Section 6676 and Section 6694 penalties on refund claims but what is the applicable standard?

A slow week in tax litigation caused my eye to wander back to the 2007 Small Business Act, (the “Act”) and the imposition of penalties on refund claims.

As we are all aware prior to the Act, there was no applicable addition to tax on a refund claim because there was no deficiency to impose a penalty on. In the Committee Reports, the Act set forth the reasons why penalties needed to be sought but the applicable standard is not what it appears to be.

As can be gleamed from the standard to be applied the penalty is yet another front on the tax shelter wars. The interesting question becomes - are the sections with its new standard a barrier to a taxpayer’s right to either Federal District Court or the Court of Claims?
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Bakersfield Energy Partners, LP v. Commissioner, 128 T.C. No. 17 (2007). The IRS goes for the trifecta and loses.

The IRS had some “notable” wins in Kligfeld Holdings et al. v. Commissioner; 128 T.C. No. 16 (2007) and G-5 Investment Partnership v. Commissioner, 128 T.C. No. 15 (2007) but a win in Bakersfield would have made every partner in a partnership potentially subject to a six year statute. Yes, the IRS was focused on tax shelters but its argument had applications far greater than those partners involved in tax shelters. Thus, Bakersfield was the crown jewel in the battle as to the statue of limitations and the IRS lost. Continue Reading...

Stein, Coplan, and Sala - Criminal and Civil cases bang into each other. The question becomes what does this all mean?

We have heard that the Government state that the United States v. Stein, et al. is the “largest criminal tax case in American history”. United States v. Stein, 452 F. Supp. 2d 230, 237 (S.D.N.Y. 2006). Now because of the ruling in Stein v. KPMG, LLP --- F.3d ----, 2007 WL 1487822, (2d Cir. 2007), the largest criminal tax case in American history is on the verge of dismissal. Is this stopping the government from pursuing tax shelters criminally? Absolutely not just ask the defendants in United States v. Coplan, et al.

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Kligfeld Holdings et al. v. Commissioner; 128 T.C. No. 16 (2007) - Rhone-Poulenc v. Commissioner, 114 T.C. 533 (2000) taken to the extreme. Is this really what the Commissioner wants?

The long awaited opinion finally came out and length is an appropriate term but not in terms of pages but rather what the opinion has to say about TEFRA and the statute of limitations.

Footnote 20 of the opinion reflects the Commissioner’s views as to TEFRA and the statue of limitations as follows:

“The Court: The Kligfelds, they take the life-enhancing serum, they don't get rid of their distributed partnership property until 2100. They got the property in 1999. The IRS says inflated basis, partnership item, we're going to issue an FPAA for 1999, even though now it's January of 2100. Kosher?
IRS Counsel: Yes, I believe that is the case, your Honor”

The question is did the Court agree? The answer appears to be yes.

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