2024-09-01
In August 2024, the Tax Court published 9 opinions, which included a total of 216 pages. Below are graphs for the month showing: (i) the top 15 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge.
I am always interested in learning well-established tax principles. Often, court cases will explicitly indicate that a tax principle is well established or well settled. Or the court may concisely state the holding of a prior case in a parenthetical. Below are excerpts from the August 2024 Tax Court cases referring to these types of principles or holdings.
Henry v. Commr., T.C. Memo. 2024-79. (Gustafson)
[S]ee Venuto v. Commissioner, T.C. Memo. 2017-123, at *9 ("The Court will not sort through the voluminous evidence to decide whether petitioner substantiated each and every expense he claimed")
Ryckman v. Commr., 163 T.C. No. 3 (2024). (Copeland)
See Fund for Animals, Inc. v. Kempthorne, 472 F.3d 872, 880 (D.C. Cir. 2006) (Kavanaugh, J., concurring) ("The [last-in-time rule] is quite similar to the familiar doctrine against implied repeal of statutes-under which courts will not interpret an ambiguous statute to repeal a prior statute.")
Ryckman v. Commr., 163 T.C. No. 3 (2024). (Copeland)
cf. Rocca v. Thompson, 223 U.S. 317, 332 (1912) ("[T]reaties are the subject of careful consideration before they are entered into, and are drawn by persons competent to express their meaning, and to choose apt words in which to embody the purposes of the high contracting parties.")
Ryckman v. Commr., 163 T.C. No. 3 (2024). (Copeland)
See, e.g., Richard E. Andersen, Andersen Analysis of United States Income Tax Treaties ¶ 24.03[1][b][ii] (2010) ("In accordance with th[e] doctrine [of the revenue rule], . . . the United States typically does not assist another country in the collection of taxes.").
Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (2024). (Toro)
See Champion Int'l Corp. v. Commissioner, 81 T.C. 424, 427 (1983) ("The effect [of section 78 was] to treat the domestic corporation as though it had received a distribution out of the foreign corporation's before-tax profits and then paid the foreign income tax thereon itself.")
Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (2024). (Toro)
See H.H. Robertson Co. v. Commissioner, 59 T.C. 53, 77 n.13 (1972) ("As a consequence of sec. 78 'gross-up,' the total profits of the foreign corporation in respect of a particular dividend would be taken into account for U.S. tax purposes . . . .")
Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (2024). (Toro)
Tex. Brine Co. v. Am. Arb. Ass'n, 955 F.3d 482, 486 (5th Cir. 2020) ("We are not the final editors of statutes, modifying language when we perceive some oversight.")
Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (2024). (Toro)
[S]ee also Metzger Tr. v. Commissioner, 693 F.2d 459, 472 (5th Cir. 1982) ("As understandable as it may be, yielding to the temptation to 'do equity' in a specific tax case by looking past plain language to judicially perceived purpose will not do.")
Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (2024). (Toro)
Koshland v. Helvering, 298 U.S. 441, 447 (1936) ("[W]here . . . the provisions of the act are unambiguous, and its directions specific, there is no power to amend it by regulation.")
Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (2024). (Toro)
[A]n interpretation is absurd only if the result would be "so gross as to shock the general moral or common sense," Crooks v. Harrelson, 282 U.S. 55, 60 (1930), or if it is "quite impossible that Congress could have intended the result . . . and [if] the alleged absurdity is so clear as to be obvious to most anyone"
Ya Global Investments, LP v. Commr., T.C. Memo. 2024-78. (Halpern)
See, e.g., Cusick v. Commissioner, T.C. Memo. 1998-286, 1998 WL 440881, at *4 ("[T]he distinction between mere coowners and coowners who are engaged in a partnership lies in the degree of business activity of the coowners or their agents.")
Ya Global Investments, LP v. Commr., T.C. Memo. 2024-78. (Halpern)
In Mars, Inc. v. Commissioner, 88 T.C. 428, 435 (1987) (quoting United States v. Southwestern Cable Co., 392 U.S. 157, 170 (1968)), we wrote: "[I]t is well settled that 'the views of one Congress as to the construction of a statute adopted many years before by another Congress have "very little, if any, significance."'" In Mars, we addressed official legislative history: a report of the Senate Finance Committee. If postenactment legislative history should be given little, if any, weight, even less weight should be given to unofficial sources, such as Joint Committee staff explanations, purporting to interpret legislation enacted "many years before."
