Freeman Law

Section 7345. Perhaps it’s the challenge it poses to U.S. taxpayers and their rights and freedoms (i.e., international travel). Perhaps it’s the type of method employed by the U.S. government to promote federal tax compliance. Or perhaps U.S. taxpayers don’t want to think about passport issues after being stuck inside for over a year. Regardless of the reasons, U.S. taxpayers continue to pose challenges to Section 7345 of the Internal Revenue Code. I covered one such challenge in a previous blog regarding the constitutionality of Section 7345: Is Section 7345 Constitutional? – Jones v. Mnuchin. However, in a recent…
Case:  In re Moreno, 127 AFTR 2d 2021-1946, Case No. 20-42855 (Bankr. W.D. Washington, May 11, 2021). This case focuses on bankruptcy exemptions applicable in the State of Washington to certain amounts received by the Debtor as part of her federal income tax refund.  The trustee in her case filed a motion for turnover of estate property seeking certain federal tax refunds received by debtor Adelina Moreno (“Debtor”). Specifically, the Debtor’s tax refund – a total of $10,631.00 – was comprised of the following amounts: $572.00 from taxes withheld (“Withheld Taxes”); $2,800.00 from the Recovery Rebate Credit (“RRC”); $1,709 from…
Two countries form a treaty under the general principles of contract law.  A fundamental aspect of contract law requires a meeting of the minds – a shared understanding of the agreed terms.  Accordingly, unless expressly stated, a treaty ought to apply only to the two contracting sovereigns.  But this is about tax law, tax treaties, and, more importantly, an exploitation point for statutory interpretation.  States may, under certain theories of interpretation, be bound to the provisions of a tax treaty between the United States and a foreign country. A state that defers to the definition of gross income provided in…
The formation of a partnership is generally a nonrecognition transaction for both the contributing partner and the newly created firm.[1]  Thus, no gain is recognized to a partnership or to any of its partners because of a contribution of property to the partnership in exchange for an interest in the partnership.[2] While this nonrecognition rule is a useful instrument in the tax practitioner’s toolbox, the rule’s glamor often overshadows an important exception. Under I.R.C. § 721(b), the general nonrecognition rule will not apply to gain realized on a transfer of property to a partnership that would be…
Some time ago, the IRS issued an Audit Techniques Guide on the taxation of lawsuits, awards, and settlements.  As many tax practitioners can attest, there are a multitude of tax issues involving any one of these issues.  In any event, and although the Audit Technique Guide (“Audit Guide”) is somewhat dated, it is still worth a read to get a quick review of the issues an IRS auditor will focus on when these types of issues have been identified in an IRS examination. Introduction. Section 104(a)(2) of the Code provides the tax treatment rules for amounts received “on account of…
Federal tax cases against the IRS can be difficult.  Even procedurally so.  Under the pay-first, litigate-later rule, taxpayers are generally required, prior to filing suit against the United States:  (1) to full pay the disputed tax, penalties, and interest at issue; and (2) then file an administrative claim for refund with the IRS.  Only after these two prerequisites are met may a taxpayer file and maintain a lawsuit in federal court against the United States (or its instrumentalities, such as the IRS). Another common bar to a federal lawsuit regarding federal tax matters—which works in conjunction with the pay-first, litigate-later…
A recent Tax Court opinion demonstrates the complexities involved when a taxpayer attempts to discharge tax liabilities through bankruptcy proceedings.  The case emphasizes the need for an attorney knowledgeable in both tax and bankruptcy cases to ensure that the the best, most-viable tax arguments are put forward in the proceedings. A brief outline of the case is set forth below: Barnes v. Comm’r, T.C. Memo. 2021-49 | May 4, 2021 | Lauber, J. | Dkt. No. 6330-19L Opinion Short Summary:  The taxpayers challenged a proposed deficiency in the Tax Court related to their 2003 tax year.  Prior to the Tax Court…
A recent Tax Court decision addressed the deductibility of legal expenses and the so-called “origin-of-the-claim” doctrine.  The Mylan decision demonstrates that the deductibility of a legal expense generally depends on the origin and character of the underlying claim or transaction out of which the legal expense was incurred. An expenditure, such as legal expenses, may be deductible in one setting but nevertheless required to be capitalized in another. Legal expenses directly connected with (or pertaining to) the taxpayer’s trade or business are deductible under I.R.C. Section 162 as ordinary and necessary business expenses, while expenses arising out of the acquisition,…
On May 5, 2021, the Texas Governor signed into law House Bill 1195, which excludes federal PPP loans forgiveness as revenue for Texas Margin Tax (the “Margin Tax”). In response to the COVID-19 pandemic, the U.S. Congress enacted legislation providing economic relief to businesses through the paycheck protection program , which allowed businesses to secure forgivable loans and grants in order to continue paying employees while operations were impacted due to the pandemic. While PPP loans may be forgiven under the program, the business receiving the PPP loans or grants would still be taxed on the amount of money received…
A recent Tax Court decision addresses the “reasonable cause” standard — a frequent issue in the IRS-penalty context.  As the case demonstrates, whether a taxpayer acted with reasonable cause and in good faith is determined on a case-by-case basis. Woll highlights the fact that a taxpayer who has an advanced degree, such as an attorney, will likely have more difficulty demonstrating reasonable cause. Based on the Woll decision, reliance on a computer program or failure to read a tax form, such as a Form 1099-R, is not sufficient without more to prove reasonable cause. Woll v. Comm’r, Bench Opinion| April 29,…