Thursday, June 6, 2024

SCOTUS Affirms That Estate's Value of Closely Held Company Includes Insurance Payout on Key Man Life Policy

The U.S. Supreme Court on June 6, 2024 affirmed a decision denying a tax refund to the estate of an owner of a building materials company that used a payout from his $3.5 million life insurance policy to purchase his shares in the business in Thomas A. Connelly v. U.S., case number 23-146,

In a unanimous opinion, the court affirmed a summary judgment decision by the Eighth Circuit, which ruled last year that the life insurance proceeds, used to fund a stock redemption by Crown C Supply following the death of its co-owner Michael Connelly, were an asset that increased Crown's value, inflating the value of Connelly's stock and driving up the tax liability of his estate.

The court rejected the estate's argument that the proceeds were a stock redemption that should be treated as a liability for Crown C Supply that reduced its value for purposes of calculating estate tax, similar to any debt.

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Wednesday, June 5, 2024

Document Upload Tool Reaches 1 Million Received Submissions Milestone


In Issue Number: IR-2024-155 the Internal Revenue Service announced the Document Upload Tool accepted its one millionth taxpayer submission.

Use of the Document Upload Tool, sometimes referred to as DUT, continues to grow. During the first six months of this fiscal year, more than 265,000 taxpayers used the tool, and the number continues to grow each month.

“The Document Upload Tool is a key part of our ambitious initiative to transform the IRS into a virtually paperless agency, and we continue to see increased use of this by taxpayers,” said IRS Commissioner Danny Werfel. “This tool saves time for taxpayers and helps IRS employees process responses faster and more efficiently. 

A Growing Number Of Taxpayers Are Using Their Smart Phones Or Computers To Scan And Upload Their Responses To IRS Correspondence, Rather Than The More Time-Consuming Option Of Writing A Letter Or Mailing In Documents.”

The Document Upload Tool has shown steady growth over time as well. Since 2022, average monthly use of the DUT has more than doubled every year, from around 16,000 in 2022, to around 37,000 in 2023 and finally almost 84,000 so far in 2024. The document submissions cover a wide range of tax issues, including responding to IRS Notice CP2000, where the agency notifies taxpayers of potentially underreported income.

The IRS receives about 76 million paper tax returns and forms, as well as 125 million pieces of correspondence, notice responses and non-tax forms each year. In the past, the agency’s limited capability to accept these forms digitally or to digitize paper has added time-consuming steps that has created challenges for taxpayers, tax professionals and IRS employees. For decades, the only option available was to have taxpayers or their representatives mail or fax these documents to the tax agency.

The IRS Estimates That More Than 94% Of Individual Taxpayers Will Have The Option Of No Longer Having To
Send Mail To The IRS, Potentially Replacing Up To
125 Million Paper Documents Per Year, Easing
The Paperwork Burden For Both Them And The IRS.

To learn more about the Document Upload Tool, visit IRS.gov/DUT.

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Tuesday, June 4, 2024

11th Circ. Affirms TC Invalidation of IRS Easement Disclosure Guidance

On November 10, 2022 we posted Notice 2017-10 Conservation Easement Penalty Notice Struck Down By Tax Court where we discussed that the IRS violated administrative law in issuing a notice requiring the disclosure of potentially abusive conservation easement transactions under threat of penalty, the U.S. Tax Court ruled on November 9, 2022, striking down the guidance and rejecting penalties the agency sought to impose on four North Carolina partnerships.

Now according to Law360, the Eleventh Circuit affirmed on June 4, 2024 that an Internal Revenue Service notice imposing reporting requirements on potentially abusive conservation easements was invalid because the agency failed to solicit the public feedback required by administrative law.

A three-judge panel affirmed the ruling of an Alabama federal judge who last year sided with the land donation advisory firm Green Rock LLC in invalidating the notice on the grounds that it wasn't put through the Administrative Procedure Act's notice-and-comment procedures.

