The IRS May Collect the Tax Debt of a Company’s Predecessor from the Successor Corporation, when the Successor Corporation Is Essentially the alter ego of Its Predecessor

When an Illinois Corporation went out of business on March 12, 2009 without paying all of its payroll taxes, a successor corporation began operating in the same physical location. The successor corporation purchased all of its predecessor’s assets, hired its employees, used its website and phone number and pursued the same line of business. In addition, the president of the predecessor corporation continued to play a leading role in the successor corporation. The IRS treated the successor corporation as the continuation of the predecessor and levied $400,000 of the successor corporation’s assets. The Seventh Circuit relied on the state law and affirmed the district court’s ruling which had concluded that the successor corporation was the continuation of the predecessor’s business operations. The 7th Circuit issued its ruling on December 16, 2016 in Eriem Surgical Inc. v. U.S.; 7th Circuit; No....

United States Tax Court Holds Defect in Notice of Deficiency Issued by the IRS Doesn’t Invalidate It

On February 2, 2017 U.S. Tax Court ruled in favor of the IRS and held that the court could exercise jurisdiction over a case involving a defective notice of deficiency. On his 2014 tax return, taxpayer claimed a refundable credit under the Internal Revenue Code § 36B. The IRS disagreed and issued a notice of deficiency which erroneously showed zero liability on its first page. The IRS notice, however included a computations page which showed a decrease in the amount of the credit but mistakenly stated that no tax was due. The issue was whether the taxpayer could reasonably rely on such a defective notice as to whether he owed any taxes. The tax court held that it could exercise jurisdiction over the case because under the circumstances, a reasonable taxpayer could infer from the IRS notice that he owed taxes. Tax court held that when the IRS notice is ambiguous about the existence of tax deficiency, the party seeking to establish the court’s jurisdiction carried the burden of proving that the IRS had determined a tax deficiency and the taxpayer wasn’t misled by the defective IRS notice. 148 T.C. No....

Incompetence or Malfeasance of a Taxpayer’s Accountant Does not Result in the IRS’s Forgiveness of Tax Penalties

In December 2015 the Unites States Court of Appeals for the 6th Circuit in Maurice S. Vaughn v. U.S. (No. 14-3858) ruled that a taxpayer whose accountant had embezzled his funds resulting in large penalties for late tax payment was not eligible for waiver of those penalties. Taxpayer who was a major league baseball player entrusted his accountant with filing and paying his taxes. The accountant instead embezzled the funds and caused the taxpayer to owe significant tax liabilities plus penalties for late payment. The taxpayer argued that he didn’t know about tax law and tax preparation and that was why he had paid the accountant to take care of his taxes. The taxpayer was willing to pay the principal tax but asked the IRS to remove the penalties for late payment. The IRS refused to waive the penalties and the taxpayer sued the IRS. The 6th Circuit ruled in favor of the IRS. The appeals court explained that circumstances that led to the imposition of penalty were under the taxpayer’s control and subject to his supervision. It was the taxpayer’s negligence to pick a competent and trustworthy accountant that led to his liability for tax penalties. Since the taxpayer neglected his duty, he was held to be responsible for the late...

Virginia Business Owner’s Responsibility for Delinquent Sales Taxes

Virginia Department of Taxation (‘Virginia DOT’) has recently stepped up its enforcement of state laws relating to officer responsibility for delinquent trust fund taxes such as employment and sales taxes. Virginia corporate officers who may not even be responsible for the business’s tax matters under the bylaws of the business are routinely targeted by Virginia tax authorities as responsible officers of the corporation or of limited liability companies organized in Virginia. Such designation usually leads to assessment of business taxes against responsible officers. The targeted individuals then receive tax bills for Virginia sales taxes or employment taxes which should have been paid by the business. Failure to timely contest the ‘responsible officer’ designation will lead to a final determination which no longer may be appealed. Virginia tax appeals officers make their determinations based on the applicable Virginia law which has many similarities to the federal statute governing trust fund penalty...

Six-Year Statute of Limitations for Tax Assessments Upheld by the Eighth Circuit Court of Appeals

The U.S. Court of Appeals for the Eighth Circuit ruled in June 2015 that the IRS properly applied the 6-year statute of limitations (instead of the shorter 3-year) because the taxpayer had omitted more than 25% of his gross income from his return. The taxpayer claimed that since the IRS had found out about the omission within 3 years from the filing date, the shorter period of limitations applied. Taxpayer had filed his 2003 income in 2004. The IRS had learned about the omission in 2007 but had delayed sending a notice of deficiency for 2003 tax liability until 2010 which exceeded the 3-year period but was within the statutory 6-year period which is applicable when the amount of unreported income exceeds 25% of the taxpayer’s income. The Eighth Circuit upheld the U.S. Tax Court’s ruling in favor of the IRS. (Heckman v. Commissioner of Internal Revenue, U.S. Court of Appeals, Eighth Circuit, June 2015, No....

IRS Tax Lien on Real Estate Not In Your Name

In S. v. Rominski, et al a District Court in Illinois has held that the IRS may file a tax lien against an individual’s real estate even if the property’s legal title holder is another individual. A couple lived in a property which was titled in the husband’s name only. In order to protect his property from potential malpractice claims, the husband who was a practicing attorney transferred the property to his wife for no consideration. Later on, the couple divorced but agreed that the property belonged to the husband who continued living in the house. When his federal income taxes went unpaid, the IRS filed a lien against the property. The husband argued that since the property was titled in his wife’s name the lien was invalid. The court held that the husband was the true owner of the property and his ex-wife was only holding the property as his nominee. Therefore, the IRS’s federal tax lien was held to be...

