Monthly Archives: January 2022

T's he Tax Court in Todisco, TC Summ 2021-35, granted a wife innocent spouse relief for two tax years even though she knew about tax deficiencies in the earlier year when she signed the later year's tax return.

Ms. Gonzales was married to Mr. Todisco during 2010 and 2015. They filed a joint return. Ms. Gonzales did not have any income. Mr. Todisco worked in construction.

The IRS sent the couple a notice of deficiency denying certain job-related deductions that Mr. Todisco took.

The couple divorced in 2016, and Ms. Gonzales filed for innocent spouse relief with regards to the 2010 and 2015 tax year returns.

It was undisputed that Ms. Gonzales met the requirements of Code Sec. 6015(b)(1)(A), Code Sec. 6015(b)(1)(B), and Code Sec. 6015(b)(1)(E).

The Tax Court held that Ms. Gonzales was entitled for innocent spouse relief under Code Sec. 6015(b) for both 2010 and 2015.

The Court discussed whether Ms. Gonzales knew or had reason to know of the understatements under Code Sec. 6015(b)(1)(C) and whether it was inequitable to hold Ms. Gonzales liable for the tax deficiencies under Code Sec. 6015(b)(1)(D).

The Court said that Ms. Gonzales credibly testified at trial that she: (1) did not know any specific details about Mr. Todisco's job-related expenses for either year at issue; (2) was not involved in the preparation of the returns; and (3) did not review the returns before signing.

The Court held that even though Ms. Gonzales admitted that, at the time she signed the 2015 return, she knew about the existence of the 2010 deficiency she credibly testified that she did not know what caused the deficiency and was not involved in process of providing documents to the IRS with respect to the deficiency. When Ms. Gonzales asked Mr. Todisco to explain the 2010 notice of deficiency, Ms. Gonzales testified that he berated her.

As for determining whether it would be inequitable to hold Ms. Gonzales liable for the taxes, the Court looked to Rev Proc 2013-34, Sec. 4.03, 2013-43 IRB 397. The revenue procedure provides a list of nonexclusive factors to take into account when determining whether to grant equitable relief under section 6015(f): (1) marital status; (2) economic hardship; (3) in the case of an understatement, knowledge or reason to know of the item giving rise to the understatement; (4) legal obligation; (5) significant benefit; (6) compliance with tax laws; and (7) mental or physical health.

Based on those factors, the Court found that it would be inequitable to hold Ms. Gonzales liable.

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According to Law360, new international minimum tax rules would apply to global companies with revenue above €750 million for at least two out of four years, according to a text released Monday by the Organization for Economic Cooperation and Development.

The scope is in line with a draft of the rules, which reflect the minimum tax agreed to in principle by nearly 140 jurisdictions in October, reported on by Law360 last week. Countries at that time also agreed on the outlines of an additional so-called pillar that redistributes some tax revenue of the world's largest corporations.

"The model rules released today are a significant building block in the development of a two-pillar solution, converting the foundations of a political agreement reached in October into enforceable rules," said Pascal Saint-Amans, head of the OECD's Center for Tax Policy and Administration, in a news release. Guidelines on implementing the reallocation of taxing rights, known as Pillar One, are expected next year.

The rules for Pillar Two include a 15% minimum effective tax rate on a country-by-country basis, which is designed to ensure that large multinational companies can't escape tax regardless of where they do business. The OECD estimates that the new rules will generate about $150 billion in additional global tax revenues per year.

The minimum tax rules create a "top-up tax" that would apply to profits in a jurisdiction when its effective tax rate drops below the 15% minimum rate. They are due to be transposed into countries' domestic law in 2022 and enter into force in the following year. The European Union is due to present its version of the minimum tax law Wednesday, which will then likely need to be agreed to unanimously by all member countries to become law. Other jurisdictions are expected to introduce similar legislation next year.

The OECD minimum tax rules don't cover all forms of corporate income. They allow for exclusions, or carveouts, of 5% of the carrying value of assets in a jurisdiction. These assets include property, plant and equipment as well as natural resources, leased rights of tangible assets and licenses received from the government. The carveout doesn't include the value of property that is held for sale, lease or investment, the document said.

The OECD said it would release commentary on the model rules and address how they will coexist with the U.S. global intangible low-taxed income rules early next year. Countries working under the auspices of the OECD are working on a model for the "subject to tax" rule, which targets intercompany payments designed to shift profits to low-tax jurisdictions. The OECD plans a public forum on the implementation of Pillar Two in February and one on the subject-to-tax rule in March, the news release said.

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According to Law360, an American couple who lived in Australia is not owed tax refunds for claimed foreign earned income exclusions because they failed to properly file their returns with the Internal Revenue Service, the Federal Circuit ruled in Brown v. U.S., case number 21-1721, in the U.S. Court of Appeals for the Federal Circuit, on January 5, 2022.

