Tag Archives: Woods

Tax Court Denies Taxpayers’ Second Attempt to Avoid Penalties

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us_Tax_Court_fasces-with-red-ribbonIn Mountanos v. Commissioner, T.C. Memo 2014-38, the Tax Court denied the taxpayer’s request to consider alternative grounds for disallowing deductions conservation easement conveyance. The taxpayer sought to avoid 40% accuracy-related penalties assessed on the disallowance of the deductions in Mountanos v. Commissioner, T.C. Memo 2013-138 (Mountanos I) (see our Summer 2013 newsletter).

In Mountanos I, the taxpayer claimed a $4.9 million deduction return for conveying a conservation easement to the Golden State Land Conservancy. The IRS challenged the easement on multiple grounds, including valuation. The Tax Court found that the conservation easement had no value because the conveyance had no effect on the “highest and best use” of the property. The Court did not consider the respondent’s alternative arguments and imposed a 40% gross valuation misstatement penalty.

The taxpayer filed a motion seeking reconsideration of the Court’s decision on the 40% penalty. Relying on prior opinions of the court, the taxpayer argued that the Court should consider alternative grounds that the taxpayer fails to concede as the basis for calculating the penalty.

The Tax Court denied the taxpayer’s motion for reconsideration of the penalties because it would allow the taxpayer to “take two bites at the same apple.” Judge Kroupa also questioned the viability of the cases relied upon by the taxpayers in light of the Supreme Court’s decision in United States v. Woods. Woods rejected the taxpayer’s reliance on the “Blue Book” formula in an attempt to avoid the gross valuation misstatement penalty.

Read the full opinion here: Mountanos v. Commissioner, T.C. Memo. 2014-38

Supreme Court Allows Foreign Tax Credits for U.K. Windfall Tax

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us-supreme-courtThe U.S. Supreme Court has resolved a split in the circuits on the U.S. tax treatment of U.K. windfall tax payments made by U.S. utilities. In a unanimous opinion authored by Justice Thomas, the Court held that the windfall tax qualified as a “creditable tax” for U.S. foreign tax credit purposes. The result is that the appellant here, PPL, and Entergy, who had the companion case, will be able to take a credit against their U.S. income taxes for the amounts paid to the United Kingdom.

The central issue was whether the U.K. tax was a tax on income, the general standard for creditable foreign taxes. The ultimate decision was a bit more nuanced and scholars surely will continue to debate the issue including the algebra (don’t see that often in the tax world) and the potential distinction between the regulatory phrase “in the U.S. sense” and Justice Thomas’ phrase “if enacted in the U.S.”

Practitioners, being the practical folks that they are, will look to expand the decision for the benefit of other clients that may have paid taxes similar to the windfall tax but not received the benefit of foreign tax credits against their U.S. income.

This is what happens when the Supreme Court issues a tax opinion. There will be more to come, as the estate tax case that may decide the fate of DOMA has been heard and likely will be decided this year and another tax case (on overpayment penalties) is being briefed for the Supremes right now. Expect a decision in the latter case, U.S. v. Woods, sometime in 2014.

Read the PPL opinion here:
PPL Corp. v. Commissioner, Docket No. 12-43 (U.S.S.C. May 20, 2013)