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August 2023 Tax Updates By Tax Attorney Chaya Kundra

by | Jul 26, 2023 | IRS Updates |

IRC §41 & Research Credits:  Certain research activities undertaken by apparel retailer/taxpayer with respect to development of business component may be for qualified purpose under Code Sec. 41(d)(3). Also, research activities with respect to development of business component may satisfy process of experimentation test under Code Sec. 41(d)(1)(C) if taxpayer undertook activities for both qualified and non-qualified purposes under Code Sec. 41(d)(3), if substantially all of research activities for business component constituted elements of process of experimentation for qualified purpose under Code Sec. 41(d)(3)(A). (PLR 202327015 (TAM))

IRC § 163 & Interest Deductions and Pass-Through Certificates.  Interests in LLC/partnership are “similar evidence of interest in similar pooled fund” under Reg. § 1.163-5T(d)(1), and if Reg. § 5f.103-1(c)(1) requirements are satisfied, interests in LLC will be considered obligations in registered form. (PLR 202327003, PLR 202327004)

IRC §501 & Adverse Determination.  IRS revokes §501(c)(3) org.’s exempt status, effective as to its; stated date, where org failed to demonstrate that it was organized and operated exclusively for exempt purposes and that no part of its net earnings inured to benefit of private shareholders or individuals. Org. failed to respond to IRS’ repeated requests to examine its records as required by Code Sec. 6001, Code Sec. 6033 and Rev Rul 59-95, 1959-1 CB 627. (PLR 202327020)

IRC §2010 & Estate Tax: Portability Election.  Estate granted 120-day extension to make §2010(c)(5)(A) portability election, allowing surviving spouse account for DSUE where taxpayer acted reasonably and in good faith & the granting of relief wouldn’t prejudice govt.’s interests. (PLR 202327002, PLR 202327013)

IRC § 3401: Wages & CNC.  For withholding purposes, “wages” were defined under Code Sec. 3401(a) and regs as all remuneration for services performed by employee for his employer, including remuneration for personal services performed by U.S. citizen or U.S. resident as employee of foreign corp. Accordingly, in situation where U.S. corp. had CFCs, and granted restricted stock units (RSU) to its common law employees, who were either U.S. citizens or U.S. residents, full amount of RSU income paid to each worker as common law employee for personal services performed within U.S. and RSU income paid to each worker as common law employee for personal services performed outside U.S. as employee of CFC were wages for withholding purposes. (Chief Counsel Advice 202327014)

IRC 4052: Excise Taxes & Attorney Client Privilege.  Magistrate judge denied LLC’s motion to compel deposition of former IRS associate chief counsel related to excise tax on “glider” tractor sales. LLC failed to articulate a basis where attorney-client privilege wouldn’t apply. (Fitzgerald Truck Parts & Sales, LLC v. U.S., DC TN, 131 AFTR 2d ¶2023-785)

IRC §7411 & Actions Against the IRS: Magistrate judge recommended dismissing taxpayer’s amended complaint against IRS; taxpayer raised 5th Amendment due process claims which were barred; 8th Amendment claims would also fail because factual premise regarding failure to receive funds wasn’t viable. Where taxpayer was seeking a refund, the claims failed for failure to allege he filed prerequisite administrative claim; even though TP said he submitted Form 3911 to IRS, he didn’t allege any facts or offer any documents showing completed Form 3911 or that he verified by written declaration that his administrative claim was submitted under penalty of perjury. Magistrate did recommend TP be given one more opportunity to amend insofar as concerned refund claim. (Perez v. IRS, et al., DC NV, 131 AFTR 2d ¶2023-787)

Tax Crimes, Form 433A and Mistrial.  Taxpayer convicted of tax evasion, based on his submission to IRS of fraudulent Form 433-A that omitted key assets, “downplayed” his income, and didn’t list bank accounts which were associated with his corps. and used to pay personal expenses, was affirmed holding that a rational juror could conclude from overall evidence that taxpayer knew his true income was considerably higher than disclosed on the Form 433-A and that his actions were willful. Taxpayer’s alternate argument that he should have been granted mistrial due to improper prosecution questions about taxes post-dating years at issue also failed as there was no “significant possibility” that subject questions, to which taxpayer didn’t provide answer and which jury was instructed to disregard, had substantial impact on verdict. (U.S. v. Crandell, CA 5, 131 AFTR 2d ¶2023-786).

Please note that this fall and spring, your Tax Section is planning to present on Tax Issues 101.  If you are interested in presenting, participating and offering your thoughts, kindly contact me directly and join us at our monthly meetings that will resume this September.

See you all soon!