The panel rejected the government's argument that Internal Revenue Code Section 6011, which governs information tied to reportable tax shelter transactions, had authorized the agency to promulgate guidance without following the APA's public comment requirements.

The panel said no such express exemption exists in the law and that provisions that might provide an exemption "make no explicit reference to notice and comment, the Administrative Procedure Act, or procedural requirements at all."

Have an IRS Tax Problem?


     Contact the Tax Lawyers at
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or 
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Monday, June 3, 2024

Proposed Cannabis Rescheduling May Allow Business Expenses

According to Law360On May 21, the U.S. Department of Justice's proposed rules to move marijuana to Schedule III of the Controlled Substances Act were published in the Federal Register. Public comments will be solicited for 60 days from that date, and hearings will be scheduled before final rules are adopted.

Despite widespread media reports heralding the "game-changing" nature of this development, the DOJ's proposed rulemaking leaves the cannabis industry with more questions than answers.

The DOJ explicitly warns that (1) "if marijuana is transferred into Schedule III, the manufacture, distribution, dispensing, and possession of marijuana would remain subject to the applicable criminal prohibitions of the CSA [Controlled Substances Act]," and (2) marijuana would remain subject to the limitations within the Food, Drug, and Cosmetic Act.

It instead sidesteps the challenging questions and punts by "seeking comment on the practical consequences of rescheduling marijuana." By way of explanation, the DOJ offers:

DOJ recognizes this action may have unique economic impacts. As stated above, marijuana is subject to a number of State laws that have allowed a multibillion dollar industry to develop. DOJ acknowledges that there may be large impacts related to Federal taxes and research and development investment for the pharmaceutical industry, among other things. DOJ is specifically soliciting comments on the economic impact of this proposed rule. DOJ will revise this section at the final rules stage if warranted after consideration of any comments received.

One Immediate Positive Effect Of Moving Marijuana To Schedule III Is That Cannabis Companies Will Avoid The Draconian Impact Of Section 280E of The Internal Revenue Code, Which Prevents Most Business Deductions and Results
In Exceedingly High Effective Tax Rates That Have
Impeded Profitability For Most Cannabis Companies.

The industry could also expect better access to commercial banking, new financial services products offered to cannabis companies and new listings on public exchanges. 

In addition, moving marijuana to Schedule III will mean that an insurance company's risk of violation of the Bank Secrecy Act and anti-money laundering statutes will effectively end.

The DOJ will accept public comments for 60 days commencing May 21, and we can expect robust commentary from cannabis businesses, state regulators, trade organizations and ancillary industries.

We might see regulatory dysfunction if the DOJ's final rules on marijuana as a Schedule III drug provide inadequate direction to the FDA and other federal agencies on the enforcement of existing federal laws. It seems apparent that clarity through congressional action is needed now more than ever.

Have an IRS Tax Problem?


     Contact the Tax Lawyers at

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or 
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Tuesday, May 21, 2024

Argentina 1st Country to Have Automatic FATCA Information Exchange

According to Law360the Internal Revenue Service approved cybersecurity measures by Argentina in a step that clears the way for the first automatic information exchange under the Foreign Account Tax Compliance Act between the two countries in September, Argentina's revenue service said on May 20, 2024.

Florencia Misrahi, the Argentina revenue agency's federal administrator, met with banking associations and other organizations in April to prepare them for the upcoming exchanges, the agency said in a news release. Such entities will need to report bank account information, such as U.S. tax identification numbers and account balances, of U.S. citizens holding accounts in Argentina.

The countries reached a FACTA agreement in 2022, Argentina's Federal Administration of Public Income said. FATCA requires foreign financial institutions to report the banking information of U.S. clients as a way to combat tax avoidance and to improve compliance.


Have an IRS Tax Problem?


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or 
Toll Free at 888 8TAXAID (888-882-9243)


Monday, May 20, 2024

Husband's "Knowledge" of Wife's Exercise of $100.5 MM in Stock Options Disqualifies Him From Innocent Spouse Relief


According to Law360, the husband of a former president of InfoSpace can be held jointly liable for a nearly $40 million tax debt the IRS asserted against a return they filed for the 2000 tax year, the U.S. Tax Court ruled, saying he didn't qualify for so-called innocent spouse relief.

