Temporary regulations – not so fast!

An important decision was issued by the Western District of Texas late last month, striking down temporary regulations issued by the Treasury Department in early 2016.  These were the “anti-inversion regulations” aimed at transactions in which a domestic company was acquired by a foreign corporation – although maintaining its headquarters here – in order to lower U.S. taxes.  (The U.S. taxes corporate income earned world-wide, unlike the “territorial” systems used by many other countries.  After an inversion, the U.S. still could tax income earned in the U.S., but could not tax income earned outside the U.S.)  The subject matter of the regulations will likely get most of the attention in the popular press, but there’s a more interesting procedural issue: how does the IRS go about issuing temporary regulations.  Read the rest of this entry »

A New Low Income Tax Clinic in DFW

Here’s an article in Texas Lawyer from a couple of weeks ago about the new Low Income Tax Clinic at Texas A&M University School of Law in Fort Worth.  We officially opened on November 15th, taking calls or emails from prospective clients (817-212-4062 or LITC@law.tamu.edu).  Students will start working in the clinic in January, when the Spring semester starts.

Wells Fargo – the Federal Circuit’s opinion was helpful but . . .

The Federal Circuit issued its decision in the Wells Fargo “interest netting” case on June 29th.  It’s a welcome decision, because the Federal Circuit rejected  the government’s extreme interpretation of the law and ruled for the taxpayer for one of the two scenarios in dispute.  But I found the court’s reasoning unpersuasive with respect to the other scenario.  Arguably, it framed the analysis incorrectly and reached the wrong decision in ruling for the government in that scenario.  As a result, taxpayers will have more opportunities to claim the benefits of interest netting, but less than they would have had under the Court of Federal Claims decision.  Corporate taxpayers should review past interest computations for overpayments and underpayments to identify opportunities for refund claims.

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Tax Court Judges Have to Play by the Same Rules

This particular news item didn’t attract a lot of attention back in April; not surprising, given all the news about politics, the upcoming NFL draft, and the start of the baseball season.  But one of the hot topics of conversation among tax practitioners was the announcement that Diane Kroupa, a former Tax Court judge, was indicted.  The charges include conspiracy, tax evasion, filing false tax returns, and obstruction of an IRS audit.  More details are available in the press release by the U.S. Attorney’s office and the indictment.  Everyone I’ve talked with about it was shocked.

Jack Townsend has some interesting comments on the technical aspects of federal criminal statutes, at his Federal Tax Crimes blog.  For non-lawyers, there are some different lessons from the case.   Read the rest of this entry »

Santander – the taxpayer wins a STARS case (for now)

On November 13th, the District Court in Massachusetts issued its opinion in Santander Holdings USA, Inc. v. Commissioner.  The case involved a “Structured Trust Advantaged Repackaged Securities” (“STARS”) transaction by Sovereign Bancorp, Inc. (predecessor of Santander).  The government earlier won cases involving this transaction against Bank of N.Y. Mellon and American International Group, in the Second Circuit, and Salem Financial (a subsidiary of BB&T) in the Federal Circuit.  There is also a pending case by Wells Fargo in the District Court of Minnesota, which is heading to trial and looks favorable for the government.

The Massachusetts District Court, however, found for the taxpayer in Santander.  It also pushed back a bit against the economic substance doctrine that the government increasingly relies on in tax cases.  We will be watching the case to see what happens on appeal and for possible impact in future cases.

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Penalties for Failure to Disclose Reportable Transactions

The IRS recently issued proposed regulations for the Section 6707A penalty, imposed on taxpayers who fail to make the required disclosures of “reportable transactions.”  Last week, the Tax Section of the State Bar of Texas filed comments in response to those proposed regulations.  Our letter was discussed in a BNA Daily Tax Report article (subscription required) Wednesday.

We normally focus on just a few specific points in our comments, rather than a longer, comprehensive response.  In this instance, we questioned the definition of the base amount for calculating the penalty and also suggested a change to the factors to be considered for possible rescission of the penalty.

New nomination for Tax Court judge

Friday, President Obama announced his nomination of Elizabeth Copeland, a partner at Strasburger & Price, as a judge on the United States Tax Court.  Elizabeth is very highly regarded within the tax community and will be an outstanding judge.  I’ve had the privilege to work with her in the State Bar of Texas Tax Section, where she demonstrated integrity, strong leadership, outstanding professionalism, and a deep commitment to service and to improving the administration of the tax system.

In addition to her incredible qualifications mentioned in the White House news release, I’ve always been particularly impressed by a couple of her achievements in the pro bono arena.  Elizabeth started a Tax Court Pro Bono program – where volunteer attorneys attend trial sessions of the Tax Court and provide advice and assistance to taxpayers who aren’t represented by counsel – for the State Bar of Texas Tax Section.  It was the first state-wide program of its kind.  She also received the American Bar Association Section of Taxation’s Janet Spragens Pro Bono Award in 2009.

Elizabeth is an outstanding choice and I look forward to her early confirmation.