CBIZ & MHM Executive Education Series™

Eye on Washington: Quarterly Business Tax Update

May 7, 13 and 14, 2014

Presented by: Stephen C. Henley, CPA National Tax Practice Leader, CBIZ MHM, LLC William M. Smith, Esq. Managing Director, CBIZ MHM, LLC National Tax Office

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Before We Get Started…

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This webcast is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webcast.

External participants will receive their CPE certificate via email immediately following the webcast.

CPE Credit

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Any tax advice contained in this program is not intended

to be used and cannot be used for the purposes of avoiding any penalties that may be imposed by the

Internal Revenue Code.

Circular 230 Notice

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Today’s Presenters

Stephen C. Henley , CPA Senior Managing Director, CBIZ MHM 770.858.4443 | shenley@cbiz.com Steve has 30 years experience in serving the tax needs of clients in a variety of industries including retail, distribution and manufacturing, services, technology and communications. In serving as lead tax engagement executive, Steve’s focus is identifying and executing value creating strategies to meet the needs of his clients in a variety of technical areas, such as revenue recognition, acceleration of deductions, research and experimentation credits, state and local tax minimization, M&A tax structures, international tax planning and tax implications of compensation programs.

William M. Smith, Esq. Managing Director, CBIZ National Tax Office 301.951.3636 | billsmith@cbiz.com Bill Smith is a managing director in the CBIZ National Tax Office. Bill monitors federal tax legislation and consults nationally on a broad range of foreign and domestic tax services for businesses and individuals, including mergers and acquisitions, domestic and international investments or divestitures, and the review, negotiation and drafting of tax aspects of business agreements.

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Agenda Legislative Updates

Tax Reform Extenders Affordable Care Act Updates Tangible Property Regulations Updates (Rev. Procs. 2014-16 & 2014-

17) Administrative Updates

Extension for Estate Portability Elections (Rev. Procs. 2014-18) Virtual Currency (Notice 2014-21) New Partnership Proposed Regulations on Debt Allocation Safe Harbor for Mezzanine Financing COD Exclusion 382 Limitations (IRS LTR 201403007) Transfer Pricing Roadmap Final Regulations on Section 83 “Substantial Risk of Forfeiture”

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Agenda Cases

Ball v. Comm’r,, 2014-1 U.S.T.C. ¶50,176 (3rd Cir. 2014) Ries Enterprises, Inc. v. Comm’r (T.C. Memo 2014-14) Route 231, LLC v. Comm’r (T.C. Memo 2014-30) Shea Homes, Inc. v. Comm’r (142 T.C. 3) Western Management v. U.S. (2012-2, U.S.T.C ¶50,722) Bobrow v. Comm’r (T.C. Memo 2014-21)

LEGISLATIVE UPDATES

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“Tax extenders” refer to legislation to extend the package of expiring tax provisions that typically get temporarily extended by Congress. The extensions tend to be for short periods of time (e.g., one – two years).

Many feel that the extension of may of these provisions is being “tied” up by Congress as they await a more comprehensive tax reform.

Chair of Senate Finance Committee Ron Wyden (D-Ore.) indicated committee will take up extenders in April.

“Tax Extenders” - Expiring Tax Provisions

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“Tax Extenders” - Expired Business Provisions

Business tax provisions that expired 12/31/13 include: Research and experimentation credit; Work opportunity tax credit; Increase in expensing to $500,000/$2,000,000 and expanded

definition of §179 property; Bonus depreciation; Exceptions under Subpart F for active financing income; Look-through treatment of payments between controlled foreign

corporations (“CFC ”); Special rules for qualified small business stock; Reduction in S corporation recognition period for built-in gains tax; 15-year straight line cost recovery for qualified leasehold,

restaurant, and retail improvements

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On 2/26, Chairman of House Ways and Means Committee Dave Camp (R-Mich.) released discussion draft of a comprehensive tax reform bill

Would be most sweeping tax reform since 1986 Reaction on Capitol Hill was mixed Impacts all areas of income taxation, including: Businesses Individuals International Retirement plans

Camp Tax Reform Proposal

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Camp Proposal – Notable Business Reforms

Top corporate tax rate of 25% (down from 35%) Sec. 179 expensing election capped at $250,000 Corporate NOL limited to 90% of taxable income Software development / R&D amortized over 5 years Research credit made permanent 70% of inc. to active LPs, S corp S/Hs subject to S/E tax Portion of carried interest income taxed as ordinary Most businesses with gross receipts > $10 million required

to use accrual basis Income required to be recognized no later than when

recognized for financial statement purposes

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Camp Proposal – Business Reforms, cont’d.

