A recent Wall Street Journal report by Laura Sanders suggests that the tax treatment of carried interest may be in jeopardy based on the Tax Court’s decision in Dagres v. Commissioner.
Read the Wall Street Journal article here:
“Carried Interest in the Crosshairs”
Read the opinion in our original post about Dagres.
The Third Circuit Court of Appeals affirmed the District Court’s decision that the Township of Lyndhurst, New Jersey did not have standing “in its capacity as a taxing authority” to pursue a class action against Priceline.com and other online hotel booking companies for unpaid hotel occupancy taxes.
Read the opinion here:
Township of Lyndhurst v. Priceline.com, Inc., No. 09-2053 (3rd Cir. August 2, 2011)
In a Summary Opinion, Special Trial Judge Dean found that the petitioner, who testified that he was an accountant, could not deduct the time he spent doing web-site development for his own business. The court explained the distinction between imputed expenses (such as those claimed by the petitioner) and incurred expenses noting that only costs which are actually incurred or paid are deductible under sections 162 and 212 and finding for the respondent.
Read the opinion here:
Mondello v. Commissioner, T.C. Summ. 2011-97
The Court of Appeals for the D.C. District reversed the Tax Court holding that a final partnership administrative adjustment (FPAA) issued after the initial three-year assessment period for partnerships under IRC §6229(a) had expired still tolls the period for assessment (statute of limitations) for individual partners under IRC §6501. The Circuit Court relied upon the language of IRC § 6229(d), which suspends certain assessments following the issuance of an FPAA, and its previous holding in Andantech, L.L.C. v. Commissioner, 331 F.3d 972 (D.C. Cir. 2003).
Read the opinion here:
UTAM, Ltd. v Commissioner, Docket No. 10-1262 (D.C. Cir. June 21, 2011)
The Oregon Tax Court rejected the taxpayer’s operational approach to cost of performance in determining sales factor receipts for apportionment purposes. The taxpayer, AT&T Corp., filed a claim for refund after recalculating its Oregon sales factor based on the theory that a greater portion of its income producing activities were performed (cost of performance) outside of Oregon than within the state. AT&T used the operational approach (viewing the enterprise as whole) to calculate the costs of performance. The other widely accepted approach to calculating costs of performance is the transactional approach (considering each income producing transaction). The Oregon Tax Court rejected the AT&T’s arguments and the application of the operational approach. The refund claim was denied.
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AT&T Corp. v. Department of Revenue, TC 4814 (June 28, 2011)
The Court of Appeals for the District of Columbia Circuit reversed the Tax Court on the question of whether or not the six year statute of limitations under sections 6229(c)(2) and 6501(e)(1)(A) applied to an overstatement of basis. The Court of Appeals followed the rationale of other recent government victories on this issue, see Grapevine (Fed. Cir.) and Beard (7th Cir.). The Court of Appeals also adopted the government’s argument that Chevron deference apply to the government’s regulation (adopted after litigation began) interpreting the application of the six year statute.
Read the opinion here.
Intermountain Insurance Service of Vail, LLC v. Commissioner, Docket No. 10-1204 (D.C. Cir. June 21, 2011)
For more about this opinion visit Tax Appellate Blog and Tax Prof Blog.
In a reviewed opinion, the Tax Court has found that a sophisticated taxpayer (i.e., a hedge fund manager) could not avoid penalties by relying on the reasonable cause defense under Sec. 6664(c)(1) where the taxpayer presented no evidence that the omitted income was because he relied on advice given by the tax return preparer.
Read the opinion here:
Woodsum v. Commissioner, 136 T.C. No. 29 (2011)
The Tax Court finds that a consolidated group of companies which hired a former outside consultant (both a CPA and an Attorney) as their Vice President of Taxes was subject to penalties under Section 6664 on unreported personal holding company tax for the tax years in which he was their in-house advisor. The taxpayer was able to rely upon the reasonable cause exception from penalties for the tax year in which the same consultant was an independent paid provider.
Read the opinion here:
7 W Enterprises v. Commissioner, 136 T.C. No. 26 (2011)
In what may very well be the last decision of many rendered to the plaintiff’s in Jade Trading, LLC, the Court of Federal Claims, on remand from the Court of Appeals for the Federal Circuit, determined that under the Tax Equity and Fiscal Responsibility Act (TEFRA) it did not have jurisdiction to impose penalties on partners which relied on the partner’s outside basis.
Read the opinion here:
Jade Trading, LLC v. United States, No. 03-2164T (Fed. Cl. April 29, 2011)
Tax Analysts reports that the Department of Justice will no longer argue that Chevron deference should apply to revenue rulings and revenue procedures. The report cites Gilbert Rothenberg, appellate section chief, Tax Division, Department of Justice, who made the announcement during his comments at the American Bar Association’s recent Section of Taxation meeting in Washington, D.C. Following the U.S. Supreme Court’s decision in Mayo Foundation v. U.S., the standard for the deference given to Treasury Regulations is now governed by Chevron v. U.S.
Mr. Rothenberg did note, however, that the DOJ will continue to assert Chevron deference for temporary regulations. This is important for followers of the Intermountain issue, i.e., whether retroactive temporary regulations apply to taxpayers accused of participating in listed transactions. The interpretation and application of those temporary regulations (Treas. Regs. 301.6229(c)(2)-1T and 301.6501(e)-1T) has created a split in the Circuits and since the release of Mayo Foundation, the Department of Justice has argued that Chevron deference should apply in these cases. It seems they will continue to do so.
Hat Tip (Tax Prof Blog and Daniel J. White, Esq.)
