Paul L. Caron
Dean
Pepperdine Caruso
School of Law
New Cases
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IRS Loses Billion Dollar Transfer Pricing Case
The IRS lost a billion dollar § 482 transfer pricing case yesterday. Veritas Software Corp. v. Commissioner, 133 T.C. No. 14 (Dec. 10, 2009): P entered into a cost-sharing arrangement with S, its foreign subsidiary, to develop and manufacture storage management software products. Pursuant to the cost-sharing arrangement, P granted S the right to use certain preexisting…
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Mob Role in NYC Strip Club Excuses Responsible Person’s Back Tax Liability
In today's New York Law Journal, Mob's Role in Strip Club Excuses Taxes, Judge Says: The estate of a businessman held to be responsible for taxes on a once-prosperous Manhattan strip club does not have to pay more than $4 million in back taxes because the club became so thoroughly infested by organized crime that…
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Supreme Court Grants Cert. in UC-Hastings Christian Legal Society Case
The U.S. Supreme Court today agreed to hear an appeal from a 9th Circuit decision upholding UC-Hastings College of Law's decision to deny student-activities funds and official recognition to a Christian Legal Society student group on the ground that the group's refusal to allow gay and lesbian members and officers violates the school's antidiscrimination policies. Christian Legal…
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Tax Court Allows Nurse to Deduct Cost of University of Phoenix MBA
The Tax Court yesterday allowed a nurse to deduct the cost of an M.B.A. degree from the University of Phoenix. Singleton-Clarke v. Commissioner, T.C. Summ. Op. 2009-182 (Dec. 2, 2009) (citations omitted): Petitioner began taking courses at the University of Phoenix in March 2005, graduating in April 2008 with an MBA/HCM. She chose the University…
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Government Challenges Expert Testimony of David Weisbach & Ethan Yale in Son of BOSS Tax Shelter Case
There is an interesting Son of BOSS tax shelter case in Texas involving billionaire investor Andrew Beal, who is seeking to have two Tax Prof luminaries, David Weisbach (Chicago) and Ethan Yale (Virginia), testify as expert witnesses over the objection of the Government: Expert Report of David A. Weisbach (May 2, 2008) Expert Report of Ethan Yale (May 2, 2008)…
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7th Cir. Joins 5th Cir. & 11th Cir. in Ruling for Taxpayer in Ballard – Kanter – Lisle, Orders Tax Court to Adopt Special Trial Judge’s Report
The 7th Circuit yesterday joined the 5th Circuit (Estate of Lisle v. Commissioner, 541 F.3d 595 (5th Cirr. 2008)) and 11th Circuit (Ballard v. Commissioner, 522 F.3d 1229 (11th Cir. 2008)) in the long-running Ballard, Kanter, and Lisle saga in reversing tha Tax Court and remanding the case back to the Tax Court with instructions…
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Federal Judge Orders IRS to Release Documents Held by Whistleblower Office
Forbes, IRS Ordered To Surrender Informant Documents; Federal Judge's Ruling in California Monex Case Undercuts IRS Whistleblower Office: In an unusual decision, a federal judge on Tuesday said he would order the IRS Service to give 25 boxes of whistleblower-provided documents to lawyers for a California precious-metals firm fighting an old but large tax bill. Magistrate…
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Tax Court Awards $323k in Attorneys’ Fees to Two Kersting Tax Shelter Investors Because of IRS Misconduct
The Tax Court on Wednesday awarded $322,693 in attorneys' fees (after a 33.3% reduction for "overlawyering") and $15,290 in expenses under § 6673(a)(2)(B) to two Kersting tax shelter investors (Kersting v. Commissioner, T.C. Memo. 1999-197 (June 17, 1999)) for expenses incurred during the remand proceedings stemming from IRS misconduct. Hongsermeier v. Commissioner, T.C. Memo. 2009-273 (Nov. 25, 2009).…
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Court: Parents Who Cash in IRA to Pay for Kid’s College Not Subject to 10% Penalty
The Tax Court yesterday held that parents who withdrew $110,691 from their IRA were not subject to the 10% early distribution penalty on the portion used to pay their daughter's room and board at Michigan State under the higher education exception of § 72(t)(2)(E). But the 10% penalty applied to the remaining portion that was…
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11th Circuit Hears Oral Argument Today in Wesley Snipes’ Tax Appeal
The 11th Circuit hears oral argument at 9:00 a,m, in actor Wesley Snipes' appeal of his conviction on three misdemeanor tax fraud counts. The panel is Judge Stanley Marcus (a "movie buff') and Senior Circuit Judges R. Lanier Anderson (a former tax lawyer) and Peter Fay. Update: The AAssociated Press reports on the oral argument here.
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Court Lacks Jurisdiction to Order IRS to Apologize to Taxpayer
The Tax Court yesterday ruled that it lacks jurisdiction to order the IRS to apologize to a taxpayer. Caldwell v. Commissioner, T.C. Summ. Op. 2009-169 (Nov. 18, 2009): The part of Caldwell's motion which we characterize as a "Request for Apology" asks that we require the IRS to enter into the record "a written apology to the…
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10th Circuit Hears Oral Argument Today in Sala Son-of-BOSS Tax Shelter Case
The Tenth Circuit today hears oral argument in the Government’s appeal of Sala v. United States, No. 08-1333, a Son-of-BOSS tax shelter case.