The court agreed with the Internal Revenue Service that Mark Strom, a former cardiac and thoracic surgeon and husband of a former InfoSpace president and COO, Bernee Strom, knew of his wife's exercising of stock options that led to unreported income of $100.5 million. 

Just Knowing About The Understatement,
The Court Said, Torpedoed His Claim For Relief
From Joint And Several Liability.


Bernee Strom received incentive and nonstatutory stock options when tech company InfoSpace hired her in 1998, and she exercised the nonstatutory options in 2000, the decision said. The couple talked with advisers and chose to defer calculation and recognition of most of the income attributable to exercising options in 2000 to the 2021 tax year when the market value of the company's stock was much lower, according to the decision. The plan resulted in more than $100 million in income being left off the Stroms' 2000 return, the court said.

Mark Strom was involved in the exercising of the options and the talks with lawyers and tax consultants to develop "tax-favorable" reporting positions on the 2000 return and approved those positions, according to the decision. Holding Mark Strom jointly liable for the resulting taxes assessed by the IRS is fair because he knew all the facts pertaining to the transactions, the court said.

Internal Revenue Code Section 6015 governs relief from joint and several liability on joint tax returns. Mark Strom sought innocent spouse relief in 2009 and again in 2012, both for the 2000 tax year, the decision said.

 Have an IRS Tax Problem? 
 
   
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Tax Preparer Pleads to Filing False Tax Returns as Part of a Nationwide Abusive-Trust Tax Shelter Scheme

On January30th 2024 we posted Two Men Indicted On Charges Of Peddling Abusive Trusts, where we discussed that two men promoted and sold abusive tax shelters for the last six years by instructing their clients to use sham trusts to hide business income and illegally deduct personal expenses such as family weddings, according to an indictment in a Colorado federal court in the case of U.S. v. Conner et al., case number 1:23-cr-00390, in the U.S. District Court for the District of Colorado.

Now according to the DoJ, an Arizona man pleaded guilty on May 17, 2024 to two counts of assisting in the preparation of false tax returns for individuals who used an abusive-trust tax shelter to underreport their income and tax liabilities.

According to court documents and statements made in court, from 2017 to 2023, Kent Ellsworth operated Ellsworth Stauffer P.C., a return preparation business. During that time, Ellsworth participated in a scheme to defraud the IRS that involved the promotion, sale and implementation of a fraudulent tax shelter. Ellsworth participated by preparing and filing over 500 false tax returns for approximately 60 clients nationwide who used the tax shelter to conceal income from the IRS and not pay tax. Ellsworth intentionally caused more than $60 million in income to be fraudulently sheltered from the IRS, which resulted in a tax loss to the IRS of approximately $17 million.

Ellsworth Prepared The False Tax Returns To Further The Abusive-Trust Tax Shelter Scheme Carried Out By Others.

Clients who purchased the tax shelter, most of whom were successful business owners, were directed to assign or “donate” nearly all of their income to sham trusts and a so-called “private family foundation” to create the illusion that the income was not theirs. However, the sham trusts and foundations were nothing more than bank accounts designed to hold funds the clients earned and continued to control. 

To carry out the scheme, Ellsworth was taught how to prepare tax returns utilizing the scheme’s fraudulent methods. He was instructed to report all income assigned to a sham trust as income of the trust and to offset that income by deducting all expenses paid for by the trust, including the clients’ personal living expenses. Ellsworth was paid fees for preparing the returns by the clients participating in the tax shelter.

Ellsworth is scheduled to be sentenced on Aug. 14. He faces a maximum penalty of three (3) years in prison for each count of preparing and filing false tax returns. Ellsworth also faces a maximum fine of $250,000, a period of supervised release and the costs of prosecution for each count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

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