The Tax Court, in a Division Opinion by Judge Thornton, determines that required inclusions in income from a controlled foreign corporation pursuant to Section 951 do not constitute qualified dividend income under Section 1(h)(11).
Regular observers of the Tax Court will note this opinion for its careful and persuasive discussion of statutory interpretation and legislative history to decide this issue.
Read the opinion here:
Rodriguez v. Commissioner, 137 T.C. No. 14 (2011)
In a division opinion, the Tax Court ruled that the beneficiary of an estate who signed the estate tax return and held property of the estate, but had not been appointed executor under state law, was the statutory executor of the estate under IRC Sec. 2203 for purposes of receiving and responding to a statutory notice of deficiency. As such, the Tax Court has jurisdiction to review the estate’s petition.
In an interesting practice note, the opinion also offered the parties guidance on the difference between a motion to dismiss and a motion for summary judgment under the Tax Court rules.
Read the opinion here:
Estate of Gudie, 137 T.C. No. 13 (2011)
It only takes a couple of paragraphs to recognize a Tax Court opinion drafted by Judge Mark V. Holmes whose distinctive style is inimitable. In his latest effort, Judge Holmes expounds on sub-genres of hard rock and heavy metal music and flexes his vocabulary to describe what ordinary folks like us might just call a “strip club.” The taxpayer’s incarceration, risk management techniques, and references to Great White and Head East only added to the tale. All of this because of an incorrectly reported capital gain following a condemnation action. Taxation should always be so fun.
The 17 page Summary Opinion (which disposed of the taxpayer’s action but cannot be cited for precendent) had us reaching for the dictionary more than once as illustrated by the following sentence:
He rented out the old house to a tenant who installed minor improvements (e.g., poles) and opened an establishment felicitously–and paronomastically–called the “Landing Strip,” in which young lady ecdysiasts engaged in the deciduous calisthenics of perhaps unwitting First Amendment expression.
We couldn’t even find “paranomasia” (the root for the adverb above) in our three and a half inch thick Webster’s Unabridged Dictionary of the English Language. Fortunately the internet offered up the answer, which the curious can find here. All in a day’s work for Judge Holmes.
In the end, the taxpayer did get a bit of a break on the capital gain asserted by the IRS in the notice of deficiency but you’ll have to run the math yourself to know exactly how much as decision was entered under Tax Court Rule 155.
Read the opinion (and get the depreciation formula for the taxpayer’s gain) here.
Willson v. Commissioner, T.C. Summ 2011-132
(h/t: TaxProfBlog)
David Kocieniewski, a leading tax reporter for the New York Times, reports that Ronald S. Lauder and his family, heirs to the Estée Laduer fortune, employ a variety of strategies available only to the rich to reduce their tax liability. The article is interesting for covering certain high net worth strategies that have been investigated by the Internal Revenue Service in recent years, but I’m not sure if Mr. Kocieniewski doesn’t overreach a little bit in his discussion of Mr. Lauder’s father’s valuation case in the United States Tax Court. Mr. Kocieniewski writes:
“When Mr. Lauder’s father, Joseph, died in 1983, family members fought the I.R.S. for more than a decade to reduce their estate tax. The dispute involved a block of shares bequeathed to the family — the estate valued it at $29 million, while the I.R.S. placed it at $89.5 million. A panel of judges ultimately decided on $50 million, a decision that saved the estate more than $20 million in taxes.”
Presumably Mr. Kocieniewski is referring to Estate of Lauder v. Commissioner, T.C. Memo 1994-527 which was the third of three memorandum opinions written by Judge Hamblen on behalf of the Tax Court with regard to the Lauder case. It was this third opinion that focused on the valuation of Mr. Lauder’s estate.
Here’s the bone. The entire case, all three opinions, was about the proper valuation of Mr. Lauder’s estate. However, Mr. Kocieniewski writes that because Judge Hamblen determined the proper valuation of the estate was less than the IRS asserted the litigation “saved the estate more than $20 million in taxes.” Isn’t also possible that the IRS valuation was inflated, inaccurate or maybe simply incorrect? (It seems that Judge Hamblen felt as much.) In which case, Mr. Lauder’s estate didn’t “save” any taxes at all but rather paid the proper tax due.
Certainly valuation cases are complicated, and there were several procedural and substantive issues addressed in the Lauder litigation, but the implication that anyone who prevails in the face of a tax liability incorrectly asserted by the IRS is “saving” taxes seems a bit much. Unfortunately, we cannot share the text of the Lauder estate opinions here without violating a copyright but if you have the tools to investigate them yourself the citations are: Estate of Lauder v. Commissioner, T.C. Memo 1992-736; Estate of Lauder v. Commissioner, T.C. Memo 1992-736; and the above-mentioned Estate of Lauder v. Commissioner, T.C. Memo 1994-527.
If you would like to read Mr. Kocieniewski’s article you can find it here.
Finally, a post script to Mr. Sheldon Cohen, whose comments in the article about the social value of certain tax benefits for benefactors of the arts are well taken.
The Second Circuit Court of Appeals affirmed the trial jury’s decision denying Altria Group’s claim for a tax refund based on four sale in, lease out (SILO) and lease in, lease out (LILO) transactions in 1996 and 1997.
The jury denied the tax refunds based on the judicial theory of substance over form. The district court denied Altria’s post trial motions to overturn the verdict as a matter of law and for a new trial. What is notable about this case is not only that the Second Circuit affirmed the jury decision but affirmed the application of the substance over form doctrine as the rationale for the decision. Prior to this decision, these transactions and other similar transactions have largely been decided under the economic substance doctrine.
Read the opinion here:
Altria Group, Inc. v. United States
This is too funny to not share. These kids make a compelling argument for tax reform, at least from the perspective of one class of tax professionals.
Thanks to Thompson Reuters for putting together this little gem. Maybe they could do the same thing for tax attorneys? That would be so cool.
The Fifth Circuit affirmed the decision of the District Court (Northern District of Texas) denying the tax losses of Texas banker D. Andrew Beal. The Court of Appeals affirmed the lower court’s finding that the partnership through which the losses were generated was a sham and that the losses should be disallowed. However, the Circuit Court also affirmed the trial court’s determination that penalties should not be allowed.
Read the opinion here:
Southgate Master Fund v. US.
The U.S. Department of Justice released a press release announcing victories in three tax cases on the same day. The press release characterizes all three cases as tax shelters. We will add all three cases, Southgate Master Fund LLC v. United States (5th Circuit), Pritired 1 LLC v. United States (S.D. Iowa), and WFC Holdings Corporation v. United States (D. Minn.) to the blog later this week.
Read the Department of Justice Press release here.
The Senate has confirmed the reappointment of three United States Tax Court judges. Tax Court Judges Maurice Foley, Joseph Gale, and Juan Vasquez have been reappointed for a second 15 year term.
The U.S. Supreme Court has granted certiorari in Home Concrete & Supply v. United States, a decision of the 4th Circuit Court of Appeals on the much litigated application of the 6-year statute of limitations. Home Concrete was the first of the 6 year statute cases (also known as the Intermountain cases) to reach the Supreme Court. When the Court selected Home Concrete for hearing it was also presented with the opportunity to hear similar cases from the Federal Circuit (Grapevine) and 7th Circuit (Beard) but apparently has put those petitions on hold pending the decision in Home Conrete.
For more visit Tax Appellate Blog.