In August 2024, the IRS published 6 Announcements, Notices, Revenue Procedures, and Revenue Rulings, which included a total of 70 pages.
In August 2024, the IRS published 88 Written Determinations, which included a total of 497 pages.
2024-08-30
Today I was reading a Tax Court case that came out earlier this week, Varian Medical Systems, Inc. v. Commr., 163 T.C. No. 4 (August 26, 2024).
In the case, the Tax Court allowed a Code §245A dividends received deduction for a Code §78 gross up for a fiscal year taxpayer. Code §245A was a new section created by the Tax Cuts and Jobs Act (“TCJA”), and Code §78 was amended by TCJA. However, the effective date for Code §245A differed from the effective date for the amendment to Code §78. Due to these differing effective dates, Varian Medical was allowed to claim the Code §245A dividends received deduction for the Code §78 gross up with respect to its 2018 fiscal year.
The Tax Court focused heavily on the statute and how the effective dates of the different provisions were clear. Since the statute was clear, it didn’t really matter what the Treasury regulations provided, citing the recent Supreme Court decision of Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024).
With the recent Loper Bright decision, I was reminded of the Treasury Department’s liberal interpretation of the GILTI statute to benefit large U.S. multinational corporations by creating the GILTI high-tax exception.
The GILTI high-tax exception is found in Treas. Reg. §1.951A-7(c). When I originally read Code §951A upon the enactment of TCJA, I did not see a GILTI high-tax exception. I still don’t see where in the statute the Treasury Department found this exception. I know where they “said” the exception is derived from, but I just don’t see any ambiguity in the statute.
Before we get to the GILTI high-tax exception, lets start with the definition of Subpart F Income.
Code §952(a) defines Subpart F Income as:
* * * [T]he sum of—(1) insurance income * * *,
(2) the foreign base company income * * *,
(3) [boycott related income],
(4) [illegal bribes, kickbacks, etc.], and
(5) [income derived from certain foreign countries, such as Iran and North Korea].
The first two items, insurance income and foreign base company income, are the most common types of Subpart F Income. In addition, Code §952(b) provides that if the income would otherwise be Subpart F Income, but it is effectively connected to a U.S. trade or business (“ECI”), then it is not treated as Subpart F Income.
The Subpart F Income high-tax exception is found in Code §954(b)(4), which provides in part:
* * * [F]oreign base company income and insurance income shall not include any item of income * * * [that] was subject to [a high] effective rate of income tax * * * imposed by a foreign country * * *.
This high-tax exception only applies to foreign base company income and insurance income, two types of Subpart F Income. The exception is elective. Treas. Reg. §1.954-1(d)(1)(i).
The GILTI rules are keyed off of a new term called “tested income”. Code §951A(c)(2)(A) defines tested income as:
(i) the gross income of such corporation determined without regard to—(I) any item of income described in section 952(b) [ECI],(ii) the deductions (including taxes) properly allocable to such gross income * * *.
(II) any gross income taken into account in determining the subpart F income of such corporation,
(III) any gross income excluded from the foreign base company income * * * and the insurance income * * * of such corporation by reason of section 954(b)(4) [the Subpart F Income high-tax exception],
(IV) any dividend received from a related person * * *, and
(V) any foreign oil and gas extraction income * * * of such corporation,
over
Focusing on gross income, the statute starts with all the gross income earned by the corporation. It then subtracts out five items. Subclause I provides that ECI is subtracted from gross tested income. Subclause II provides that gross Subpart F Income is subtracted from gross tested income.
As noted above, there is a high-tax exception to Subpart F Income. If a foreign corporation earns income that would be Subpart F Income under the foreign base company income or insurance income rules, but it is exempt from those rules under the high-tax exception, then Subclause III provides that this gross income is also subtracted from gross tested income.
If a foreign corporation earns high-taxed Subpart F Income and no high-tax exception election is made, then the gross income would fall in Subclause II. On the other hand, if the foreign corporation earns high-taxed Subpart F Income and a high-tax exception election is made, then the gross income would fall in Subclause III.
