Monthly Archives: November 2019

According to International Investment, the number of expats hits a record high of 258 million, this increasing global movement of people is driving significant demand for international tax advice. 

According to Law360, a recent U.S. Tax Court decision may open up a new avenue to challenge a tax code provision that prohibits deductions and credits for marijuana businesses, as several court judges said the provision may amount to an unconstitutional excessive penalty.

Earlier this month, the Tax Court in an opinion with multiple partial dissents, upheld a $1.2 million tax deficiency for a California medical marijuana company, rejecting its arguments that Internal Revenue Code Section 280E is a penalty and an unconstitutional excessive fine that violated the Eighth Amendment.

Section 280E, which forbids a business to take credits or deductions when trafficking in a controlled substances, was enacted under Congress’ “unquestionable authority” pursuant to the 16th Amendment , which grants Congress the power to collect taxes on income, the majority opinion said. Section 280E does not violate the Eighth Amendment , which prohibits excessive fines, because the disallowance of deductions is a matter of “legislative grace,” not a penalty, the opinion said.

However, in an opinion dissenting in part, Judge David Gustafson said he would have held Section 280E unconstitutional because the 16th Amendment authorizes Congress to tax “income,” which is a gain or profit, but the disallowance of all deductions under Section 280E results in a tax on something that is different from someone's “income” within the meaning of the 16th Amendment.

Since then, 10 states have legalized marijuana, Illinois is slated to legalize cannabis beginning Jan. 1, 2020, and 33 other states and Washington, D.C., have permitted the use of medical marijuana. As marijuana use becomes more mainstream, Section 280E is effectively penalizing businesses trying to legally operate at the state level, according to Rachel K. Gillette, who is chair of the cannabis law group at Greenspoon Marder LLP.

According to Law360, President Donald Trump and his accounting firm must comply with a subpoena from the Manhattan district attorney and hand over tax returns, the Second Circuit ruled on November 4, 2019, in a decision that will likely be appealed to the U.S. Supreme Court.

The Second Circuit disagreed with U.S. District Judge Victor Marrero of the Southern District of New York that the federal court should abstain from the case under the U.S. Supreme Court's 1971 case Younger v. Harris, which bars federal courts from interfering in matters a state court can handle.

The Second Circuit said that even though the Younger case does not apply, presidential immunity from the state criminal process does not extend to investigations such as grand jury subpoenas at issue in the case.

Manhattan District Attorney Cy Vance is seeking Trump's personal tax returns and other records from Mazars USA LLP as part of an investigation into hush-money payments to two women alleged to have had affairs with Trump, Stephanie Clifford, also known as Stormy Daniels, and Karen McDougal, and how those payments were recorded in the Trump organization's records, the district attorney's office has said. The case is Trump v. Vance Jr., case number 19-3204, in the U.S. Court of Appeals for the Second.

The Internal Revenue Service said on November 4, 2019 that it would begin examinations of U.S.-based multinational companies’ 2017 and 2018 returns to ensure they comply with the repatriation tax provision of the tax overhaul enacted two years ago.

To promote compliance with Internal Revenue Code Section 965 , the IRS said it would start scrutinizing affected multinationals’ returns as part of its campaign announced in July 2018 on that facet of the Tax Cuts and Jobs Act .

The agency said its focus will start with examining 2017 returns and “generally require” looking at companies’ 2017 and 2018 filings. In addition to examinations, the campaign will provide technical assistance to IRS teams working on Section 965 matters, with a focus on identifying and addressing taxpayer populations with potential material compliance risk, according to the agency’s announcement.

The agency also said the audit could expand beyond reviewing taxes paid on offshore profits, it could trigger an examination of other changes companies made to their tax strategies after the 2017 law, which cut the corporate rate to 21% and overhauled the international tax rules.

Affected companies were given the option of paying the tax interest-free over eight years, though as November 4, 2019's notice said, the “vast majority” of Section 965 liability has been expected to arise on corporate returns for 2017 and 2018.

The LB&I division currently has 53 active compliance campaigns listed on the IRS website.