Tax Court Says 90 Day Deadline For Redetermination of Employment Status Does Not Apply!

According to Law360, a jewelry company's one-day-late filing of a petition for reconsideration of an employment tax determination does not deprive the U.S. Tax Court of jurisdiction in the case, the court said On June 25, 2024, denying the IRS' attempt to get the case tossed in Belagio Fine Jewelry Inc. v. Commissioner, U.S. Tax Court docket number 35762-21.

Since Congress did not clearly state that the 90-day deadline to file for a redetermination of employment status is a jurisdictional requirement, the court does not lose jurisdiction based on Bellagio Fine Jewelry Inc.'s late filing, Judge Travis A. Greaves said in the opinion. The Internal Revenue Service had moved to dismiss the case for lack of jurisdiction. 

Judge Greaves further said the relevant historical treatment of Section 7436(b)(2), which established the deadline, also doesn't demonstrate that Congress intended for it to be jurisdictional.

Following an audit, the IRS determined in 2021 that the company had an unreported employee in 2016 and 2017, saying that it owed employment taxes as well as other penalties, according to the court. 

The Company Mailed Its Petition Contesting This Determination To The Court Four Days Prior To The Deadline To File It,
But The Petition Showed Up One Day Late.

The company also argued that the 90-day deadline should be subject to equitable tolling, but the court said it would reserve judgment on that argument until a proper dispositive motion regarding the matter is presented.

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Supreme Court Strikes Down Chevron Deference To Federal Agencies' Interpretations of Law

According to Law360, the U.S. Supreme Court on Friday overturned a decades-old precedent that instructed judges about when they could defer to federal agencies' interpretations of law in rulemaking, depriving courts of a commonly used analytic tool and leaving lots of questions about what comes next.

In a 6-3 ruling, a majority of justices held that the high court's test established in 1984's Chevron v. Natural Resources Defense Council improperly prioritized the executive branch's legal interpretations over the judicial branch's.

The decision hands a win to fishing industry plaintiffs that sought the complete destruction of so-called Chevron deference and introduces significant uncertainty about how lower courts will weigh competing legal arguments in the large arena of rulemaking litigation.

Plaintiffs in Loper Bright v. Raimondo and Relentless v. Department of Commerce had asked the high court to overturn Chevron or at least significantly narrow the doctrine's application.

All nine justices in January heard oral arguments in Relentless, but in Loper Bright, heard the same day, Justice Ketanji Brown Jackson recused herself due to her involvement in the matter as a judge at the D.C. Circuit.

Both Relentless and Loper Bright are centered around fishing groups' challenges to a 2018 National Marine Fisheries Service rule requiring fishers to pay part of the cost of having federal compliance monitors aboard their ships. The plaintiffs in both cases had argued unsuccessfully that NMFS interpreted the Magnuson–Stevens Fishery Conservation Management Act too broadly and created regulations that exceed the agency's authority.

But the hostility to the Chevron precedent that some of the current justices have expressed led to speculation that the plaintiffs' luck could and did in fact change at the Supreme Court.

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SCOTUS To Review If Trustee Can Recover Tax Payments To The IRS

According to Law360, The U.S. Supreme Court on June 24, 2024 said in U.S. v. Miller, case number 23-824, that it would review a Tenth Circuit decision that found that the bankruptcy trustee of a defunct Utah company seeking Chapter 7 protection could recover $145,000 in tax payments from the IRS.

In an order list, the Supreme Court said it would grant a request by the government to review the Tenth Circuit's June 2023 decision, which the U.S. said created a circuit split. 

The government argued in a February petition that the Tenth Circuit wrongly sided with the Fourth and Ninth Circuits, and split from the Seventh, when it ordered the IRS in June to return $145,000 in tax payments made by the insolvent company, All Resort Group Inc., which had been obliged to pay other debts.

The company's bankruptcy trustee, David Miller, brought an adversary proceeding against the government to recover the payments under U.S. Bankruptcy Code Section 544(b), which allows a trustee to retroactively avoid a payment that is rendered void by other applicable laws, including state laws on fraudulent transfers, according to the petition.

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IRS Commissioner Says That 2024 Hiring Efforts Shifting to Examination

In 2023, the first full year funding from the Inflation Reduction Act (PL 117-169) became available to the IRS, the agency focused on hiring customer service representatives now, there is a shift towards onboarding new examination staff, according to the head of the agency.

Speaking on June 13, 2024 at a joint conference hosted by the IRS and the Tax Policy Center, IRS Commissioner Danny Werfel said Inflation Reduction Act funds in fiscal year 2024 are not only bringing in new auditors and lawyers, but also data scientists, engineers, and industry subject matter experts, including those in the digital asset space.

Calling Hiring A "Multi-Pronged Effort," This Wave Is
Centered Around Increasing Scrutiny On Those On
The IRS' "High Risk" List, Including Tax Delinquent Millionaires, Non-Filers, And Complex Partnerships
Seeking To Avoid Tax Exposure.

Due to years of underfunding, IRS audit rates of large corporations and multimillionaires fell between 2010 and 2021. Overall staffing in the agency’s compliance offices declined 30% during that time.

The Agency's Efforts Have so Far Recovered
$520 Million from Millionaires Who Have Either
Not Filed Their Taxes or Failed to Pay Their Tax Debt.

Through a combination of increasing compliance staff and recently announced targeted enforcement campaigns against high-risk taxpayers making over $400,000 a year, the IRS can demonstrate "that this is a positive return on investment" by closing the overall gap between taxes owed and taxes paid, Werfel said of the inflation bill's funds.