Subclause IV subtracts related person dividends from gross tested income. Lastly, Subclause V subtracts foreign oil and gas extraction income from gross tested income.
The language of Subclause III is perfectly clear to me, especially in the context of the two preceding subclauses: Subclause I applies to one exception from Subpart F Income (ECI); Subclause II applies to Subpart F Income itself; and Subclause III applies to another exception from Subpart F Income (the high-tax exception).
Apparently, after the GILTI high-tax exception proposed regulations were published, commenters suggested that the Treasury Department did not have the authority to grant taxpayers the GILTI high-tax exception. The Treasury Department addressed this criticism when in finalized the regulations in Treasury Decision 9902, stating:
[T]he Treasury Department and the IRS have determined that the GILTI high-tax exclusion is a valid interpretation of ambiguous statutory text in section 951A(c)(2)(A)(i)(III) * * *.
To me, there is no ambiguity in the statute --- Subclause III applies if the gross income would have been Subpart F Income but it was not Subpart F Income due to the high-tax exception in Code §954(b). I agree with the commenters that Congress did not include language in the statute which would support a GILTI high-tax exception.
As discussed in Varian Medical Systems, large U.S. multinational corporations are able to claim a dividends received deduction under Code §245A for dividends from foreign subsidiaries. When the GILTI high-tax exception applies, the U.S. parent company is able to entirely exclude the income earned by the foreign subsidiary from U.S. tax. No U.S. tax is imposed when the income is earned, and no U.S. tax is imposed when the earnings are repatriated to the U.S. While that may make logical sense, it is not what Congress provided. If the Treasury Department had not created the GILTI high-tax exception, large portions of earnings of the foreign subsidiaries would be subject to the GILTI inclusion rules, resulting in additional U.S. corporate income tax revenue.
2024-08-21
In July 2024, the Tax Court published 13 opinions, which included a total of 192 pages. Below are graphs for the month showing: (i) the top 15 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge.
I am always interested in learning well-established tax principles. Often, court cases will explicitly indicate that a tax principle is well established or well settled. Or the court may concisely state the holding of a prior case in a parenthetical. Below are excerpts from the July 2024 Tax Court cases referring to these types of principles or holdings.
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
Baldwin v. Commissioner, T.C. Memo. 2002-162, 83 T.C.M. (CCH) 1915, 1927-28 (applying duty of consistency to hold taxpayer estopped from claiming that his wholly owned corporation was not valid S corporation)
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
See Keeler v. Commissioner, 180 F.2d 707 (10th Cir. 1950) (taxpayer's election of a war loss deduction under section 127 of Internal Revenue Code of 1939 not revocable under doctrine of election)
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
See Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (holding that U.S. Court of Appeals for the Eleventh Circuit follows precedent of cases decided by the U.S. Court of Appeals for the Fifth Circuit before September 30, 1981)
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
Blakely v. Commissioner, T.C. Memo. 1982-745, 45 T.C.M. (CCH) 437, 439 (1982) ("Unexpected subsequent events and a later change of mind will not be grounds for relief from the binding effect of an election.")
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
Bankers & Farmers Life Ins. Co. v. United States, 643 F.2d 234, 238 (5th Cir. 1981) (holding taxpayer not entitled to revoke an election based on a mistake of law)
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
The duty of consistency, or quasi-estoppel, is an equitable doctrine that prevents a taxpayer from taking one position on one tax return and a contrary position on a subsequent return after the limitations period has run for the earlier year, if the contrary position would harm the Commissioner.
Berman v. Commr., 163 T.C. No. 1 (2024). (Gale)
[T]his position is buttressed by the doctrine of election, which holds generally that an election by a taxpayer that is a free choice between alternative, legally valid tax treatments and is communicated to the Commissioner by an overt act is irrevocable, see Grynberg v. Commissioner, 83 T.C. 255, 261 (1984); Hodel v Commissioner, T.C. Memo. 1996-348, 72 T.C.M. (CCH) 276, 279 (1996).
Corning Place Ohio, LLC, Corning Place Ohio Investment, LLC, Tax Matters Partner v. Commr., T.C. Memo. 2024-72. (Lauber)
See, e.g., Hagen Advert. Displays, Inc. v. Commissioner, 407 F.2d 1105, 1110 (6th Cir. 1969) ( "[The] taxpayer, not the Commissioner, must bear the burden of reporting in the proper tax year.")
