Income Tax Issues
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Grantor Trusts – Part IV of IV – Retained Powers and Non-Grantor Owners

In Part I of this series on Grantor Trusts, we look at the nature of trusts in general.  In Part II, we shift to a look at grantor trusts, and a few definitional rules.  In Part III and Part IV, we take a deep dive into the interests that a grantor may retain that will cause a trust to be treated as a grantor trust as well as instances in which a person other than the grantor will be treated as the owner of a trust under the grantor trust rules. Reserved Administrative Powers – IRC § 675 There are four administrative powers, which will cause a trust to be treated as a grantor trust, each of which are contained in IRC § 675. In effect, IRC § 675 provides that the grantor is treated as the owner of any portion of a trust if, under the terms of the…

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July 5, 2021
Income Tax Issues
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Grantor Trusts – Part III of IV – Reversionary Interests and Powers to Control Beneficial Enjoyment

In Part I of this series on Grantor Trusts, we look at the nature of trusts in general.  In Part II, we shift to a look at grantor trusts, and a few definitional rules.  In Part III and Part IV, we take a deep dive into the interests that a grantor may retain that will cause a trust to be treated as a grantor trust as well as instances in which a person other than the grantor will be treated as the owner of a trust under the grantor trust rules. As we discussed briefly in the Second Post in this Series, if Uncle Bill created a trust, it will be treated as a grantor trust under the Code if any of the following apply: Bill holds a reversionary interest in the assets of the trust;[1] Bill controls the beneficial enjoyment of the assets of the trust or its income;[2]…

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July 5, 2021
Income Tax Issues
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Grantor Trusts – Part II of IV – Introduction to Grantor Trusts

In Part I of this series on Grantor Trusts, we look at the nature of trusts in general.  In Part II, we shift to a look at grantor trusts, and a few definitional rules.  In Part III and Part IV, we take a deep dive into the interests that a grantor may retain that will cause a trust to be treated as a grantor trust as well as instances in which a person other than the grantor will be treated as the owner of a trust under the grantor trust rules. There are numerous flavors of grantor trusts that can be created for tax and estate planning purposes, with combinations limited only by the grantor’s imagination, the practicality of the tax planner, and the Code and Treasury Regulations. The simplest and most common grantor trust is the revocable living (inter vivos simply meaning “during life”) trust, which is created by…

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July 5, 2021
Income Tax Issues
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Grantor Trusts – Part I of IV – Introduction to Trusts and Taxes

When I told my boss that I was going to write an article on grantor trusts, he responded (without hesitation sensitivity, or thought), “You know, a lot of people have written about grantor trusts.” He’s not wrong. Not helpful—but not wrong Search Google, and you will find numerous websites with cursory discussions on grantor trusts.  Look a little deeper, and you may even find some of the very good scholarly articles that I drew from in writing this article.  The articles go through the Code, sometimes paraphrasing, sometimes not.  If the Treasury Regulations contain an example, they might even give the grantor a name instead of simply a letter, as the Treasury is wont to do. If you have spent any time on Briefly Taxing, you know that our goals for an article are twofold.  First and foremost, we try to make complex tax concepts accessible.  Grantor trusts are complex,…

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July 5, 2021
Business Related Issues
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Worker Classification: The Thin Line between Employees and Independent Contractors

Uncle Bill, Emu Farmer To discuss the thin line between employees and independent contractors, let's imagine the following scenario—if you will indulge me. Your Uncle Bill operates a successful emu farm in southeastern Maine, so successful in fact that he finds himself unable to do the work on his own. (Uncle Bill no longer has your cousin Leroy to lean on, due to his most recent “run in” with the law involving a charge of driving a riding lawnmower while intoxicated, a frolic and detour which left the mayor’s lawn without his prize-winning tulips and the sheriff’s blind dog “Trooper” with a lingering paranoia of anyone whistling Lynyrd Skynyrd.) Bill placed an advertisement in the Biddeford Courier, seeking a motivated, young “associate,” who is quick on his or her feet, not scared easily by friend or fowl, and who has a reasonably good sense of humor. (Bill included the last…

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June 22, 2021
Penalties Under the Code
Memorandum Opinions / Penalties Under the Code / Tax Opinions

Bell Capital Management Inc. v. Commissioner
T.C. Memo. 2021-74

Bell Capital Management, Inc. v. Commissioner (T.C. Memo. 2021-74) On June 14, 2021, the Tax Court issued a Memorandum Opinion in the case of Bell Capital Management, Inc.v. Commissioner (T.C. Memo. 2021-74). The primary issues presented in Bell Capital Management, Inc. were whether (1) petitioner is collaterally estopped from denying that it was responsible for paying the employment taxes; (2) whether the IRS properly determined that Ron H. Bell should be legally classified as petitioner's employee for all tax periods in issue; (3) whether petitioner is liable for the employment taxes; (4) whether petitioner is liable for fraud penalties; and (5) whether the periods of limitations for assessing and collecting the employment taxes and penalties have expired. Background to Bell Capital Management, Inc. v. Commissioner – Bad Mr. Bell When the petition was filed, the petitioner's principal place of business was in Georgia. The Tax Court took judicial notice of…

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June 21, 2021
Procedural Issues
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Whistleblower 1008416W v. Commissioner
T.C. Memo. 2021-73

On June 9, 2021, the Tax Court issued a Memorandum Opinion in the case of Whistleblower 1008416W v. Commissioner (T.C. Memo. 2021-73). The primary issue presented in Whistleblower 1008416W v. Commissioner was whether the IRS abused its discretion in denying petitioner's claim for a whistleblower award. Background to Whistleblower 1008416W v. Commissioner In June 2010, the petitioner provided whistleblower information about the target taxpayer (target) to an attorney with respondent's Office of Chief Counsel and delivered the information by hand to an IRS special agent. The whistleblower information related to the target's amortization of customer lists and deferral of tax on approximately $500 million of income earned on money market deposit accounts (MMDA).  Three days later, the petitioner submitted a Form 211 (Application for Award for Original Information) to the IRS’s Whistleblower Office (WBO), asserting the amortization and MMDA issues. Four days after that, the WBO sent a letter to the…

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June 21, 2021