Repealed provisions would include (not all inclusive): Accelerated depreciation DPAD (phased out over several years) Like-kind exchanges LIFO and LCM inventory accounting Corporate AMT Work opportunity tax credit Energy credits and energy efficient building deduction Gain exclusion on sale of small business stock Exception to $1 million compensation deduction limit for stock

options, commissions, etc.

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Camp Proposal – Notable International Reforms

Subpart F replaced with 95% exemption on foreign dividends paid to 10% US corporate shareholders

Foreign tax credit reforms No indirect credit on foreign taxes attributable to exempted

dividends Only direct expenses attributable to foreign sub allocated

against foreign source income

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Obama Fiscal Year 2015 Budget Proposals

President Obama released his annual list of budget proposals on March 4th

Over 80% of the tax proposals are the same as in last year’s budget proposal

Common themes: Raise revenue on higher income individuals Help working families Encourage retirement savings Encourage job creation Close “loopholes”

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Obama Budget – Notable Business Provisions

Extenders: Permanently extend R&E credit Permanently extend $500,000 expensing election Permanently extend 100% gain exclusion on small business stock Permanently extend Work Opportunity Tax Credit

Holdovers from previous budget: Tax carried interests as ordinary income Repeal LIFO and LCM inventory accounting methods “Promise Zones” to encourage investment in disadvantaged areas Extend recovery period on corporate jets Renew and expand energy incentives

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Obama Budget – Business Provisions, cont’d.

New provisions: Limit capital gain deferral on like-kind exchanges of real

estate to $1 million per year Impose S/E tax on active owners of professional services

businesses

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Affordable Care Act Update

Employer shared responsibility payment: Nondeductible excise tax on large employees who do not

provide affordable & adequate health coverage to full-time employees

Modifications: Delayed until 2016 for certain employers Percentage of employees who must be offered minimum essential

coverage decreased from 95% to 70% in 2015

Full-time Employees 2014 2015 2016 Less than 50 N/A N/A N/A 50 – 99 N/A N/A 95% 100 or more N/A 70% 95%

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Tangible Property Regulations – Update

Under the new rules concerning improvements to tangible property, taxpayers may have capitalized expenditures in the past that can now be deducted as repairs

An automatic accounting method change allows the taxpayer to: Conform treatment of similar expenditures in the future to the new

definitions Write off prior year expenditures that had been capitalized but that

now qualify as repairs

Caution: Change goes both ways – could have to capitalize expenditures previously capitalized as repairs

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2011

2012

2013

2014

Timeline of Regulations & Guidance

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December 2011 Temporary regulations issued

March 2012 Implementation guidance issued (Rev. Procs. 2012-19, 2012-20)

November 2012 Implementation delayed to 2014 (optional adoption in 2012/2013 permitted) September 2013 Final regs. issued re: acquisition, production, improvements & repairs Proposed regs. issued re: dispositions January 2014 Implementation guidance on final regulations issued (Rev. Proc. 2014-16)

February 2014 Implementation guidance on proposed regulations issued (Rev. Proc. 2014-17)

May 2014 (expected) Final disposition regulations and related implementation guidance

September 15, 2014 Final extended due date for 2013 tax returns

Final rules must be followed

beginning with 2014 tax years

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Example actions required of many taxpayers: Review and validate current capitalization policies

Critical for de minimis safe harbor Consider tax accounting method changes for 2013 or 2014

along with impact on taxable income Consider annual tax return elections Consider financial statement implications

Some book conformity required Effect on deferred taxes

Evaluate materials and supplies accounting Review prior year treatment of expenditures

Why are these new rules important?