Corning Place Ohio, LLC, Corning Place Ohio Investment, LLC, Tax Matters Partner v. Commr., T.C. Memo. 2024-72. (Lauber)
Magill v. Commissioner, 70 T.C. 465, 479-80 (1978) (holding that a taxpayer "still has a duty to read the return" even if all information was properly furnished to the preparer)
Corning Place Ohio, LLC, Corning Place Ohio Investment, LLC, Tax Matters Partner v. Commr., T.C. Memo. 2024-72. (Lauber)
See Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662-63 (1987) (holding that a reliance on a tax preparer does not constitute reasonable cause if the taxpayer's review of the return should have revealed errors)
Foradis v. Commr., T.C. Summary Opinion 2024-13. (Leyden)
See Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) ( "[W]e are not required to accept the self-serving testimony of [a taxpayer] . . . as gospel.")
Mazotti v. Commr., T.C. Memo. 2024-75. (Jones)
Cannon v. Commissioner, 949 F.2d at 351 n.8; see also Treas. Reg. § 1.183-2(a) ("In determining whether an activity is engaged in for profit, greater weight is given to objective facts than to the taxpayer's mere statement of his intent.")
Mazotti v. Commr., T.C. Memo. 2024-75. (Jones)
Den Besten v. Commissioner, T.C. Memo. 2019-154, at *20 ("Having a business plan may suggest that a taxpayer conducted the activity in a businesslike manner.")
Mazotti v. Commr., T.C. Memo. 2024-75. (Jones)
See, e.g., Wright v. Commissioner, 31 T.C. 1264, 1267 (1959) (disallowing a business deduction for an around-the-world trip in which the petitioner wrote in a diary and purportedly wanted to publish a book based on the diary)
Mazotti v. Commr., T.C. Memo. 2024-75. (Jones)
See Neonatology Assocs., P.A. v. Commissioner, 299 F.3d at 234 ("When, as here, a taxpayer is presented with what would appear to be a fabulous opportunity to avoid tax obligations, he should recognize that he proceeds at his own peril.")
Tuma v. Commr., T.C. Memo. 2024-71. (Marshall)
114 T.C. 184, 195 (2000); see also Bunney v. Commissioner, 114 T.C. 259, 267 (2000) ("Tax preparation software is only as good as the information one puts into it.")
In July 2024, the IRS published 5 Announcements, Notices, Revenue Procedures, and Revenue Rulings, which included a total of 58 pages.
In July 2024, the IRS published 51 Written Determinations, which included a total of 329 pages.
2024-08-15
About two years ago we published a chart called “Income Classification”. Today we updated this chart and renamed it to “Classification of Transactions”.
Often a question arises as to the classification of a transaction. For example, is a transfer of cash from a corporation to its shareholder a loan? A dividend? Compensation? Or something else? This chart shows court cases or other authorities discussing how to determine many of the different types of classifications.
Let us know if you think any other items should be included on the chart!
2024-07-31
Today the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the second quarter of 2024.
The number of published expatriates for the second quarter was 1,717. See the chart below for the quarterly expatriates from 2014 to the second quarter of 2024.
Although the number for the second quarter was the highest quarterly amount since 2020, the number for the first quarter of 2024 was quite low, and the 8-quarter moving average is still below 1,000 names per quarter.
For our prior coverage of expatriation, see all posts tagged Expatriation.
2024-07-25
Today we added a new resource web page that includes a summary of various high thresholds for certain rules to apply. For example, the OECD Pillar Two rules only apply to companies with revenue of at least EUR 750 million, or the U.S. BEAT rules only apply to companies with gross receipts of at least $500 million.
The new thresholds resource page can be found here.
Please let us know if you know of any other high thresholds that make sense to be on the list.
2024-07-16
Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is from a Fourth Circuit case that came out yesterday dealing with deductions for conservation easements:
The Brookses * * * acted with an evident greed * * *. Their documentation was sloppy and inadequate. But more remarkable was their attempt to claim a $5.1 million deduction for a limited easement estate on property that they had purchased in fee simple for $652,000 only a year earlier. Such a claim simply does not pass any reasonable smell test, much less the tax law’s requirements.
Brooks v. Commr. , __ F.4th __ (4th Cir. 2024).
