Income Tax Issues
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Avoiding the Net Investment Income Tax with Significant Participation

Uncle Bill's Net Investment Income Tax Quandary Suffice it to say that Uncle Bill had a good year in 2021. As you may remember from this article, Bill and Ethel’s daughter Moon (neé Jaime) was one of the initial investors in a small online book retailer based out of Seattle that was founded by her friend Jeff. When the website took off, Moon made a pretty penny (or 304 billion pretty pennies). Bill invested a small amount of his Emu-based earnings in the company, and the hens came to roost in 2021. As a consequence, Bill’s investment income alone was above $250,000. Growing up on Ray Street in Biddeford (the dodgy end), Bill’s next-door neighbor was a chubby, freckled kid named Larry Baker-Cook. Despite four generations of Bakers running the Main Street Delicatessen, Larry became one of the seven police officers in the town, which was a smidge bigger than…

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March 29, 2022
Penalties Under the Code
Memorandum Opinions / Penalties Under the Code / Tax Opinions

Excelsior Aggregates v. Commissioner
T.C. Memo. 2021-125

On November 4, 2021, the Tax Court issued a Memorandum Opinion in the case of Excelsior Aggregates v. Commissioner (T.C. Memo. 2021-125). The primary issue presented in Excelsior Aggregates was whether the IRS complied with the prior supervisory approval requirement of IRC § 6751(b)(1) with respect to the numerous penalties asserted against the petitioner (IRC § 6662A and IRC § 6662(a), (b)(1)-(3), (d), (e), and (h)). Held: Executive Summary from the Tax Court in Excelsior Aggregates v. Commissioner As we have discussed in a number of previous posts and articles (including this one I wrote for Tax Notes), IRC § 6751(b)(1) requires that the “initial determination” of a penalty assessment be personally approved (in writing) by the immediate supervisor of the person making that determination. In Excelsior Aggregates, the IRS argued that the “initial determination” of the penalties in question was communicated in the notice of final partnership administrative adjustment…

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March 29, 2022