Category Archives: Penalties

Hurricane Irma Tax Deadline Relief

The Internal Revenue Service has announced that tax relief will be available to individuals who live in, and businesses whose principal place of business is located in, 37 different Florida counties affected by Hurricane Irma, including Sarasota and Manatee counties. Taxpayers who live outside the disaster area may also qualify for relief if they have records necessary to meet a deadline located in the disaster area.

The tax relief offered includes additional time to file certain tax returns, additional time to make certain tax payments, and additional time to perform other time-sensitive actions. If an enumerated tax return, tax payment, or other action for which relief has been granted was previously due on or after September 4, 2017 and before January 31, 2018, taxpayers will now have until January 31, 2018 to perform that action without incurring penalties. This relief would apply to businesses with filing extensions until September 15 and individuals with filing extensions until October 16 for their 2016 income tax returns.

Affected taxpayers may also be entitled to claim disaster-related casualty losses and deduct personal property losses not covered by insurance or other reimbursements on either their current year or prior year tax returns. Taxpayers should include the Disaster Designation “Florida, Hurricane Irma” at the top of the relevant 2016 tax form(s).

The Internal Revenue Service will also waive certain fees for tax return copy requests and may consider appropriate relief in the event a tax collection or tax audit matter has been impacted by Hurricane Irma.

A full list of the counties whose residents and businesses may be entitled to tax relief can be accessed here: https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-irma-in-florida.

Nicholas A. Gard
ngard@williamsparker.com
(941) 552-2563

Tax Court Rejects IRS’ Attempt to Narrow Reasonable Cause Exception

Earlier this month, the Tax Court rejected an argument by the IRS that in order to establish good faith reliance on a tax advisor, for purposes of avoiding penalties, the taxpayer, a foreign corporation, needed to have (1) conducted an independent investigation into the tax advisor’s background and experience instead of merely relying upon the recommendation of the tax adviser by the taxpayer’s US legal counsel, and (2) hired a tax expert that specialized in international tax law or an attorney with an LL.M. degree.  The Tax Court found that the IRS attempted to impose greater conditions on the taxpayer than what is required under existing law. The Tax Court ruled that the taxpayer reasonably relied upon the recommendation of its legal counsel in hiring the tax advisor. Furthermore, the standard is not whether the tax advisor was an expert in international tax law or an attorney with an LL.M. degree, but instead whether the tax advisor was “a competent professional who had sufficient expertise to justify reliance.”

The opinion in the case, Grecian Magnesite, Industrial & Shipping Co., S.A. v. Commissioner, 149 T.C. 3 (2017), can be found here.

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043

Tax Court Holds that Good Faith Reliance on Long-Time Attorney (Not a Tax Expert) is Sufficient to Establish Reasonable Cause and Avoid Penalties

In CNT Investors, LLC v. Commissioner, 114 T.C. No. 11 (2015), the Tax Court recently held that a retired mortician reasonably relied on the advice of his long-time corporate and estate planning attorney in participating in a Son-of-BOSS tax shelter transaction to divest real estate holdings. Although the court ruled that the transaction was a sham, it declined to impose valuation misstatement penalties due to the taxpayer acting with reasonable cause by relying on his “go-to attorney and trusted counselor.” The three-prong test for determining whether a taxpayer acted with reasonable cause, and thus avoid penalties, is: (1) the adviser was a competent professional who had sufficient expertise to justify reliance, (2) the taxpayer provided necessary and accurate information to the adviser, and (3) the taxpayer actually relied in good faith on the adviser’s judgment. The most interesting part of this case is that the court held that under the first prong the question is not whether the adviser is a tax expert and has sufficient tax expertise from the perspective of the IRS or other tax experts, but instead whether the adviser would appear to be a competent professional with sufficient expertise from the taxpayer’s layperson perspective. In this case, the court found that the taxpayer justifiably viewed his long-time corporate and estate planning attorney of 20 years as competent and with sufficient expertise, even though the attorney was not a tax expert.

A copy of the opinion can be found here:
www.ustaxcourt.gov/InOpHistoric/cntinvestorsllcdiv.wherry.TC.WPD.pdf

Michael J. Wilson
mwilson@williamsparker.com
941-536-2043