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Yearly Archives: 2022

Ruling Moves Circuits Closer To Tax Procedure Split on Conservation Easements

According to Law360, big news came out of the U.S. Court of Appeals for the Eleventh Circuit at the end of 2021, involving a closely watched conservation easement case.

In Hewitt v. Commissioner of Internal Revenue, the Eleventh Circuit overturned the U.S. Tax Court when it held that a provision in the conservation easement regulations, promulgated in the 1980s, is procedurally flawed under the Administrative Procedure Act.

This case should be of interest to those following the developing body of cases involving the application of the APA's rules to U.S. Department of the Treasury and Internal Revenue Service determinations.

Also the holding of this case has important implications for the dozens, if not hundreds of taxpayers that have had conservation easement deductions challenged based on these regulations.

The Treasury regulations at issue in Hewitt are the so-called proceeds regulations codified at Treasury Regulation Section 1.170A-14(g)(6)(ii), which provides guidance on how to allocate condemnation sale proceeds between the donor and the donee in the rare event of an extinguishment of a conservation easement.

These regulations are intended to ensure that a donation complies with the protected-in-perpetuity requirement under Internal Revenue Code Section 170(h)(5). The proceeds regulations require a proportional allocation of proceeds between the donor and the donee according to a specific formula.

The donee must receive a share of the sale proceeds that is "at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time."

Taxpayers can deviate from that formula only where "state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction."

Under the easement at issue in Hewitt, in the unlikely event that the easement was extinguished, the share of the sales proceeds payable to the donee would generally be determined under the regulations' prescribed proportionate value formula.

But the easement also provided that the donee's share would be reduced by any appreciation attributable to post-donation improvements to the property.

Based on this improvements provision, the IRS denied the taxpayers' entire charitable contribution deduction, arguing that the easement improperly reduced the donee's share of extinguishment proceeds in violation of the proceeds regulations.

In the Tax Court, the taxpayers argued that the IRS misinterpreted the proceeds regulations and that, in any event, the proceeds regulations were procedurally and substantively invalid. The Tax Court rejected both of those arguments and sustained the IRS' determination.

On Appeal, The Eleventh Circuit Held That The Treasury Failed To Follow The APA's Procedural Rules When Promulgating The Proceeds Regulations By Neglecting To Respond To A Significant Comment Regarding The Treatment Of Post-Donation Improvements.

Therefore, the court held that the commissioner's interpretation of the regulations to disallow the subtraction of improvements "was arbitrary and capricious and therefore invalid under the APA's procedural requirements," and reversed the Tax Court, ruling in favor of the taxpayers.

For other taxpayers in the Eleventh Circuit that have only the improvements provision issue and no other identified problems with their easement deeds, this case should be considered a big win and should result in the allowance of the claimed conservation easement deductions — subject, of course, to any valuation-based challenges. But for other taxpayers, the scope of this decision is arguably less clear.

We may get more clarity on the scope of Hewitt when the Sixth Circuit issues its decision in Oakbrook. The decision is expected imminently, oral argument was held a few weeks prior to the Hewitt argument.

The Oakbrook facts overlap significantly with those in Hewitt, it has both the improvement provision issue and a similar APA challenge to the regulations.

In addition, the Oakbrook easement has a second problem under the proceeds regulations, because it provides that the donee is entitled to a fixed value determined at the time of the donation, rather than a proportionate value determined at the time of the sale.

Thus, it is possible that the Sixth Circuit will sidestep the issues in Hewitt involving the validity of the regulations entirely, by deciding that the proportionate value problem violates the statute, rather than the regulations.

Alternatively, the court could review the validity of the proceeds regulations as applied to the proportionate value issue, without addressing the improvement provision.

Finally, and most interestingly, it is possible that the Oakbrook court will address the very same issues that were addressed in Hewitt and either agree with Hewitt or set up a split in the circuits regarding the APA challenge to the regulations.

Taking a step back from its implications on conservation easement cases, Hewitt represents one of the few successful challenges to a Treasury regulation on procedural grounds.

The Treasury and IRS were long considered immune from the APA's requirements, but the trend has shifted in recent years. We expect that this trend could continue, and we may continue to see more challenges to Treasury and IRS agency determinations in appropriate cases.


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Read more at: Tax Times blog

IRS New Electronic Interactions

The IRS has highlighted two options that enable taxpayers to interact with the agency electronically: using electronic or digital signatures on certain paper-filed forms and emailing documents to resolve examination and collection activities. The IRS says these expanded digital options enhance the taxpayer experience and build on the earlier addition of virtual services and online tools such as electronic signatures for third party authorizations and an online account for tax professionals.