He added that investments in artificial intelligence will assist in audit selection and recognizing areas "where tax evasion is occurring," such as transfer pricing, using "much more sophisticated analytics."

Providing Context On Why Expanding The IRS Workforce
Is Necessary, Werfel Said That Before The Enactment Of
The Inflation Reduction Act, The Agency's Staff Size
"Was Roughly The Same As It Was In The Late 70s."

Continuing, he mentioned that leaders of other countries' tax authorities have commented to him about "how small the IRS is on a per capita basis compared to the other nations."

Since 2022, the IRS has added about 11,000 full-time positions, including staff working on audits as well as those tasked with customer service and other jobs. The agency plans to add an additional 14,000 full-time positions with funding from the Inflation Reduction Act by fiscal year 2029. Some new hires will be replacing people retiring or leaving. The increases would bring the number of total IRS employees to 102,500, Werfel said.

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Sources:

CNN

Daily Tax Report

SCOTUS Finds IRC §965 Transition Tax Constitutional

The U.S. Supreme Court upheld the 2017 federal tax overhaul's mandatory repatriation tax on June 20, 2024, finding the measure applies to the earnings of foreign corporations with U.S. shareholders and therefore does not raise constitutional questions about taxing unrealized income. 

In a 7-2 ruling, the justices found that the repatriation provision operates in a way that does not require the high court to weigh whether the Constitution's Sixteenth Amendment prohibits Congress from taxing unrealized income. Specifically, the majority ruled that the measure, known as the mandatory repatriation tax under IRC §965, taxes income that was realized by foreign corporations with U.S. shareholders, and Congress has the authority to attribute a company's realized and undistributed income to shareholders for taxation.

Justice Brett Kavanaugh, who wrote the majority's opinion, said the court 

"Need Not Resolve That Disagreement Over Realization"
To Decide This Case, Adding That Those Are
Potential Issues For Another Day."

Justice Kavanaugh, pointed out that the MRT taxes a shareholder on income that is clearly realized by a controlled foreign corporation, so the real question is “whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income.”

The majority found support for this proposition and dismissed petitioners’ attempts to distinguish  IRC §965 from the many taxes based on the undistributed income of partnerships, S-corporations, controlled foreign corporations, and the like.

In contrast with the majority’s narrow approach, four justices: Justice Barrett, in a concurrence joined by Justice Alito, and Justice Thomas, in a dissent joined by Justice Gorsuch all endorsed the existence of a constitutional realization requirement. 

These justices effectively invite future challenges to Congress’s authority to tax various types of income or gains under the Sixteenth Amendment.

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Sources:

Law360

Kostelanetz

SCOTUS Affirms That Estate's Value of Closely Held Company Includes Insurance Payout on Key Man Life Policy

The U.S. Supreme Court on June 6, 2024 affirmed a decision denying a tax refund to the estate of an owner of a building materials company that used a payout from his $3.5 million life insurance policy to purchase his shares in the business in Thomas A. Connelly v. U.S., case number 23-146.

In a unanimous opinion, the court affirmed a summary judgment decision by the Eighth Circuit, which ruled last year that the life insurance proceeds, used to fund a stock redemption by Crown C Supply following the death of its co-owner Michael Connelly, were an asset that increased Crown's value, inflating the value of Connelly's stock and driving up the tax liability of his estate.

The court rejected the estate's argument that the proceeds were a stock redemption that should be treated as a liability for Crown C Supply that reduced its value for purposes of calculating estate tax, similar to any debt.

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Document Upload Tool Reaches 1 Million Received Submissions Milestone

In Issue Number: IR-2024-155 the Internal Revenue Service announced the Document Upload Tool accepted its one millionth taxpayer submission.

Use of the Document Upload Tool, sometimes referred to as DUT, continues to grow. During the first six months of this fiscal year, more than 265,000 taxpayers used the tool, and the number continues to grow each month.

“The Document Upload Tool is a key part of our ambitious initiative to transform the IRS into a virtually paperless agency, and we continue to see increased use of this by taxpayers,” said IRS Commissioner Danny Werfel. “This tool saves time for taxpayers and helps IRS employees process responses faster and more efficiently. 

A Growing Number Of Taxpayers Are Using Their Smart Phones Or Computers To Scan And Upload Their Responses To IRS Correspondence, Rather Than The More Time-Consuming Option Of Writing A Letter Or Mailing In Documents.”

The Document Upload Tool has shown steady growth over time as well. Since 2022, average monthly use of the DUT has more than doubled every year, from around 16,000 in 2022, to around 37,000 in 2023 and finally almost 84,000 so far in 2024. The document submissions cover a wide range of tax issues, including responding to IRS Notice CP2000, where the agency notifies taxpayers of potentially underreported income.

The IRS receives about 76 million paper tax returns and forms, as well as 125 million pieces of correspondence, notice responses and non-tax forms each year. In the past, the agency’s limited capability to accept these forms digitally or to digitize paper has added time-consuming steps that has created challenges for taxpayers, tax professionals and IRS employees. For decades, the only option available was to have taxpayers or their representatives mail or fax these documents to the tax agency.

The IRS Estimates That More Than 94% Of Individual Taxpayers Will Have The Option Of No Longer Having To
Send Mail To The IRS, Potentially Replacing Up To
125 Million Paper Documents Per Year, Easing
The Paperwork Burden For Both Them And The IRS.

To learn more about the Document Upload Tool, visit IRS.gov/DUT.

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