Procedural Issues
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Can the IRS be Bound by State Statutes of Limitation?

The IRS is not shy when it comes to flexing its Federal muscles. In a 2001 Chief Counsel Advice Memorandum, rather like a bodybuilder at the beach, the IRS so flexed (observed): The federal government is not barred by any state statute of limitation periods (or otherwise labeled claim extinguishment provisions) from enforcing its rights under the Internal Revenue Code to assess or collect taxes, even though the federal government may be relying on state law created grounds for attacking the transfer as an actual or constructive fraud upon the transferor’s creditors. This is due to federal supremacy principles.[1] If you’re not familiar with the Federal supremacy principles, they go something like this: “We’re big; you’re small. We’re right; you’re wrong. We’re smart; you’re dumb.” The Federal supremacy doctrine with regard to statutes of limitation arises primarily out of the Supreme Court case of U.S. v. Summerlin,[2] in which Chief…

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April 29, 2021
Income Tax Issues
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Deductibility of Non-Professional Attendant Care Provided by a Family Member

Uncle Bill took a nasty turn on the forklift at work a couple of months back.  That Bill was in a motorized vehicle-related accident came as little shock to your delicate system, after all Bill was (and still is, to your knowledge) the only person in the history of Biddeford, Maine to ever get a DUI on a lawnmower, but he paid for the mayor’s peonies (scattered like the remnants of a ticker-tape parade across the mayor’s front lawn in the aftermath) and settled up with the court. Notwithstanding having “reformed” himself, why he was allowed to operate a forklift at the tannery was beyond comprehension.  Though there were rumors of Bill uttering the phrase “ten bucks this’ll work” before crashing the forklift through the corrugated metal wall of the outbuilding, bringing the entire building down around him like a one-man demolition crew, nobody would swear to it.  (Bill had…

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April 29, 2021
Income Tax Issues
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Loss of Consortium Damages Excludable under IRC § 104(a)(2)

A couple of years back, Uncle Bill was in an unfortunate forklift accident.  Bill filed a lawsuit in Maine, where the accident occurred, and in the complaint, Bill alleged that the injuries and damages suffered were the result of acts of negligence, reckless, willful and/or wanton acts of the tannery for whom Bill was employed. The lawsuit requested damages for economic injuries (medical bills), for noneconomic injuries of mental anguish, loss of enjoyment of life, disability, pain, suffering, and other injuries and damages (collectively, “pain and suffering”), as well as damages for loss of consortium. Although you have your suspicions that the accident was Bill’s fault, he nevertheless won his case against the tannery, and the jury awarded him $100,000. (You are not too proud to say that it turns your stomach thinking about what consortium was lost, but here we are.) Bill and Ethel were awarded damages last year,…

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April 29, 2021
Income Tax Issues
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Ex-Spousal Transfers of Property Long After Divorce

On February 14, 2013, Jethro and Lee Ann’s divorce became final.  Though the divorce was a foregone conclusion in your view, given Jethro’s unrepentant kleptomania and penchant for setting things on fire, still Uncle Bill and Aunt Ethel are torn up about their only son’s marital woes.  You think your lucky stars that you are a tax attorney and stay away from family law like the plague. Nonetheless, you have developed relationships with the family law bar, and you referred Jethro to the one attorney that you absolutely loathe. Revenge, as they say, is a dish best served cold. The Original 2013 Settlement Agreement The marital settlement agreement stated that Jethro and Lee Anne would hold equal interests in the trailer where they had heretofore lived as tenants in common, and each would be responsible for the payment of an equal share of the mortgage, taxes, homeowner’s insurance, utilities, trailer…

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April 29, 2021
Income Tax Issues
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Reckless (albeit Tax Conscious) Abandonment under IRC § 165

Uncle Bill is somewhat of a hoarder.  In truth, the only thing that he has ever abandoned was his first wife…in a Waffle House at 2:15 AM on the outskirts of Norman, Oklahoma. In Bill’s defense, she had tried to stab him. In her defense, he probably deserved it. When Bill comes to you to chat about IRC § 165 losses—so-called “abandonment” losses—you know he has some hairbrained scheme in his head to stick it to Uncle Sam and to boost your pro bono hours in the coming year. Nonetheless, you know enough not to ask questions. Bill does not divulge the details of his stratagem and subterfuge, and you take cold comfort in plausible deniability. Deductible Losses, Generally The Code allows the taxpayer to take a deduction for any loss sustained during the taxable year and not compensated for by insurance or otherwise.[1] The deduction may be taken in…

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April 29, 2021
Procedural Issues
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The Record Keeping Requirement of IRC § 6001

Uncle Bill has gotten somewhat of a large bee in his bonnet (a murder hornet of sorts, if you want to know the truth), and he has asked you to teach him everything that you know about civil tax procedure. You note that you are far too busy with your burgeoning practice, but you are intrigued by the Ol’ Codger’s desire to learn the ins and outs of the process through which the IRS collects revenue.  Like Madison, Jay, and Hamilton writing under the name Publius, you adopt a somewhat professorial tilt (tweed jacket, Peterson pipe, and a penchant to say “yessss, indeed”), and you take on the nom-de-plume Tullius after your favorite Roman statesman and one of your favorite bands.  Hey Aqualung! (What this has to do with civil tax procedure is anyone’s guess, but it is 1:26 in the morning, and I’m punchy.) (Subtitle) F is for Fun…

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April 29, 2021
Procedural Issues
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Abatements, Reconsiderations, and Adjustments

There are three types of administrative remedies that a taxpayer may avail itself of in the event that the taxpayer believes that a tax, penalty, or interest has been improperly assessed.  Reconsiderations deal with original determinations made during an audit/examination, and generally apply when the taxpayer has additional information that was not taken into account during the original examination. Reconsiderations are requests to reevaluate the results of an audit assessment when a taxpayer disagrees with the original audit determination and the additional tax has not been fully paid. If the tax has been full paid, then it is a claim. Adjustments deal with original returns.  If a taxpayer seeks an adjustment, the taxpayer will generally file a 1040X (or another “X” series form, like a Form 941X) reporting the correct amount.  Finally, an abatement is a claim through which the taxpayer asks the IRS to set aside a penalty (or…

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April 29, 2021