This article provides advice for guiding clients that seek to discharge taxes in bankruptcy and practical guidance to help avoid common pitfalls when dealing with IRS enforcement post-discharge. Read More

On Oct. 14, 2021, the Ninth Circuit Court of Appeals in Berkovich affirmed the decision from the Bankruptcy Appellate Panel (BAP) that because a debtor failed to report Internal Revenue Service (IRS) tax assessments to the California Franchise Tax Board (FTB), the debtor's state tax liability was nondischargeable under § 523(a)(1)(B)(i). Read More

An advantage of filing bankruptcy is that it can stop certain collection actions by the IRS.  For example, suppose that a taxpayer has been under heavy fire from the IRS revenue officer for the past several years.  The IRS recently discovered a bank account that Max owns in Reno, Nevada, served a Notice of Levy, and levied $25,000 from the account.  Max plans to file a petition under title 11 to prevent further collection action.  The IRS has indicated that it may audit the taxpayer's Form 1040.  Which of the following actions will the filing of the petition operate as... Read More

A taxpayer does not always get to eat cake and keep it too. When discharge of indebtedness (other than real property business debt) is excluded from gross income, corresponding reductions must be made to the taxpayer's tax attributes. See Checkpoint EXP ¶1084.02 Reduction of tax attributes; Code Sec. 108(b)(1). Net operating loss General business credit Minimum tax credit Capital loss carryover Basis reduction (see below) Passive activity loss and credit carryovers Foreign tax credit carryovers  See Code Sec. 108(b)(2); Reg §1.108-7(a)(1). There are ordering rules that come into play.  I.R.C. § 108(b)(4). The debtor can elect to alter the sequence... Read More

The taxation of the bankruptcy state is not always obvious, and below are the key highlights for debtors to keep in mind.  The IRS is well versed with these rules, and running afoul can lead to tax controversy issues, such as an audit. Property of the Bankruptcy Estate All legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. Sec. 541. Ask who is the debtor (single individual, married couple, or married individual). Ask what type of property (exempt property, community property, after-acquired property, abandoned property). Taxation of the Bankruptcy Estate Separate... Read More

This article examines strategies for handling an IRS investigation of international returns, and recommends ways to improve audits, foster taxpayer compliance, and uphold taxpayers’ rights. Read More

On March 25, 2020, the Internal Revenue Service issued a news release announcing the People First Initiative.  See IR-2020-59 (03-25-2020).  The new initiative is aimed at helping taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to postponing compliance actions.  The temporary relief lasts through July 15, 2020, when the IRS presumably will resume normal operations.  Significantly, the People First Initiate provides: The IRS will generally not start new field, office, and correspondence examinations, and General collection activities are suspended, but certain actions will continue. Highlights of the provisions are outlined below: Suspended Collection Activities... Read More

A recent taxpayer-friendly court decision from New York is worth reviewing for practitioners who handle late-filed Forms 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, for offshore trusts. The federal district court struck down the IRS's imposition of a 35% civil penalty for failing to timely file a Form 3520 — an information return used to report, among other things, transactions with foreign trusts — and limited the penalty to a much smaller amount, 5%. Moreover, the court ruled that the penalty must be computed based upon the year-end value of the trust's... Read More

The San Francisco Bay Area is a focal point for international business. It is common for individuals to start a business, and later expand operations overseas to Europe or Asia.  There is no prohibition in expanding overseas, but U.S. persons (a defined term that means U.S. citizens and residents of the United States) are required to report their foreign business activities on "information returns" filed with the Internal Revenue Service.  While there may be no tax due, the returns report information that is used to satisfy the reporting requirements of sections 6038 and 6046, and the related regulations.  A trap... Read More

The Government is pressing taxpayers with large civil penalties for late-filed Forms 3520.  The IRS may assert the penalty in the context of a foreign trust or if you are a U.S. person who received foreign gifts of money or other property.  This is an evolving and complex area of the law, and there is a recent, taxpayer-friendly case from New York that is worth reading. The Wilson Case In Wilson v. United States, 2019 US Dist. LEXIS 199902 (ED NY. Nov. 18, 2019), the United States District Court for the Eastern District of New York ruled that the IRS... Read More