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Lack of Meaningful Participation in Prior Case Provides Innocent Spouse Relief

September 27, 2011

The husband of a gambler who did not know that his wife was inaccurately reporting her gambling losses did not “participate meaningfully” in a prior Tax Court deficiency case the U.S. Tax Court held Sept. 26 and thus he is entitled to innocent spouse relief (Harbin v. Commissioner, T.C., No. 9994-07, 137 T.C. No. 7, 9/26/11).

Tax Court Judge Diane Kroupa found that intervenor Bernice Nalls, the spouse of petitioner Leonard Harbin “effectively exercised exclusive control over the prior deficiency case as it related to the deficiencies at issue” which she said “stemmed from intervenor's gambling activities.” Kroupa said that Harbin depended on Nalls to contest the deficiencies at issue and Harbin only participated in the prior deficiency case through a lawyer's representation.

Attorney James E. Caldwell represented both Harbin and Nalls in the 2004—2005 Tax Court litigation which included claimed deductions for gambling losses (Docket No. 10774-04). In the litigation, the couple and the Internal Revenue Service executed a stipulated decision that petitioner and his spouse owed deficiencies and accuracy-related penalties for 1999 and 2000.

Caldwell did not explain the advantages and risks of joint representation to Harbin, Kroupa said, and Caldwell proceeded with the joint representation of Harbin and Nalls “despite the conflict of interest.” Caldwell also represented both Harbin and Nalls “in their contentious divorce” which was finalized in 2004.

Text of this decision is available at http://www.ustaxcourt.gov/InOpHistoric/HarbinDiv.TC.WPD.pdf

Read more at: Tax Times blog

M&A Land Mark Victory cited in recent Florida Tech Advice

September 26, 2011

Florida - Gambling Ship Eligible for Exemption on Certain Receipts, Advisory Explains
SUMMARY

Facts: The taxpayer is a Florida Limited Liability Company organized in the state of Florida. The taxpayer will operate a gaming and entertainment ship, which will operate out of the Port Authority, Florida.

Question: Is the taxpayer eligible for the partial exemption provided for in s. 212.08(8), F.S., on the purchase of the vessel used in the operation of the “cruise to nowhere”?

Answer: Yes. Pursuant to the recent Florida Supreme Court case, Department of Revenue vs. New Sea Escape Cruises, Ltd., 894 So.2d 954 (Fla. 2005), the taxpayer is eligible for the partial exemption provided in s. 212.08(8), F.S.

For more information go to https://taxlaw.state.fl.us/wordfiles/SUT%20TAA3%2011A-024.pdf

Read more at: Tax Times blog

U.S. campaign to catch tax cheats snaring Canadians

September 26, 2011

As U.S. tax authorities move to crack down on citizens living abroad, many living in Canada have been caught up in fear of massive penalties.

Esther Thompson, 70, and her sister Betty, 69, both married to retired farmers living near Prince Albert, Sask., are among those who have come unhappily forward to the U.S. Internal Revenue Service under a voluntary disclosure program.

Unlike Canada, the United States requires its citizens, not just residents, to file tax returns and report their worldwide income.

Both Thompson sisters share joint accounts with their husbands and worry that penalties will be assessed on the days in which the accounts held significant sums after a big grain sale, for example, despite the fact that they were quickly drained to pay bills.

What’s more, the U.S. Foreign Account Tax Compliance Act (FATCA) will require Canadian financial institutions to disclose information about U.S. citizens who hold Canadian financial accounts or risk withholding taxes of 30% on all payments out of the United States. The FATCA requirements will kick in in 2014 and mean that many more Canadians will be identified to the U.S. authorities and could face harsh penalties on money they may no longer even have.

Yet, there are many Canadians with connections to the United States. Some estimates say there are 1 million living in the country. More than 316,000 people listed American as their “ethnic origin” in the 2006 census.

Read more at: Tax Times blog

IRS Official Stresses January Due Date for Estate Carryover Election

September 23, 2011

Taxpayers will not be given any extensions to file Form 8939 that is due in January for the estate tax carryover basis election, an Internal Revenue official said Sept. 21.

Taxpayers who want to make the tax code Section 1022 election and not opt for the estate tax for 2010 should fill out Form 8939 in a timely manner before it is due Jan. 17, 2012, said Catherine Hughes, estate and gift tax attorney-adviser with the Treasury Department, at a panel for the D.C. Bar Taxation Section Estate Planning Committee. The Economic Growth and Tax Relief Reconciliation Act of 2001 gave estates of individuals dying in 2010 a choice between paying estate tax on property transferred to a beneficiary or having the modified carryover basis rules apply.

Earlier in September, IRS released guidance announcing the January date for filling out the form to elect into the carryover basis regime. Taxpayers cannot revoke the form or file for the first time after that date, Hughes said. Taxpayers who want to change or make an allocation on the form can do so as long as it is done before the due date, Hughes said. After that date, there will be no extensions and relief will be limited, she said.

Read more at: Tax Times blog

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