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Under prior rules, if a taxpayer disposed of a portion of an asset (e.g., a roof that had been replaced), it had to continue to depreciate the old roof as well as the new one

Under the proposed regulations, a taxpayer can elect to dispose of a portion of an asset Common examples – roof, elevators, HVAC, engine of an

airplane May need a Cost Segregation study to determine cost basis

of disposed property but proposed regulations provide some simplified methods (CPI Rollback) to reasonably calculate

Write-offs should generate an ordinary deduction

Partial Disposition Election

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Example: Taxpayer knocked out a wall to expand their building Can write off basis of wall and any other property destroyed

(wiring, pipes, vents…) Need to come up with basis of assets disposed of in order to

take the loss Need to capitalize new portion of building

Double benefit not available: cannot take loss on partial disposition and a repair expense on the replacement

Partial Disposition Election

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The partial disposition provision is an annual election, i.e. generally only available in the year the asset is partially disposed of

Taxpayers have a limited opportunity to file an automatic accounting method change to make a late partial disposition election for assets partially disposed of in prior years

Only available on 2012 – 2014 tax returns

Late Partial Disposition Election

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Review additions of real property (including land improvements) for additions in current and prior years

Determine if these additions were improvements or replacements of already existing capitalized real property or land improvements

If so, there may be a loss available under a partial disposition election

Partial Dispositions – Action Steps

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Critical tax compliance area What is a Capitalized Improvement vs. a Deductible

Expense?

Improvements to Tangible Property

Betterment

Capitalized Improvement

Restoration

Adapt to New or

Different Use

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Restoration examples in the regulations of expenditures that do not need to be capitalized: Replacement of 30% (3 out of 10 units) of HVAC units does not involve a

significant portion of the major component (all HVAC units) or a large portion of the physical structure of the unit (the HVAC system).

Replacement of 40% of the sinks (not the piping) in a building does not involve a significant portion of the major component (all the sinks) or a large portion of the physical structure of the unit (the plumbing system).

Replacing 10% of the floors in a building does not involve either a significant portion of the major component (all the floors), or a large portion of the physical structure of the building structure (the unit) Replacing 40% of the floors in a building does involve replacement of

a significant portion of the major component (all the floors)

Improvements, cont’d.

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Significant expenditures from prior years should be reviewed: Previously deducted expenditures – look at all open tax years Capitalized items - look at any fixed assets currently on the tax

depreciation records

Taxpayers can apply these new rules to prior year expenditures an accounting method change may be allowed whereby the taxpayer

can currently write off that capitalized amount from the prior year since under these new rules it could be a deductible expense (and vice versa)

Improvements – Action Steps

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Automatic change No user fee Due with tax return vs. at end of tax year

Audit protection for years prior to year of change

Waiver of scope limitations that typically apply to taxpayers under exam or who have made similar changes within last 5 years

Not predicated on full compliance with 263A

Benefits of Filing Accounting Method Changes under Current Guidance

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ADMINISTRATIVE UPDATES

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Portability election allows surviving spouse to obtain benefit of deceased spouse’s remaining estate tax exclusion Post- Windsor this applies to same-sex spouses

Estate of deceased spouse must elect portability on a timely filed Form 706 (nine months after DOD)

“9100 Relief” was available if the return is only filed to make the election (otherwise estate not large enough to require filing Form 706) – expensive and not guaranteed

Rev. Proc. 2014-18 simplifies procedure and allows return if filed by December 31, 2014 Surviving spouse who wants credit or refund must still file timely

return

Extension for Estate Portability Elections

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The IRS issued FAQs dealing with virtual currency The IRS focused on “convertible” virtual currency – virtual currency

with an equivalent value in real currency, or that acts as a substitute for real currency Bitcoin is an example of “convertible” virtual currency because it

may be digitally traded between users or may be purchased using real money

Virtual currencies are treated as property – General tax principles applicable to property transactions apply to transaction using virtual currency.

Virtual currency received as payment for goods or services should be included in a taxpayer’s gross income. The includible amount equals the FMV of the virtual currency received (in U.S. Dollars) on the date the “transfer” is completed.

A taxpayer may have a gain or loss when utilizing virtual currency in an exchange for property.

Virtual Currency/Bitcoin Treated As Property

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Character of the Gain/Loss: Depends on whether the virtual currency is a capital asset in the

taxpayer’s hands. A taxpayer generally realizes ordinary gain or loss on the sale or

exchange of virtual currency that is not a capital asset in the hands of the taxpayer.

