit, an administrative appeal, or in preparation for Tax Court litigation) can be limited or prohibited altogether. This has not stopped the IRS from trying...

Taxpayers in tax disputes with the IRS can seek judicial review in any one of three courts, but they often choose the Tax Court. This makes sense because the Tax Court is favorable to taxpayers in many ways. For instance, the parties must work cooperatively to exchange evidence, narrow issues, and agree on facts, and pre-trial discovery demands are often minimal. Things have started...

Creating foreign entities to safeguard assets is not necessarily problematic for U.S. taxpayers, but failing to characterize them appropriately sure is. Taxpayers have utilized foreign vehicles called “stiftungs” for decades. Various court decisions and administrative rulings over the years have concluded that certain stiftungs should be treated as trusts. This triggers the duty for taxpayers to f...

The IRS believes that certain partnerships that donate conservation easements are using inflated appraisals to claim excessive tax deductions. The partnerships disagree, and battles ensue. They often entail prolonged audits, administrative appeals, and Tax Court trials. All this fighting has a large cost to the IRS, the partnerships, and the judicial system. The enclosed articl...

The IRS has drastically changed its procedures for reviewing appraisals. It first issued a memo about Section 6695A penalties, which eliminated the multi-level review procedure formerly used to safeguard appraisers against improper penalties and premature disciplinary referrals. Next, the IRS ignored several suggestions from accounting and valuation organizations about potential problems...

According to the IRS, many partnerships have incorrectly treated their owners as “limited partners,” thereby allowing them to escape self-employment (“SECA”) taxes on their distributive shares. The positions taken by partnerships are based on a law enacted in 1977, which has never been updated or clarified, by Congress or the IRS. The broad scope of the “limited partner” exception from t...

The IRS normally must identify non-compliance within a short period, which can be tricky if the relevant matters occurred abroad. Taxpayers who have failed to report worldwide income and assets, either accidentally or on purpose, hope that the proverbial clock runs out before the IRS takes action. This sometimes happens in domestic cases, but much less often in the international context. This arti...

Taxpayers yearn for certainty, as they need it to make intelligent decisions about tax-related issues. Unfortunately, doubt has arisen in connection with Section 179D, a provision that incentivizes taxpayers to make commercial buildings more energy efficient. The unsettled state of affairs can be attributed to attempts by the IRS to disregard its longstanding guidance directly on point.&...