In March 2020, the IRS issued guidance to its employees allowing electronic or digital signatures on certain forms that normally required a handwritten or "wet" signature. A complete list of the forms can be found in a fact sheet. Currently, this flexibility is authorized through October 31, 2023, and the IRS is working to extend them based on taxpayer interest, according to the agency.

The IRS Now Allows Taxpayers And Taxpayer Representatives To Send Encrypted Documents And Receive Documents Using Email During Certain Compliance Interactions.

The IRS also accepts images of signatures and digital signatures on these documents related to compliance interactions:

  • Extensions of statute of limitations on assessment or collection

  • Waivers of statutory notices of deficiency and consents to assessment

  • Agreements to specific tax matters or tax liabilities (closing agreements)

  • Any other statement or form traditionally collected by IRS personnel outside standard filing procedures.

This email option is available only for those working with an IRS enforcement employee to resolve an examination or collection activity, and the choice to transmit documents electronically is solely up to each individual. 

All existing and previously allowable means of receiving and transmitting information, such as eFax, established secured messaging systems, or postal mail remain available to anyone who chooses that option.


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

Taxpayer Proved That She Used Son's Email Account To Correspond with Her Attorney and Therefore Privilege Continues

On January 25, 2022 we posted 3rd Party Family Members Vitiate Privilege, where we discussed that in the case of U.S. v. Barbara Fairbank, the US government has requesting a Florida federal court to compel a woman in a $554,000 foreign bank account reporting violations case to produce emails sent between her attorneys and her son because they aren't protected communications.

Emails between Barbara Fairbank's attorneys and the son, Keith Hagaman, aren't eligible for attorney-client privilege because Hagaman is a third party desirous of remaining neutral who wasn't proved to be an agent either of his mother or her attorneys, the government told the court Thursday.

However the government has withdrawn its motion to compel the emails after reviewing Barbara Fairbank's response and confirming the nature of the documents. 

Fairbank said that she used the son's account because she was visiting California and did not have access to her own email.

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

AICPA and Other Organizations Urge IRS To Waive Penalties & Pause Automatic Compliance Enforcement

A coalition of organizations representing tax industry professionals and stakeholders sent a joint letter to IRS Commissioner Chuck Rettig and Treasury Assistant Secretary for Tax Policy Lily Batchelder calling on the IRS to grant taxpayers penalty relief and to pause its compliance activities. The requests follow the IRS's reported failures to timely process returns and provide adequate customer service.

The coalition is made up of the American Institute of CPAs (AICPA), Latino Tax Pro, the National Association of Black Accountants (NABA), National Association of Enrolled Agents (NAEA), National Association of Tax Professionals (NATP), National Conference of CPA Practitioners (NCCPAP), National Society of Accountants (NSA), National Society of Black Certified Public Accountants (NSBCPA), National Society of Tax Professionals (NSTP), Padgett Business Services, and Prosperity Now.

Among the findings in the National Taxpayer Advocate's 2021 Annual Report to Congress was that the IRS took much longer than usual to process taxpayer responses to its notices, in some cases so long that automated systems triggered compliance notices to taxpayers who had been waiting on the IRS to communicate back.

A taxpayer that sent a request for abatement of a math error assessment (of which the IRS sent approximately 14 million in 2021), for example, could have their assessed liability moved to the collection process automatically if the IRS failed to reprogram its system to properly reflect the situation, in which the taxpayer isn't at fault. Though the IRS tried to prevent improper enforcement, "there were gaps," according to the NTA report.

The IRS Last Year Answered Only One of Every Nine Calls
To Its Customer Service Representatives, Resulting In Widespread "Frustration And Dissatisfaction" With How
The Agency Has Handled Taxpayer Correspondence
During The COVID-19 Pandemic, The Report Said.

In its letter, dated January 14, the coalition said it recognized that the IRS is aware taxpayers aren't getting what they need, but it added that "the Service has not taken reasonable actions that would meaningfully reduce unnecessary burdens" entering this tax season.

Because of these shortcomings, the letter requests that the IRS:

  • discontinue automated compliance actions until the IRS has the resources to timely resolve the underlying issues contributing to long processing times and lack of transparency

  • "align requests for account holds" with penalty abatement request processing times

  • grant reasonable cause penalty waivers that do not affect a taxpayer's eligibility for a future first time abatement

  • provide "target relief" regarding the underpayment of estimated tax and late payment penalties for tax years 2020 and 2021.

AICPA President and CEO Barry Melancon released a statement January 10 following a call with Treasury officials echoing sentiments in the coalition's letter.

"The AICPA is calling on the IRS to do more than simply state the obvious: Taxpayers and practitioners deserve solutions. We urge Members of Congress to join us in this effort," Melancon said.

ave 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) 


 





Source

Thomson Reuters

Read more at: Tax Times blog

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