South Dakota is taking the physical presence rule back to our nation's highest court in its dispute with Wayfair, Inc., to determine whether it may continue to require out-of-state sellers such as online retailers to register with the state and collect and pay over sales tax. In the seminal case from 1992, Quill Corp. v. North Dakota, the U.S. Supreme Court ruled that retailers did not have to collect sales tax in any state where they have no physical presence. However, the exponential growth of eCommerce and internet sales has significantly changed the retail landscape since that time.
Helpers Community Inc. must pay the San Francisco Office of the Assessor-Recorder approximately $31,000 in back taxes for misrepresenting the use of properties the charity owns around Golden Gate Park. The nonprofit was founded in 1953 to assist people with developmental disabilities, including providing residential care support. They have received about $100,000 in property tax exemptions since 2003 for this use. However, city officials recently found that the charity ended its residential services in 2002 and has been using the properties for storage and a high-end fashion resale boutique instead.
On February 9, 2017, the U.S. Tax Court released its opinion in Schieber v. Commissioner, T.C. Memo 2017-32, ruling that the lump-sum value of CalPERS pension benefits should not be included in asset calculations to determine a taxpayer's ability to immediately pay tax on canceled debt income.
California taxpayers beware! Willfully failing to file tax returns for three or more consecutive years is sufficient to determine the taxpayer intended to evade paying tax, and therefore may be prosecuted for felony tax evasion and punished by imprisonment not to exceed one year. Under federal law, an element of willfulness is required - that is, some other affirmative act such as hiding assets offshore, keeping a second set of books, or destroying records. According to California's 4th District Court of Appeal, the mere failure to file tax returns is sufficient under California Revenue and Taxation Code section 19706. We agree with the dissent and hope this case proceeds to the California Supreme Court.
Darryl Genis, a 60-year-old DUI attorney practicing in Santa Barbara County, California, pled guilty recently to three counts of willfully failing to file tax returns between 2009 and 2011, and admitted to willfully failing to pay taxes for the same years, totaling nearly $680,000. He also admitted to underpaying taxes for the years 2005 through 2012. Genis agreed to pay civil penalties for all years at issue, and he faces up to three years of imprisonment.
Former intelligence agent Werner Mauss is the latest celebrity under scrutiny for allegedly evading taxes from profits on offshore accounts. Mr. Mauss says the accounts were opened by intelligence agencies to fund covert operations worldwide, including averting a mafia poisoning attempt against a Pope, and operations involving hostage releases. Mr. Mauss is a mystery. He has several aliases and is a self-proclaimed master spy. He is believed to have worked extensively under cover for Germany's BND intelligence service as well as for other governments. Mr. Mauss' lawyers identify the client confidences Mr. Mauss must maintain and other problems with standard litigation given the secret nature of Mr. Mauss' work and identity. For more information, click here.
On July 8, 2016, Judge Mark V. Holmes issued an order in US Tax Court case Ernest S. Ryder & Associates, Inc., APLC, et al., v. Commissioner requiring the Internal Revenue Service (IRS) to notify the taxpayer of any and all subpoenas, with their responses and responsive documents, issued by the IRS to third parties. In this case, there were 77 such subpoenas issued and not yet disclosed, due to the absence of any direct requirement to do so within the Tax Court rules.
The US Department of Justice recently determined that the Singapore affiliate of UBS (UBS AG) "has complied with an Internal Revenue Service (IRS) summons for bank records" related to a taxpayer whose liabilities are at issue. The international financial institution refused to produce the records when first served the summons. After a petition was filed to enforce the summons formally, UBS and the IRS resolved the matter amicably and the petition was voluntarily dismissed.
The US Supreme Court issued its decision in Franchise Tax Bd. of California v. Hyatt on April 19, 2016, affirming the jurisdiction of the Nevada courts but limiting the damages it could award against the California tax agency. This decision lays to rest a case in which taxpayer Gilbert Hyatt sued the FTB in Nevada for abusive audit and investigation practices. The original award was for nearly $500 million. However, because Nevada limits damages that can be awarded against its own state agencies, the taxpayer may only be granted up to Nevada's $50,000 limit.
Not surprisingly, a recent declaratory action has challenged South Dakota's bold move to require many out-of-state sellers to register with the state and begin collecting sales tax (previously discussed here). American Catalog Mailers Associations and NetChoice v. Gerlach questions the constitutionality of the economic nexus legislation based upon the physical presence rule from Quill Corp. v. North Dakota.