Prose by Tax Pros - Another Article by Hale E. Sheppard

Most battles over “syndicated” conservation easements focus on the partnerships that made the donations. This is logical because they took the key actions, claimed the tax deductions, and then allocated them to the partners. A recent case, Glade Creek Partner, shows that the IRS is looking at other parties, too. These include the original landowners, who contribute the property on which the easement is later donated. Why would the IRS scrutinize original landowners? How long they held the property and for what purpose directly affect the size of the charitable tax deduction.

This article explains the easement donation process, significance of property characterization, and three-round battle in Glade Creek Partner. This article observes that, in its efforts to reduce tax deductions from easements, the IRS is now looking to original landowners to determine whether the relevant property is both “long-term” and “capital gain” in nature.

Gifting can be rewarding, but it can also generate problems with the IRS. The applicable tax and information-reporting rules are complicated when foreign persons are involved. The IRS has attempted to capitalize on this reality in two recent cases, asserting large penalties against a U.S. individual receiving a gift from a foreign relative, and seeking significant gift taxes and penalties from another U.S. individual making a gift to a foreign relative. Although the IRS lost in both instances, these types of challenges serve as a warning to taxpayers to better understand international tax compliance matters, as well as potential downsides associated with participating in IRS disclosure programs.

Taxpayers often lack the time or patience to read an entire court decision. This is understandable, but it leads to problems. When taxpayers focus only on headlines, they tend to overlook important rulings that might be helpful to themselves and others. This is precisely what has happened with a recent conservation easement dispute, Mill Road 36 Henry. The ultimate outcome was not good for the taxpayer in that case, but those who persevered discovered that the Tax Court made six rulings favorable to all taxpayers involved in conservation easement disputes. This article explores the main rules concerning easement donations, key facts in Mill Road 36 Henry, and the obscure rulings advantageous to taxpayers.

Enforcement actions against alleged promotors of abusive transactions and taxpayers who participate in them are firmly linked. Therefore, effectively defending against IRS challenges requires an understanding of the overlapping rules, standards, and procedures. Many taxpayers are myopic, thinking solely about how certain events will affect them personally and immediately. This is understandable, but it rarely achieves the best overall result when it comes to multi-faceted disputes with the IRS.
This article explains unique aspects of promoter penalties, various actions the IRS takes in promoter investigations, effects of such measures on taxpayers, recent events suggesting that investigations might surge in the near future, and thoughts about the best path forward in the current environment.

If people have learned anything from the recent disputes over conservation easement donations, it is that IRS has a playbook. It involves announcing that the main problem is excessive valuation, followed by attacking essentially everything but what the donation is worth. The IRS often concludes that taxpayers should get a tax deduction of $0, and steep penalties apply.

The IRS has already experienced problems using this strategy in the easement context, and things might get harder if it plods ahead in the same manner when it comes to art donations. This article explains the general rules for donating artwork, recent IRS announcement about “promotions” of improper donation schemes, and hurdles that the IRS might encounter if it insists on applying the economic substance doctrine, alleging that art donations are worth $0, or badgering recipients of such donations.

Congress realized that taxpayers desperately needed financial help during the COVID crisis, so it created the Paycheck Protection Program and the Employee Retention Credit. Taxpayers that got dual relief are beginning to understand that enforcement actions, timeframes, and consequences differ for each. This article, the latest in a multi-part series, explains the fundamentals of these benefits, interplay between the two, and distinct mechanisms used to recoup benefits that were improperly issued to taxpayers.

For lovers of tax controversy, disputes between taxpayers and the IRS over Malta pension plans should be legendary. In short, taxpayers followed the letter of the law (i.e., the specific terms of the US-Malta treaty), the IRS detested the result, and now the IRS is implementing aggressive measures, including some that supposedly have retroactive effect. This article explores general U.S. tax treatment of foreign retirement plans, key concepts of the treaty, positions claimed by U.S. taxpayers, initial enforcement actions by the IRS, significance of the Competent Authority Arrangement, effect of the Proposed Regulations on various persons, and potential paths for taxpayers at this juncture.

Huge numbers of taxpayers have claimed Employee Retention Credits (“ERCs”) in the past few years. Some of them might know the substantive rules, but few of them likely understand the procedural nuances. This is a problem because a large percentage of clashes with the IRS ultimately turn on procedural issues.

Taxpayers and their advisors are raising many procedural questions: Has the IRS created special procedural rules for ERC cases? How long does the IRS generally have to audit ERC claims? Do extended assessment-periods apply to claims for certain quarters? What examination techniques will the IRS use? What methods can taxpayers utilize if the IRS rejects or ignores their ERC claims? Which courts will have jurisdiction over ERC litigation? Can the interplay between employment taxes and income taxes cause taxpayers to get “whipsawed” by the IRS? This article, the latest in a multi-part series, explores these critical questions and others.

It is obvious that the IRS has been scrutinizing, and will continue to pursue, those that it considers “promoters” or “enablers” of improper employee retention credit (“ERC”) claims. What is not apparent, though, is the wide range of tools at the IRS’s disposal and how they might affect not only the targets, but also the taxpayers who relied on them. This article, the latest in a series, summarizes the main ERC rules, clarifies how long ERC claims will continue, identifies imminent enforcement actions, and explores a long list of weapons that the IRS likely will use, some common, others obscure.