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

The IRS conducts large numbers of audits, the period to complete them is limited, and tax issues are becoming more complex every year. The result is that some Revenue Agents employ aggressive tactics to gather data and prepare reports. One example is issuing Summonses to third parties ( i.e. , somebody other than the taxpayer under audit) seeking data without first granting the taxpayer...

Taxpayers dislike paying taxes once, and they absolutely detest paying them twice. The good news is that U.S. individuals working and/or investing abroad can often mitigate “double taxation” thanks to a few mechanisms, including foreign tax credits and bilateral tax treaties. Qualifying for these benefits can be tricky, of course. One controversial issue has been whether U.S. individuals can use f...

Defeating the IRS is joyous, but winning and then obligating the IRS to pay legal, accounting, expert and other fees is sublime. The mechanism for achieving this elusive double victory is found in Section 7430. This article describes key aspects of fee recoupment under Section 7430, three recent cases, procedural rules on which the IRS depends in issuing notices devoid of meaningful information, a...

Kicking people when they are down is one thing, but doing it repeatedly is another. Several recent cases demonstrate that the IRS is doing exactly that. This process, often referred to as “stacking” penalties, means imposing multiple sanctions against the same taxpayer, for the same year, in connection with the same problem. The article explains common U.S. international tax duties,...

Section 7345 authorizes the IRS, with assistance from the State Department, to deprive individuals with serious tax debts of their passports. Congress passed the law in 2015, the IRS began enforcing it in 2018, and the courts started issuing decisions in 2020. In short, the issues concerning passport deprivation as a tool for tax collection are new and quickly evolving. This article does the “heav...

U.S. taxpayers living, investing or doing business abroad often form corporations in the local country for legitimate reasons. The problem is not establishing the corporations, but rather maintaining full compliance with the IRS thereafter.  This article explains Form 5471 filing duties, stringent standards applied by the IRS and courts, obscure manners in which Form 5471 violations...

The IRS believes that partnerships that engage in SCETs are claiming excessive tax deductions. The partnerships, on the other hand, point to congressional support for over 50 years, large amounts of pre-donation due diligence, full disclosure to the IRS, and reliance on a long list of experts. The two sides simply disagree, which is fine. What is not okay, though, is that in attacking SCETs, the I...

To have success against the IRS, taxpayers must understand substantive tax law and procedure. Too many are clueless about the latter, which ultimately causes their downfall. This article analyzes a recent Tax Court case, Crandall v. Commissioner , using it as a springboard for learning important lessons about the effect of Closing Agreements with the IRS, unique steps in rectifying inter...

Panicked people do not think clearly, and this applies to taxpayers facing large IRS liabilities. Some assume that they can escape unharmed if they can just keep the IRS at bay until they die or if they simply move their assets abroad. These theories sound good, but they are wrong because the IRS and courts have many tools for pursuing tax debts from parties related to deceased taxpayers...

Getting audited by the IRS is bad enough, but having the IRS tell friends, colleagues, employers, clients and others about it can be worse. Unfortunately, the IRS does this on a regular basis through a process called making third party contacts (“TPCs”). Taxpayers often lack knowledge about TPCs, mandatory warnings, exceptions to general notice requirements, opportunities to supply data...

Globalization is triggering more tax disputes with the IRS, and winning such clashes requires knowledge of both substantive international tax law and complicated procedures.

The IRS continues to challenge partnerships that donate conservation easements, implementing extreme enforcement techniques as part of the process. As this article explains, the newest tactic is depriving partnerships of their general right to seek reconsideration by the Independent Office of Appeals before engaging in long, expensive, complicated tax litigation. To maximize their chance...

Substance is important, but procedure is often king when it comes to disputes with the IRS. This is what taxpayers facing large penalties for not reporting foreign accounts have discovered. FBAR duties are not contained in the tax code, yet the quintessential tax agency, the IRS, audits potential violations and asserts penalties. Such disconnect has sparked a number of questions, mo...

