Intellectual property (“IP”) is hugely important to businesses. Given that importance, IP owners must occasionally litigate against the unauthorized use of their technology. The costs of such litigation and appurtenant settlements implicate a host of federal income tax issues. Some IP litigants do not consider those tax issues at all, while others aggressively overplay their
Joshua Smeltzer
The Fine Print: IRS Examination of Artwork
Many taxpayers have art collections. However, the art collections of some high-net-worth individuals, family offices, and business taxpayers may draw the unwanted eye of the IRS. With the increased focus on auditing high-income taxpayers, large partnerships, and using increased staff and artificial intelligence will almost certainly increase the number of cases involving artwork. At the…
What a Difference a Day Makes, at Least When it Comes to Tax Court Petitions
The Tax Court can be an unusually cruel place when it comes to deadlines. This is what a recent taxpayer found out in a Tax Court decision that denied their challenge of an over $4.6 Million dollar tax bill asserted by the IRS. See Nguyen v. Comm’r, T.C. Memo 2023-151. The taxpayers received…
Where Have All the Theft Losses Gone?
In November 2023, Gray Reed Tax Partners Joshua Smeltzer and Matthew Roberts authored an article titled “Where Have All the Theft Losses Gone?” published in Taxes: The Tax Magazine.
The article discusses whether taxpayers can deduct theft losses on their tax returns for 2018-2025 after new limitations were set by the 2017 Tax Cuts…
When is an Accountant Forced to Testify Against Their Client?
Recently, in a criminal case involving a physician who hired an accountant to prepare and submit certain tax forms to the IRS on her behalf, the court denied attorney-client and work-product privilege claims and ordered the accountant to testify at the criminal trial. See United States v. Barrett, No. 22-cr-00071 (M.D. Louisiana). One of…
Release the Kraken Tax Transaction Information
On June 30, 2023 the District Court in the Northern District of California granted a petition to enforce the cryptocurrency exchange Kraken to release customer information. Specifically, Kraken was ordered to produce the name, date of birth, taxpayer identification number, physical address, telephone number, and email addresses for customers having at least $20,000 of transactions…
Joshua Smeltzer Quoted by Law360 on Digital Asset Rules for NFTs
The Internal Revenue Service’s proposed classification of non-fungible tokens (NFTs) as digital assets has raised concerns in the blockchain industry and among stakeholders. While these tokens are unique, the IRS’s broad categorization of NFTs as securities has led to calls for clearer regulations, especially as NFTs can also be collectibles. Industry experts seek clarification on…
Joshua Smeltzer Quoted by Law360 on Treasury’s Proposed Digital Asset Reporting Rules Against Foreign Trading Platforms
The U.S. Treasury Department faces a complex task in enforcing its proposed digital asset reporting rules on foreign trading platforms. The regulations, introduced in late August, primarily address domestic transactions, leaving potential difficulties in enforcing reporting requirements on foreign digital asset brokers, especially those operating cryptocurrency trading platforms.
One potential avenue for the Treasury to…
Is Your Partnership Ready for IRS Audit Initiatives? Because the IRS is Coming!
On September 8, 2023 the IRS announced a sweeping effort to focus enforcement efforts on high-income individuals, partnerships, and corporations. On September 20, 2023 the IRS announced that it will establish a special passthrough organization to help audit initiatives for high-income individuals and complex partnerships. Government officials have signaled that internal briefings are starting for…
IRS Sanctioned for Bad Faith on Supervisory Approval of Penalties While Proposed Regulations on the Same Issue are Pending
A hearing is scheduled for September 11, 2023 for interested persons and organizations to provide testimony on proposed regulations on the timing and approval process for penalties. Section 6751(b) provides that:
No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.
The timing of when the approval is required by Section 6751(b) has been the subject of significant litigation. The Second Circuit in Chai v. Commissioner concluded that Congress enacted section 6751(b) to “prevent IRS agents from threatening unjustified penalties to encourage taxpayers to settle.” This has caused a lot of litigation in both the Tax Court and U.S. District Courts such that there are currently two different standards on timing of when such supervisory approval is required. If supervisory approval is to meet the goal of not being used as an unfair “bargaining chip” it must be required before such unwanted behavior can occur. Many groups have submitted comments asking for supervisory approval to be done earlier in the examination process than the proposed regulations require and that approval be done by a direct supervisor and not just anyone with penalty approval rights within the IRS.