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Appeals Archives

Fourth Circuit finds Fifth Amendment privilege inapplicable to documents required to be maintained under the Bank Secrecy Act

Last Friday, the Fourth Circuit Court of Appeals affirmed a district court's refusal to quash subpoenas related to foreign bank account records that were required to be maintained under the Bank Secrecy Act and Treasury Regulations.

Supreme Court Upholds Valuation Misstatement Penalty for Disallowed Partnership Losses

Yesterday the Supreme Court held that the 40% gross valuation misstatement penalty under I.R.C. § 6662(h) is applicable in cases where the IRS determines that a partnership is a sham or lacks economic substance. United States v. Woods, No. 12-562 (U.S. Dec. 3, 2013). The Court's opinion in Woods provides two main holdings: (1) that the District Court had jurisdiction under TEFRA to determine whether the partnerships' lack of economic substance could justify the application of a valuation misstatement penalty on the partners; and (2) that the gross valuation misstatement penalty applied to the disallowed partnership losses.

FTB Loses against an Out-of-State Nevada Corporation Owned by California Resident

In February, the Franchise Tax Board (FTB) lost a case, DANIEL V INC. v. Franchise Tax Board, in a Los Angeles Superior Court where it had asserted that a Nevada Company was commercially domiciled in California because it was owned by a California resident, Ron Lane. The FTB assessed taxes, interest and penalties in excess of $2.27 million for the 1997 and 1998 tax years. The Company appealed through the FTB appeals process and then the Board of Equalization, losing in both instances. The Company then paid the taxes, and sued the FTB for a refund.

U.S. Supreme Court Declines To Review Connecticut's Taxation of Out-of-State Seller

On October 9, 2012, the U.S. Supreme Court denied, without comment, Scholastic Book Club's petition for certiorari, declining to hear an appeal regarding Connecticut's taxation of classroom catalog sales of books to students.

Tax Court Lacks Jurisdiction to Review IRS's Refusal to Pursue Whistleblower's Claim

In a case of first impression, the United States Tax Court held that it lacked jurisdiction under Internal Revenue Code (IRC) Section 7623(b) to review the IRS's refusal to pursue a whistleblower's claim. Cohen v. Commissioner, 139 T.C. No. 12 (Oct. 9, 2012)

Court Orders Production of Foreign Bank Account Records Despite Claim for Fifth Amendment Privilege

On August 27th the Seventh Circuit decided In Re: Special February 2011-1 Grand Jury Subpoena Dated September 12, 2011. The Court held that the required records doctrine requires a taxpayer asserting a Fifth Amendment privilege to produce the documents required to be maintained under the FBAR statute. Specifically, the Court held that the taxpayer had to comply with a subpoena and produce foreign bank account records that were required to be maintained under the Bank Secrecy Act. The Seventh Circuit's holding fits squarely with the Ninth Circuit's holding in M.H. v. United States (In re Grand Jury Investigation M.H.), 648 F.3d 1067 (9th Cir. 2011), here. In M.H. the Ninth Circuit held that, "Because the records sought through the subpoena fall under the Required Records Doctrine, the Fifth Amendment privilege against self-incrimination is inapplicable..."

Updated Rules Issued for IRS Communications with Appeals Office

Today, in Revenue Procedure 2012-18, the Internal Revenue Service updated its rules dictating how the Office of Appeals is allowed to communicate with other IRS sections or divisions, when a taxpayer or the their representative is not present.

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