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Tax Court Applies Cohan Rule to Allow Deduction for Portion of Unsubstantiated Charitable Contributions
The Tax Court on Wednesday applied the Cohan rule and allowed a portion of a taxpayer's unsubstantiated charitable contributions. Ragassa v. Commissioner, T.C. Summ. Op. 2009-166 (Nov. 10, 2009): Petitioner deducted $3,175 in charitable contributions on Schedule A, Itemized Deductions, for 2005. Respondent disallowed the entire amount as not being made to a qualifying organization.…
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5th Circuit Disallows “Midco” Tax Shelter
The Fifth Circuit yesterday affirmed the district court's grant of summary judgment to the IRS, becoming the first appellate court to disallow a "midco" tax shelter. Enbridge Energy Co. v. United States, No. 08-20261 (5th Cir. Nov. 10, 2009): The uncontroverted evidence supports the district court’s conclusion that this was a sham conduit transaction, and…
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Supreme Court Grants Cert. in Commerce Energy
The U.S. Supreme Court today granted certirorari in Levin v. Commerce Energy Inc., No. 09-223. Here are the questions presented: Did Hibbs v. Winn, which addressed the scope of the Tax Injunction Act's bar against federal cases seeking to enjoin the assessment and collection of state taxes, eliminate or narrow the doctrine of comity–applied in Fair Assessment…
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DOJ Charges Seven With Seeking $562m of Bogus Tax Refunds
The Justice Department has filed lawsuits against seven people accused of seeking $562 million in bogus tax refunds (including one refund claim of $210 million for a single customer). From the Department of Justice Press Release: Under the tax fraud scheme, known as the “redemption” or “OID redemption” scheme, participants file a series of false IRS…
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Tax Court: Payment to Withdrawing Holland & Knight Tax Partner Constituted Ordinary Income, Not Capital Gain
The Tax Court yesterday held that an $80,000 payment a tax partner (Donald W. Wallis) received on separating from Holland & Knight was taxable as ordinary income, not as capital gain, and upheld an accuracy-related penalty, but found that the IRS failed to prove that an additional $32,721 payment he received for his capital account exceeded his basis. Wallis v. Commissioner, T.C.…
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Court of Federal Claims Upholds Con Ed’s LILO Transaction
The Court of Federal Claims yesterday upheld a a LILO transaction in a 159-opinion, distinguishing BB & T Corp. v. United States, No. 04-094 (M.D.N.C. Jan. 4, 2007), aff’d, 523 F.3d 461 (4th Cir. 2008); and AWG Leasing Trust v. United States, 592 F. Supp. 2d 953 (N.D. Ohio 2008). Consolidated Edison Co. v. United States,…
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Union Carbide and the Research Tax Credit
Charles Medallis (KPMG) & Leonard "Jay" Hite (KPMG) have posted Union Carbide: Good News and Guidance on the Research Credit, 125 Tax Notes 213 (Oct. 12, 2009), on SSRN. Here is the abstract: This article suggests that the news may actually be good for taxpayers that engage in manufacturing process research, including those companies that must…
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California Court Upholds 1% Tax on Millionaires
The California Court of Appeals rejected a taxpayer's constitutional challenge to Proposition 63, which imposed a 1% tax on annual incomes in excess of $1 million to fund state mental health services. Jensen v. California Franchise Tax Board, No. B211815 (Ct. App. Oct. 14, 2009): We find no constitutional infirmity in the challenged portions of Proposition 63. An…
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D.C. Circuit: AMT Trumps Tax Treaty
The D.C. Circuit on Friday affirmed a Tax Court decision (T.C. Memo. 2008-118) that the § 59(a)(2) limitation of the foreign tax credit to 90% of the taxpayer’s AMT liability trumped the U.S.-Canada tax treaty. Jamieson v. Commissioner, No. 08-1253 (D.C. Cir. Oct, 16, 2009).
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Impact of Castle Harbour in G-I Holdings
Following up on Friday's posts (Taxpayer Wins Again in Castle Harbour Remand; 2d Circuit Likely to 'Slap the Trial Court Down Again' in Castle Harbour): the parties awaiting the court's decision in G-I Holdings, 369 B.R. 832 (D.N.J. 2007), have filed letters with the court explaining the impact of the latest Castle Harbour decision: Letter From Counsel For Debtors…
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2d Circuit Likely to ‘Slap the Trial Court Down Again’ in Castle Harbour
Following up on this morning's post, Taxpayer Wins Again in Castle Harbour Remand: Bloomberg, GE Wins Round in IRS Court Fight Over Leasing Deal, by Jesse Drucker & Ryan J. Donmoyer: General Electric Co. won a round in a long-running battle with the IRS over tax benefits from a partnership structure similar to one used by Merck…
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Taxpayer Wins Again in Castle Harbour Remand
Castle Harbour v. Commissioner, No. 3:01cv1839 (D. Conn. Oct. 8, 2009): In 2001, TIFD III-E Inc. (“TIFD III-E”) sued the United States of America to recover approximately $62 million that TIFD III-E deposited with the Internal Revenue Service (“I.R.S.”) in satisfaction of an alleged tax liability. That tax liability arose from the I.R.S.’s determination that…
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D.C. Court of Appeals Rejects Disbarment Request in Tax Case
The D.C. Court of Appeals on Thursday unanimously rejected the disbarment recommendation from the D.C. Board on Professional Responsibility and instead imposed a five-year license suspension on lawyer Henry Uscinski Jr.and remanded the case for further proceedings regarding whether the underlying offense involved moral turpitude. In re Henry J. Uscinski, No. 03-BG-414 (D.C. Ct. App. Oct.…