2024-07-05
In June 2024, the Tax Court published 18 opinions, which included a total of 269 pages. Below are graphs for the month showing: (i) the top 15 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge.
In June 2024, the IRS published 13 Announcements, Notices, Revenue Procedures, and Revenue Rulings, which included a total of 177 pages.
In June 2024, the IRS published 71 Written Determinations, which included a total of 409 pages.
2024-06-10
Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle), today's tax quote is:
Petitioner has failed to show that he has satisfied all of his relevant burdens with respect to any claimed trade or business item. Indeed, it is not clear that petitioner has shown that he has satisfied any burden with respect to any trade or business item. Petitioner has chosen to rely on what may be termed the "shoebox method" of attaching photocopies of numerous cash register tapes and of similar bits of paper to his returns, without making any effort on the returns or on brief, and only a slight effort in oral testimony, to link any item to a deductible trade or business expense transaction. Petitioner appears to have wholly ignored the admonitions made by this Court on the previous occasions when he sought similar deductions.
Patterson v. Commr., T.C. Memo. 1979-362.
2024-06-02
In May 2024, the Tax Court published 14 opinions, which included a total of 373 pages. Below are graphs for the month showing: (i) the top 15 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge.
I am always interested in learning well-established tax principles. Often, court cases will explicitly indicate that a tax principle is well established or well settled. Or the court may concisely state the holding of a prior case in a parenthetical. Below are excerpts from the May 2024 Tax Court cases referring to these types of principles or holdings.
Estate of Anenberg v. Commr., 162 T.C. No. 9 (2024). (Toro)
See Estate of Morgens v. Commissioner, [678 F.3d 769, 771 (9th Cir. 2012)] ("The QTIP [regime] is an exception to an exception to an exception.")
Estate of Anenberg v. Commr., 162 T.C. No. 9 (2024). (Toro)
See Estate of Morgens v. Commissioner, [678 F.3d 769, 771 (9th Cir. 2012)] ("The purpose of the QTIP regime is to treat the two spouses as a single economic unit with respect to the QTIP property . . . .")
Estate of Anenberg v. Commr., 162 T.C. No. 9 (2024). (Toro)
United States v. Craft, 535 U.S. 274, 278 (2002) ("A common idiom describes property as a 'bundle of sticks'-a collection of individual rights which, in certain combinations, constitute property.")
Excelsior Aggregates, LLC, v. Commr., T.C. Memo. 2024-60. (Lauber)
Estate of Newberger v. Commissioner, T.C. Memo. 2015-246, * * * (observing that no evidence is more probative of a donated property's FMV than its direct sale price)
Excelsior Aggregates, LLC, v. Commr., T.C. Memo. 2024-60. (Lauber)
Wortmann v. Commissioner, T.C. Memo. 2005-227, * * * (finding that the most persuasive evidence of the property's FMV was the actual sale of the property 17 months before the contribution)
Parkway Gravel, Inc. v. Commr., T.C. Memo. 2024-59. (Kerrigan)
See Julien v. Commissioner, 82 T.C. 492 (1984) (finding that interest expense on alleged indebtedness incurred to purchase silver bullion was factual sham when no silver was actually purchased)
Parkway Gravel, Inc. v. Commr., T.C. Memo. 2024-59. (Kerrigan)
The sham transaction doctrine allows the IRS to disregard transactions that have no substance or economic effect. * * * In applying this doctrine, the Court looks to "objective economic realities" of a transaction, rather than a particular form employed by the parties.
Schwarz v. Commr., T.C. Memo. 2024-55. (Goeke)
See also Westbrook v. Commissioner, 68 F.3d 868, 875 (5th Cir. 1995) (stating that in order to claim a deduction under section 162, the primary purpose for engaging in the activity must be to earn a profit)
Strom v. Commr., T.C. Memo. 2024-58. (Gale)
See also Price v. Commissioner, 887 F.2d at 963 n.9 ("[I]n income omission cases, knowledge of the transaction is virtually equivalent to knowledge of the understatement.")
In May 2024, the IRS published 15 Announcements, Notices, Revenue Procedures, and Revenue Rulings, which included a total of 201 pages.
In May 2024, the IRS published 102 Written Determinations, which included a total of 621 pages.