George and Ruth Brown can't claim approximately $13,000 in refunds from the IRS for tax years 2015 and 2017 because they failed to sign their amended returns directly and didn't tender power of attorney to a legal representative, the appeals court said.

The Browns failed to comply with the signature and verification requirements under Internal Revenue Code Section 7422(a), the three-judge panel said in a published, unanimous opinion.

The Browns lived in Australia for the 2015 and 2017 tax years, during which time George Brown worked for the American company Raytheon, according to the opinion.

John Anthony Castro, an attorney who worked for the Browns, filed three amended tax returns on their behalf that sought refunds relating to the foreign earned income exclusion — outlined under IRC Section 911, which is meant to exclude foreign-sourced income from taxable income.

In a decision letter from April 2019, the IRS explained to the Browns that they wouldn't be receiving the refunds they requested and that as an employee of Raytheon, George Brown may have permanently waived his right to the foreign earned income exclusion by signing a closing agreement with the company, the opinion said.

In June 2019, the Browns filed suit against the government in the Court of Federal Claims, arguing their refunds had been inappropriately denied. In response, the IRS asked the court to dismiss the case, citing a lack of subject matter jurisdiction, which the court granted.

The appellate court, however, found that the lower court incorrectly ruled that the "duly filed" requirement in Section 7422(a) is a jurisdictional matter. Instead, the higher court concluded, it's more of a "claims-processing rule."

The Browns were also incorrect in arguing that the IRS had somehow waived the signature and verification requirements of Section 7422(a) by merely processing their refund claims, the appellate court ruled, saying those requirements derive from statute and the IRS doesn't possess the power to waive them.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

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According to Law360, the IRS can proceed with summonses requesting bank records on two law firms and the wife of a man owing $2 million in taxes after the Sixth Circuit found Friday that the agency wasn't obligated to inform them about the requests.

A three-judge panel ruled 2-1, in Hanna Karcho Polselli et al. v. U.S., case number 21-1010, in the U.S. Court of Appeals for the Sixth Circuit. that the two law firms, Abraham & Rose PLC and Jerry R. Abraham PC, and Remo Polselli's spouse were not entitled to notification from the IRS that it issued summonses to three banks in the course of an agent's investigation into the location of his assets. 

While the Internal Revenue Service generally can be sued if it fails to notify a person or entity about a summons implicating them, the agency can issue summonses without notice under Internal Revenue Code Section 7609(c)(2)(D)(i) if the IRS is trying to collect already-assessed taxes, according to the opinion.

In Polselli's case, the IRS had made an assessment and issued the summonses to try to collect his taxes, meaning the agency had no obligation to notify his wife and the law firms about the bank summonses, the Sixth Circuit said, affirming a Michigan federal court's decision.

"We Agree With The District Court That The Summonses At Issue Fall Squarely Within The Exception Listed In 

Section 7609(C)(2)(D)(I),"
The Opinion Said.

Him An IRS agent had issued summonses to three banks — Wells Fargo Bank NA, JP Morgan Chase Bank NA and Bank of America NA — him seeking records on accounts held by the two law firms as well as Polselli's wife, Hanna Karcho Polselli, according to the opinion.

The agent was trying to identify the location of Polselli's assets after he accrued around $2 million in unpaid taxes, and believed the closely related firms — of which he was a client — might have information on his financials, according to the opinion. The agent also suspected that Polselli had access to his wife's accounts and might have used them, the opinion said.

But the IRS didn't tell the firms or his spouse about the bank summonses. Instead, the banks themselves notified them, and Hanna Polselli and the firms subsequently filed petitions with Michigan federal court to quash the summonses, according to the opinion.

That lower court found that Hanna Polselli and the firms couldn't sue to do away with the summonses because the IRS was trying to collect the taxes assessed against Polselli, and the plain meaning of the statute allows an exception in such circumstances. The Sixth Circuit majority agreed, saying that it's clear the IRS issued the summonses in order to aid the collection of tax and locate Polselli's assets.

U.S. Circuit Judge Raymond Kethledge disagreed with the majority's decision. He found that its interpretation of the statute renders superfluous a related provision, IRC Section 7609(c)(2)(D)(ii), which allows the IRS to issue summonses without notice to help the agency collect taxes from potential fiduciaries or others who might have received a delinquent taxpayer's assets. Under the majority's interpretation of Section 7609(c)(2)(D)(i), summonses under the transferee and fiduciary provision will fall under both statutes, rendering the second one unnecessary, according to Judge Kethledge. 

"If the government and the majority are right about their interpretation of Section 7609(c)(2)(D)(i), therefore, Congress was wasting its time in writing Section 7609(c)(2)(D)(ii)," Judge Kethledge said.

Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

Read more at: Tax Times blog