Other potential FAQs of interest: Treatment of virtual currency –

Virtual currency mining – subject to self-employment tax? Whether virtual currency constitutes “wages”? Subject to information reporting? Subject to backup withholding? Taxpayer penalty for incorrect reporting

Virtual Currency/Bitcoin Treated As Property

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DEBT ALLOCATION

Recourse Debt and Guarantees – Must be “commercially reasonable”

Partner must have commercially reasonable net worth Partner must provide commercially reasonable documentation of

finances Partner’s payment obligation cannot end before term of liability Partner’s payment obligation is reduced by reimbursement from

another partner Nonrecourse Debt and Profits Interests

Partner’s share of nonrecourse debt determined by profits interest Profits interest now determined solely by liquidation value percentage

New Partnership Proposed Regulations

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Mezzanine financing will typically give the lender a security interest in the entity owning the real property, so default will not require foreclosure on the property itself (behind first mortgage)

For COD to be excluded, the debt must be secured by real property used in a trade or business, so the question is whether the security is “real property.”

Notice 2014-20 provides safe harbor in “plain vanilla” deal where lender secures loan with interest in disregarded entity

Safe harbor is not exclusive, and lender can still argue that lien is secured by real property

Safe Harbor for Mezzanine Financing COD Exclusion

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Taxpayer was a loss corporation within the meaning of §382 with a single class of publicly traded common stock

Taxpayer utilized a stock surveillance company to help identify persons who control large blocks of stock & monitor SEC filings. Generally however, Taxpayer did not have actual knowledge or the ability to track owners of its stock.

Only persons who have the economic right to dividends & proceeds from the sale of Taxpayer’s stock are considered to “own” the Taxpayer’s stock for §382 purposes.

Absent actual knowledge – a Taxpayer may rely on disclosures made to the SEC (i.e. – Schedule 13G) that there are no other 5 percent “Economic Owners” of the Taxpayer’s stock.

382 Limitations – IRS LTR 201403007

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New Transfer Pricing Audit Roadmap to assist IRS examiners with developing/auditing transfer pricing issues.

Taxpayers with any of the following characteristics have a higher risk of inquiry: Inbound taxpayers with sustained losses; High risk or significant transactions with affiliates in tax havens; Exploiting valuable intangible property (consider those with significant

R&D); and High volume of related party transactions.

After developing a client’s facts (looking at a taxpayer’s value chain, competitive position in its industry, and financial results), if the economic reality established from the facts is “too good to be true”, the taxpayer becomes a good candidate for further scrutiny.

The total audit cycle can take anywhere between 2-3 years (or more).

Transfer Pricing Road Map

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PROCESS 24 month audit timeline for developing and resolving the audit. The Planning Phase — 6 month process that includes pre-

examination analysis, the opening conference, taxpayer orientations, and preparing the initial risk analysis and examination plan.

The Execution Phase — 14 month process that includes fact-finding, information gathering, and issue development.

The Resolution Phase — 6 month process that includes issue presentation and resolution, case closing, and the revenue agent’s report.

Transfer Pricing Road Map – Cont’d

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ROADMAP THEMES

Up-front planning is essential – IRS transfer pricing specialists must be involved early on, even before the official audit commencement date, to ensure that the audit plan and timeline are appropriate.

Cases are usually won and lost on the facts – The audit team must put together a compelling story of what drives the taxpayer’s financial success, by analyzing functions, assets, risks, financial results, and industry characteristics.

The objective is to determine a reasonable result – The team must develop a working hypothesis to guide the audit, but the team must keep an open mind to facts and theories that may not square with its initial theory. The team must address the taxpayer’s analysis.

Effective presentation can make or break a case – All of the relevant facts should be addressed. The agent’s Notice of Proposed Adjustment must weave facts and principles into a coherent story line.

Transfer Pricing Road Map – Cont’d

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Value of property transferred in connection with the performance of services is taxable unless it is subject to a “substantial risk of forfeiture” (SRF)

SRF includes recipient’s full enjoyment conditioned on future performance of substantial services

Final Regs clarify SRF only established through requirement to perform

substantial services or condition related to purpose of the transfer Latter dependent on likelihood of forfeiture event and

whether it will be enforced Option exercise income not deferred even though

following a purchase of shares subject to Rule 16(b)

Final Regs on Section 83 “Substantial Risk of Forfeiture”

CASES

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Ball v. Comm’r, 2014-1 U.S.T.C. ¶50,176 (3rd Cir. 2014)

Shareholders of an S Corporation could not increase their basis in their S Corporation stock when an S Corporation’s subsidiary converted to a Qsub.