The Coronavirus revealed several important things, one of which is how much people crave certainty. Aggressive enforcement actions by the IRS have increased insecurity for many taxpayers, particularly partnerships that donated conservation easements. Seeking certainty, some partnerships obtained tax insurance, and the IRS began attacking in three ways. This article analyzes the atta...

Failure by foreign corporations to file Forms 1120-F (U.S. Income Tax Return of a Foreign Corporation) triggers extreme problems. Specifically, in addition to asserting normal penalties for late filing, late payment, and late information returns, the IRS disallows business-related deductions and credits that corporations normally could claim. Thus, the IRS imposes taxes on gross income,...

Litigation over unreported foreign account is unpredictable. Many rejoiced in 2017 when a District Court determined in Bedrosian v. United States that the taxpayer was not “willful” in failing to declare a large Swiss account. They were down, though, when the same District Court, on remand, reluctantly held that the taxpayer acted “recklessly,” which sufficed. Less than one month later, the govern...

In fighting the battle against offshore tax avoidance, the U.S. government has raised some creative arguments to establish that a taxpayer “willfully” failed to disclose foreign accounts by filing FBARs. These include the concept of “constructive knowledge,” whereby the U.S. government contends that any FBAR violation must be “willful” and thus subject to the highest possible penalty.  This n...

Only two cases have addressed whether partnerships subject to the special proceedings created by the Tax Equity and Fiscal Responsibility Act (“TEFRA”) are able to make a qualified offer. Just one of these cases yielded a decision with precedential value, and it explained that TEFRA partnerships are entitled to file qualified offers. Nevertheless, the IRS seems entrenched in its traditional positi...

A long list of cases over the past decade have centered on the proper definition of “willfulness” in the context of penalties for an unfiled, incomplete, or inaccurate FinCEN Form 114. However, those cases did not address some key issues, including (i) whether the Internal Revenue Service, with help from the Department of Justice, can assess and/or collect penalties after the taxpayer who committe...

The IRS has been riding high recently because of several Tax Court victories on “technical” issues in conservation easement disputes. However, several signs exist that the tide might be turning. One of these is the recent decision by the Eleventh Circuit Court of Appeals in Pine Mountain Preserve, LLLP. This article explains the general rules related to conservation easement donations, critical fa...

The IRS is sending mixed messages when it comes to potential resolution of disputes involving partnerships that engaged in a so-called syndicated conservation easement transaction (SCET). On one hand, the IRS has taken several enforcement actions recently, which make it procedurally  impossible for an individual partner to voluntarily resolve matters with the IRS and remain penalty-free by su...

The IRS takes the stance that any error or omission in connection with Form 8283, regardless of how minor, merits a deduction of $0. The IRS has recently added new layers to this argument. It now contends that some partnerships are not properly accounting for “syndication expenses,” which  leads to unwarranted deductions and/or inaccurate basis information on Form 8283, which impairs the IRS’...

Attention has been focused recently on conservation easement donations, micro-captive insurance, virtual currency, and other “hot” topics. Although not dominating the news cycle any longer, plenty of taxpayers continue hiding foreign assets, and the Internal Revenue Service (“IRS”), with help from the Department of Justice (“DOJ”), still aggressively pursues them. What is remarkable about these in...

Uplifted by some recent Tax Court victories on “technical” issues in conservation easement disputes, and cognizant of the enormous amount of additional cases headed its way in the coming years, the IRS announced a settlement initiative in June. The agency first described the terms of the settlement initiative through two means: a public release and private offer letters to eligible partnerships. N...

This article analyzes the general rules about #iling deadlines and justifications for penalty abatement, the major cases establishing the limits of the reasonable-reliance-on-a-tax-professional defense during the paper-filing era, the new cases applying the original rules to modern times, and other aspects of tax where the rules about the extent of reliance are more flexible.