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

The IRS believes that certain partnerships that donate conservation easements are using inflated appraisals to claim excessive tax deductions. The partnerships disagree, and battles ensue. They often entail prolonged audits, administrative appeals, and Tax Court trials. All this fighting has a large cost to the IRS, the partnerships, and the judicial system. The enclosed article provides an overview of the rules related to conservation easement donations, identifies supposed “technical” flaws that the IRS attacks, describes several Tax Court holdings that are beneficial to all partnerships, explores the use of Qualified Offers, and demonstrates that easement cases can be resolved before trial where the IRS acts reasonably by focusing on the real issue, valuation.

The IRS has drastically changed its procedures for reviewing appraisals. It first issued a memo about Section 6695A penalties, which eliminated the multi-level review procedure formerly used to safeguard appraisers against improper penalties and premature disciplinary referrals. Next, the IRS ignored several suggestions from accounting and valuation organizations about potential problems. Doubling down on its initial position, the IRS most recently issued a Chief Counsel Advisory to its personnel further reducing appraiser rights. This article, which supplements an earlier one, analyzes the main concepts around conservation easement donations, evolution of appraiser penalties, disregarded suggestions from professional organizations, and recent IRS actions depriving appraisers of historical protections.

According to the IRS, many partnerships have incorrectly treated their owners as “limited partners,” thereby allowing them to escape self-employment (“SECA”) taxes on their distributive shares. The positions taken by partnerships are based on a law enacted in 1977, which has never been updated or clarified, by Congress or the IRS. The broad scope of the “limited partner” exception from the outset, coupled with governmental inaction during the next five decades, has led to chaos. This article, the first in a series, chronicles the major events culminating in the current confusion about the application of SECA taxes to modern entities.

The IRS normally must identify non-compliance within a short period, which can be tricky if the relevant matters occurred abroad. Taxpayers who have failed to report worldwide income and assets, either accidentally or on purpose, hope that the proverbial clock runs out before the IRS takes action. This sometimes happens in domestic cases, but much less often in the international context. This article, using several recent Tax Court cases as a springboard, examines three tools at the IRS’s disposal for expanding assessment-periods against taxpayers with international violations.

Taxpayers yearn for certainty, as they need it to make intelligent decisions about tax-related issues. Unfortunately, doubt has arisen in connection with Section 179D, a provision that incentivizes taxpayers to make commercial buildings more energy efficient. The unsettled state of affairs can be attributed to attempts by the IRS to disregard its longstanding guidance directly on point. This article provides an overview of Section 179D, identifies the related Compliance Campaign, explains the aggressive position recently taken by the IRS about allocation of Section 179D deductions, and analyzes a list of authorities countering the IRS’s position.

The IRS conducts large numbers of audits, the period to complete them is limited, and tax issues are becoming more complex every year. The result is that some Revenue Agents employ aggressive tactics to gather data and prepare reports. One example is issuing Summonses to third parties (i.e., somebody other than the taxpayer under audit) seeking data without first granting the taxpayer a chance to personally provide it. This article focuses on three recent items that might change the IRS’s current practice, including an amendment to Section 7602, a case of first impression in the Court of Appeals, and a recent  court decision strongly criticizing inappropriate third party contacts.

Taxpayers dislike paying taxes once, and they absolutely detest paying them twice. The good news is that U.S. individuals working and/or investing abroad can often mitigate “double taxation” thanks to a few mechanisms, including foreign tax credits and bilateral tax treaties. Qualifying for these benefits can be tricky, of course. One controversial issue has been whether U.S. individuals can use foreign tax credits to offset net investment income taxes. A recent Tax Court case, Toulouse v. Commissioner, partially resolves that question, while expressly leaving open the possibility of different outcomes.

Defeating the IRS is joyous, but winning and then obligating the IRS to pay legal, accounting, expert and other fees is sublime. The mechanism for achieving this elusive double victory is found in Section 7430. This article describes key aspects of fee recoupment under Section 7430, three recent cases, procedural rules on which the IRS depends in issuing notices devoid of meaningful information, and why fee reimbursement actions might increase in the near future.

Kicking people when they are down is one thing, but doing it repeatedly is another. Several recent cases demonstrate that the IRS is doing exactly that. This process, often referred to as “stacking” penalties, means imposing multiple sanctions against the same taxpayer, for the same year, in connection with the same problem. The article explains common U.S. international tax duties, the current “compliance campaign” focused on foreign trusts, and two recent cases showing how the IRS uses penalty stacking as a serious enforcement tool.

Section 7345 authorizes the IRS, with assistance from the State Department, to deprive individuals with serious tax debts of their passports. Congress passed the law in 2015, the IRS began enforcing it in 2018, and the courts started issuing decisions in 2020. In short, the issues concerning passport deprivation as a tool for tax collection are new and quickly evolving. This article does the “heavy lifting” for readers by gathering, organizing and analyzing all major sources available thus far about the implementation of Section 7345.