The conversion to a QSub was a deemed liquidation of the subsidiary that was tax-free under Code Sec. 332.

Since the conversion was tax-free, it did not generate an item of income under Code Sec 1366(a)(1)(A) for which the shareholders could increase their basis.

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Ball v. Comm’r, 2014-1 U.S.T.C. ¶50,176 (3rd Cir. 2014)

10 trusts that owned all of the stock of the S Corporation, which in turn

owned a subsidiary corporation. Converted to a QSub, then the trusts increased their aggregate bases in QSub from $15 million to $242 million.

The trusts sold all of the stock in WR to an unrelated third party for $230 million. They claimed a loss of $12 million.

The issue was whether a QSub election creates an "item of income" for the parent corporation. The trusts argued that the election resulted in gain from a disposition of property that created an item of income.

The trusts maintained that although Code Sec. 332 provides for the nonrecognition of gain, their gain from the deemed liquidation was income under Code Sec. 61 and Code Sec. 331 (taxable liquidations). Therefore, the income was an item of income under the sub S provisions, and it was proper to increase the basis of the trusts’ stock.

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Ball v. Comm’r, 2014-1 U.S.T.C. ¶50,176 (3rd Cir. 2014)

COURT REASONING While gain from the deemed liquidation was realized, it is not recognized

because of Code Sec. 332. When a gain is not recognized, it does not give rise to an item of income under the sub S provisions.

The Third Circuit pointed out that regs under Code Sec. 61 provide that gains under Code Sec. 331 are not recognized and thus are not included in or deducted from gross income.

Transaction cannot be governed by both Code Sec. 331 (realization of gain) and Code Sec. 332 (nonrecognition treatment). Code Sec. 332 applies to a special set of liquidations that do not create items of income.

The courts also rejected the taxpayers’ argument that Gitlitz (SCt., 2001-1 USTC ¶50,147) supports treatment of gross income as an item of income under one provision, even though the income is not recognized under another provision. Gitlitz differed because it applied to income from the cancellation of indebtedness, which was specifically included in income under Code Sec. 61.

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An individual organized an S Corporation. The S Corporation sponsored an ESOP and managed the ESOP through a trust. The ESOP was funded with a $200,000 loan.

The proceeds of the loan were used by the trust to purchase stock in the S Corporation, which was held by the trust in a suspense account. The business owner served as trustee of the trust. The business owner was also the sole beneficiary of the ESOP. The trust owned 80 percent of the S Corporation’s stock. The remaining shares were owned by the individual and his wife.

The trust subsequently made or was credited with making a $28,000 payment toward the loan. The trust then released from the suspense account 8.4568 shares of stock, all of which were allocated to the individual. The IRS determined that releasing the shares from the suspense account and allocating them to the individual violated Code Sec. 409(p).

Ries Enterprises, Inc. v. Comm’r, T.C. Memo. 2014-14

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ANALYSIS

An ESOP is a defined contribution plan that allows an employee to own stock in a corporate employer. Code Sec. 409(p) generally limits the tax benefits available through an ESOP that owns stock of an S Corporation unless the ESOP provides meaningful benefits to rank-and-file employees.

The court further found that an excise tax equal to 50 percent of the prohibited allocation amount is imposed. The prohibited allocation amount is the amount allocated to the account of any person in violation of Code Sec. 409(p)(1). The prohibited allocation amount for the first nonallocation year of any ESOP is determined by taking into account the total value of all deemed-owned shares of all disqualified persons with respect to that plan. The business owner, the court concluded, was a disqualified person.

Ries Enterprises, Inc. v. Comm’r, T.C. Memo. 2014-14

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Transfer of state tax credits (for charitable donations of conservation easements) from one LLC in exchange for money from its one-percent partner, an LLP, was a disguised sale under Code Sec. 707 resulting in income to the LLC. The Tax Court found that the credits were property for purposes of the disguised sale rules.

