What is in the Pipeline?

Being that I worked in the IRS’s Office of Chief Counsel for 13 years, the question tends to be asked: What are the issues that the IRS is looking at? My response is usually a shrug because I really do not know how the IRS determines what issues are the “hot issues.” But what I can relay to you is the advice that a very senior and experienced Special Trial Attorney once gave me: “If you want to know the issues that are on the radar screen read the journal.” This blog is not intended as a plug but since that time I have read the daily Tax Notes Reports, the BNA daily reports and the Wall Street Journal. Curiously, his advice has been rather accurate. Continue Reading...

2007 Midyear meeting of the ABA Tax Section

This past week the Tax Section of the American Bar Association held its midyear meeting in Hollywood, Florida. I was able to attend two break-out sessions of interest – Tax Shelters and Court Procedure and Practice. Continue Reading...

RJT INVESTMENTS X, LLC Tax Court's quick visit to the Son-of Boss store

Last April it was noted that the Tax Court had ruled against a taxpayer involved in a Son-Of- Boss case. It turned out the ruling was a one page order issued by Judge Laro. Judge Laro is one of the most respected judges on the United States Tax Court. Thus, a one page dispositive order as to a Son-of Boss case caught everyone’s attention. As suspected the case is now on appeal and the Government’s brief has been posted on Tax Analysts. See 2007 TNT 8-37.
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Mathia et al. v. Commissioner, T.C. Memo. 2007-4 The Importance Of The Stipulation Of Facts.

When I worked at the Office of Chief Counsel, Counsel’s advantage was it knowledge of the stipulation of fact process and Counsels’ appreciation of how the Tax Court viewed the importance of the Stipulation of facts. Succinctly stated, even before the trial started an artfully drafted stipulation of facts may position a party to victory. Mathia et al. v. Commissioner, T.C. Memo. 2007-4 reminds all litigants of the importance of the stipulation of facts process. Continue Reading...

Announcement 2006-100: Appeals Closing Cases Involving Unsettled Listed Transactions

Announcement 2006-100 provides in relevant part:

"When a settlement cannot be reached by the Office of Appeals in a case that is not docketed in the Tax Court, it is expected that the case will proceed to litigation. The Service wants to ensure that it has fully developed the limited number of unagreed cases that involve listed transactions (within the meaning of Treas. Reg. § 1.6011-4) before it sends a statutory notice of deficiency (or other determination notice triggering litigation rights) to the taxpayer. Consequently, the Service is revising its procedures to provide that when the Office of Appeals and the taxpayer are unable to reach a satisfactory settlement in a nondocketed case involving a listed transaction, the Office of Appeals will close out its consideration, notify the taxpayer, and send the case to the appropriate Operating Division for further handling."

Announcement 2006-100 has created quite a stir. For an interesting discussion see Stranton, IRS Officials Defend New Approach to Appeals, Penalties. Vol. 52 TNT No. 13, p. 222 (December 29, 2006). In the article the statement is made: “Indeed some practitioners view the notice as an end run around discovery rules in court.”

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Lease-In/Lease-Out ("LILO") -BB&T Corporation v. United States

During my days working with the Office of Chief Counsel, I was fortunate to be involved in tax shelter litigation. In one of those meetings in Washington, D.C. a former deputy chief counsel uttered the phrase “not all LILO’s are bad”. Reason - LILO’s are factually intense. Surprise! A LILO case was decided through a motion for summary judgment – BB&T Corporation v. United States, 2007 TNT 4-19 (M.D. N.C. 2007).

BB&T, a financial service company, participated in a LILO transaction ("Transaction") with Sodra Cell AB ("Sodra"), a Swedish company, a world-wide manufacturer of wood pulp. The Transaction at issue involved the lease and sublease of the pulp manufacturing equipment (the "Equipment") at one of Sodra's pulp-manufacturing facilities.

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Family Limited Partnerships - Appeals settlement Guidelines

The IRS recently issued its Appeals Settlement Guidelines for Family Limited Partnerships and Family Limited Liability Companies. The guidelines issued cover four separate topics:

(i) whether the fair market value of transfers of family limited partnership or corporation interests, by death or gift, is properly discounted from the pro rata value of the underlying assets;
(ii) whether the fair market value at date of death of Code section 2036 or 2038 transfers should be included in the gross estate;
(iii) whether there is an indirect gift of the underlying assets, rather than the family limited partnership interests, where the transfers of assets to the family limited partnership (funding) occurred either before, at the same time, or after the gifts of the limited partnership interest were made to family members;
(iv) whether an accuracy-related penalty under section 6662 is applicable to any portion of the deficiency.

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Year in Review - Tax shelters and the economic substance doctrine

The Court of Appeals overturned various lower court opinions and the Federal Circuit created yet another legal standard as to the economic substance. In Black & Decker Corp. v. United States, 436 F.3d 431 (4th Cir. 2006), which involved a transfer of stock in exchange, in part, for contingent liabilities, the Fourth Circuit remanded the case back to the lower court for consideration of the economic doctrine test under Rice's Toyota World, Inc. v. Commissioner, 752 F.2d 89, 91 (4th Cir. 1985). In TIFD III-E, Inc. v. United States, 459 F.3d 220 (2d Cir. 2006), overturned the lower court decision based on “the totality-of-the-circumstances”. The 2d circuit cited as authority Commissioner v. Culbertson, 337 U.S. 733, 742 (1949), which is an assignment of income case. But by far the most important case was Coltec Industries, Inc. v. United States, 454 F.3d 1340 (Fed. Cir. 2006). In Coltec Industries, the Federal Circuit Court created a new standard for economic substance.

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Welcome to the Federal Tax Litigation Blog

Welcome to the Federal Tax Litigation Blog. Here you will find commentary on and links to important issues affecting and arising in Federal Tax Litigation. We expect that content will change on a regular basis so you are encouraged to check back often. To view previous posts, you can click on any of the "Topics" listed on the right hand side of the page. Should you have any questions about how to use the Blog or if you have suggestions for improving it, please let us know.