Tax Court Disputes & Litigation

Litigation is expensive and its outcome is uncertain. That is why a vast majority of tax cases settle out of court. Filing a tax court petition allows the tax attorney to present his client’s case in the best light and support it with relevant case law and appropriate legal arguments. A strong tax court petition which cites legal precedents and applies the relevant federal or state statute to the facts of his client’s case will demonstrate to the IRS or to the state taxing agency that the taxpayer’s arguments are supported by law and will likely prevail in court if the case advances to the litigation phase.  A well-researched, well-supported and well-written tax court brief is the strongest signal a taxpayer can send to the government that he will vigorously defend his rights. Once the government realizes the litigation hazard, it will be more willing to settle the case out of court. Once the IRS makes a final determination or sends a Notice of Deficiency to the taxpayer, proceeding to the tax court is the taxpayer’s only option. The government will then assign the case to one of its expert tax lawyers who will prepare the case for trial. Tax court’s procedural rules are complex and unfortunately many taxpayers are prevented from presenting their case before the tax court because they run afoul of the statute of limitations rules, court deadlines and other tax court regulations. Our experienced tax lawyer has helped many taxpayers to defend their rights in federal and state tax courts.  Don’t face the government...

Taxation of 401(k) Loans & Withdrawals

 At one time or another, many individuals consider borrowing funds from their retirement accounts such as their 401(k) savings. They wonder what would be the tax consequences of such loans or withdrawals. Simply put, if the retirement plan allows such loans in the first place, and the individual abides by the terms of the loan, the borrowing would have no tax consequences. Violation of the retirement plan rules for loans or withdrawals, however, may result in a 10% penalty tax and also inclusion of the entire amount in the taxpayer’s income in the year that he violated such rules. For example, if you borrow $10,000 from your 401(k) as a loan in 2015 and agree to pay it back in 2016 but fail to do so, you will be subjected to a 10% tax on the amount that you failed to repay if you are younger than 591⁄2. In addition the same amount should be included in your income in 2016.       If you intend to borrow from your retirement plan savings, you should first carefully study the provisions of your retirement plan document related to loans and premature withdrawals. Some retirement plans don’t allow long-term borrowing. Individual Retirement Accounts (IRAs) are one such retirement plan. IRA account holders are required to return any withdrawals within 60 days. The same time limit applies if the IRA account holder intends to rollover some or all of his IRA savings to another retirement account. If he receives a check for the rollover amount and fails to deposit it in a new retirement account within the 60-day limit and he happens to be...

Real Property Tax Issues

 Real estate or real property tax is one of the burdens of homeownership. Many home owners in Maryland, Washington, D.C. and Virginia justifiably feel that the government’s tax assessment overestimates the value of their real property and seek real property tax relief. One of the main reasons for the recent economic downturn was the sharp decline in house and property values. In many cases, real property tax assessments do not correctly reflect this abrupt decline in house or property values.       Our Maryland tax law firm helps property owners in the process of appealing their real estate tax bills. Although, the process of appealing real property taxes varies depending on the jurisdiction, home owners or real estate owners may appeal their real property tax bills on different occasions. Usually, property owners begin appealing their tax bills when they receive an assessment notice (called Notice of Assessment in Maryland) from the state government. But, for example, in Maryland they can also file an appeal when they purchase the property or by filing a petition for review. Strict time limits apply for filing such appeals. If the taxpayer fails to convince Maryland State Department of Taxation to lower the amount of the real property tax, the property owner may appeal to the Maryland Tax Court. Decisions of the Maryland Tax Court may be further appealed to higher courts.       Failure to pay real property taxes on a timely basis may result in imposition of tax liens and levies. If you have recently received an assessment notice related to your real property taxes and you are seeking help in lowering your real estate taxes...

IRS Innocent Spouse Relief

 In order to take advantage of tax savings, married couples usually file joint tax returns. Usually, the joint tax return is prepared by either the husband or the wife and the other spouse just signs the tax return. Sometimes, the spouse who prepared the joint return, intentionally hides important financial facts from the other spouse and as a result the joint tax return understates the couple’s income or is otherwise inaccurate. Because each spouse signs the joint tax return, husband and wife are both responsible for any taxes owed on the joint return.   Occasionally, years later and usually when the couple has already divorced, the spouse who was not involved in the preparation of the joint tax return learns from the IRS that he or she owes taxes relating to the joint return.       The Internal Revenue Code (Tax Code) contains a provision known as the “innocent spouse” rule which provides relief to the spouse who was not involved in the preparation of the joint return and who did not know about the tax irregularity. Proving to the IRS that you qualify for the innocent spouse relief is no easy matter. The Tax Code provides for specific conditions that must be satisfied before the IRS can provide relief under the “innocent spouse” rule.       If you believe that you may qualify as an “innocent spouse”, contact Kamyar Mehdiyoun’s tax law firm in Rockville, Maryland. We will negotiate with the IRS on your behalf and will help you reduce or eliminate your tax...