Category Archives: Penalties

Federal Tax Advisory: An Unusual F/D(?) Reorganization

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This advisory discusses IRS LTR 201406005, which evidently blessed as an F or D reorganization the transfer by a subsidiary of all of its assets to its parent corporation, despite the fact that the parent had previously bought an asset from its parent by assuming a liability greater than the value of the asset.

The full advisory is provided on the Alston & Bird website: http://www.alston.com/advisories/fed-tax-march-2014/

Federal Tax Advisory – Tax Officer Failed to Write His Own Opinion

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This advisory discusses how the Tax Court applied the economic substance doctrine in Gerdau MacSteel, Inc., 139 TC No. 5 (August 30, 2012), and denied penalty relief in a liability management company “tax shelter” case because the company’s tax department failed to either obtain an outside opinion or write its own. The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/federal-tax-advisory-federal-tax-report-october-2012 [...]Read more

International Tax Advisory: The Seventh Circuit Applies Required Records Doctrine to Foreign Bank Account Records, Overriding Claim of Fifth Amendment Privilege

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This advisory discusses a recent decision by the Seventh Circuit Court of Appeals, where the court held that the Required Records Doctrine (RRD or the “doctrine”) compelled production of subpoenaed foreign bank account records, which were required to be maintained under the Bank Secrecy Act. The district court had quashed the subpoena, concluding that it would violate the Fifth Amendment privilege against self-incrimination. The government appealed, and the court of appeals reversed the lower court’s order. The advisory is provided in PDF on the Alston & Bird website: www.alston.com/advisories/international-tax-advisory-september-2012 [...]Read more

International Tax Advisory – U.S. Treasury Releases Model FATCA Intergovernmental Agreement

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In February 2012, Treasury issued a joint statement with France, Germany, Italy, Spain and the United Kingdom regarding plans for an intergovernmental approach to implement the Foreign Account Tax Compliance Act (FATCA). FATCA, a part of the Hiring Incentives to Restore Employment Act of 2010, provides for a withholding tax to enforce reporting requirements for certain U.S.-owned foreign accounts. Under FATCA, a withholding agent must withhold a 30 percent tax on any “withholdable payment” to a foreign financial institution (FFI) or nonfinancial foreign entity that fails to disclose [...]Read more

Home Concrete Decided: Taxpayer Wins

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On April 25, 2012 the Supreme Court ruled that the overstatement of the basis of property sold, resulting in a substantial understatement of gain, is not an omission from gross income, and so the three year and not the six year statute of limitations applied to the taxpayer’s assessment, meaning the assessment came too late. United States v. Home Concrete & Supply, LLP, 2012 U.S. LEXIS 3274, affirming, 634 F.3d 249 (4th Cir. 2011). Stare Decisis. The plurality opinion of Justice Breyer relied squarely on Colony, Inc. v. Commissioner, 357 U.S. 28 (1958), which appeared to have, and the [...]Read more

Economic Substance Doctrine Defense Plan

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Corporations have become very concerned about “best practices” and “risk management” in the wake of the Enron scandal and enhanced enforcement rules of government agencies and auditing rules of accountants. One way to address those concerns is for corporate boards to adopt guidelines for employees. One area in which such guidelines can be useful is in application of the economic substance doctrine. Fortunately, LB&I has issued a directive providing substantial guidance, albeit non binding, on the substantive issues and potential safe harbors in auditing for the economic [...]Read more

LB&I Directive Softens Economic Substance Doctrine

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It has 5 favorable features: • Examiners cannot apply the ESD in an examination without first proceeding through a relatively extensive and intensive and multilayered process of analysis involving multiple levels of IRS approval. • Until further notice the ESD no fault penalties will not apply to “similar rule of law” cases. • Applying the ESD to all of the steps of an integrated transaction taken together is made the default, and applying it to one or more steps may be limited to steps having only a “minor or incidental relationship” to the transaction, and [...]Read more

Forced Combination Bill Enacted in North Carolina

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The enacted bill is substantially the same as the draft discussed in June 9, 2011 post to this blog. The act is effective for tax years beginning on and after January 1, 2012. The act extends until June 30, 2012 the date for a DOR Final Determination on an appeal under the current forced combination section now pending.   The act reflects two overriding features of an apparent compromise between foreign corporations that lobbied heavily with respect to the bill and the DOR:             (1)        The [...]Read more

N.C. Forced Combination Bill

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The elements of the bill are as follows: Repeal the existing forced combination section 105-130.6 and the parts of 105-130.16 that contain broad, if vague, authority in the Secretary to do other things to find “true income.” Put all such, and other, powers in new section 105-130.5A. Create a new special discovery power in the Secretary as to intercompany transactions, with a 90 day response time. Based on information provided (not clear what happens if Secretary acts on information obtained elsewhere), Secretary can act upon (1) intercompany transactions that either (2) lack “economic [...]Read more

International Update: FATCA, FBAR, Voluntary Disclosure

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To provide guidance to those subject to FATCA, the IRS issued Notice 2010-60 on August 27, 2010 (the “2010 Notice”), and Notice 2011-34 on April 8, 2011 (the “2011 Notice”).  The 2010 Notice provided general information about FATCA and the 2011 Notice provided more detailed guidance, including information on the concepts of “pass-thru payments” and “deemed-compliant FFIs.”  In recent weeks, IRS officials have attended various meetings of tax professionals to provide more insight about FATCA and to defend the new withholding regime as an [...]Read more