BACKGROUND

An LLC taxed as a partnership donated two conservation easements and one fee interest on historic tracts of land to charitable conservation agencies and claimed transferable state income tax credits equal to 50 percent of the fair market value of the donated land.

An LLP acquired some of the state tax credits and a one-percent partnership interest in exchange for what the two entities termed a "capital contribution" of approximately $0.53 for each dollar of state tax credits allocated to the LLC’s fund.

The IRS issued a final partnership administrative adjustment determining that the LLC had failed to report $3.8 million from the sale of the state tax credits.

Route 231, LLC v. Comm’r, T.C. Memo. 2014-30

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ANALYSIS

The tax credits met the definition of "property" under the disguised sale definition because they were valuable and "imbued with essential property rights," such as transferability.

The amount of money transferred by the LLP to the LLC was expressly linked to the amount of tax credits it received, and the transfer of credits would not have taken place but for the transfer of money.

The LLP failed to undertake any entrepreneurial risks to receive the credits.

Further, a facts-and-circumstances test confirmed that the transfer of credits in exchange for money was a disguised sale.

The transfer of money for tax credits was not a capital contribution, but a disguised sale under Code Sec. 707.

Route 231, LLC v. Comm’r, T.C. Memo. 2014-30

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Developer of planned residential communities purchased land, constructed infrastructure and amenities as common improvements, and constructed homes.

Developer marketed the community and the life-style of the development, not just the individual home itself.

Before the buyer and seller closed on a home, the seller was required to construct all common improvements or post a performance bond.

Internal Revenue Code § 460

The CCM is available tor home construction contracts.

80 percent of the estimated total contract costs will be attributable to dwelling units and to real property improvements related to and on the site of the dwelling units.

Includes the cost of the dwelling units the allocable share of costs for common improvements (sewers, roads, clubhouses) that benefit the units and that the taxpayer is obligated to construct.

A long-term contract is a contract to build, install or construct property that will not be completed in its initial tax year.

A contract is completed upon the customer’s use of the "subject matter of the contract" and at least 95 percent of the costs of the contract’s subject matter have been incurred.

Shea Homes, Inc. v. Comm’r, 142 T.C. 3

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Taxpayer: the subject matter of the contracts was the entire development, and that completion did not occur until the final road is paved and the final performance bond is released.

IRS : each contract was completed when the home escrow closed, and common improvements to the developments were secondary items and that these costs should not be counted in applying the 95 percent threshold.

Tax Court: the subject matter of the contract was the entire development, and the developer was obligated to provide amenities and infrastructure as part of the contract. The Court considered:

The lifestyle advertised for the developments The amounts budgeted and incurred for indirect costs The performance bonds securing completion of the common

improvements The obligations imposed by the CC&Rs (Covenants, Conditions and

Restrictions) Homeowners’ Association rules

Shea Homes, Inc. v. Comm’r, 142 T.C. 3

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Caution

Very fact specific case where the court conducted extensive analysis of the contract laws of numerous states.

Based in part on the lack of clarity in the regulations, and similar cases are currently working their way through the system.

Treasury has already indicated that it may change the regulations

Shea Homes, Inc. v. Comm’r, 142 T.C. 3

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A petition for review of the Federal Circuit decision (affirming the Tax Court’s decision) was filed with the Supreme Court.

Tax attorney paid himself as independent contractor:

All self employment taxes paid IRS assessed corporation for failing to withhold on employee

wages Individual sought refund of self employment taxes

IRS offset part of refund due individual against corporate liability because he admitted that he was “the corporation’s alter ego and the corporation was his nominee”.

IRS Denied remaining refunds based on Statute of Limitations

Western Management v. U.S., 2012-2, U.S.T.C. ¶50,722

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The Tax Court held that a taxpayer could only make one nontaxable rollover contribution within each one-year period regardless of how many IRAs the taxpayer maintained.

Code §408(d)(3)(B) provides a one-year limitation which the Court found was not specific to any single IRA maintained by an individual.

The one-year limitation applies to all IRAs maintained by a taxpayer.

Bobrow v. Comm’r, T.C. Memo. 2014-21

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SUBSEQUENT ORDER:

Taxpayer asked for reconsideration of the penalty because IRS Publication 590 and Proposed Regulations were supportive of taxpayer’s treatment “Neither petitioners nor respondent raised Publication 590 or the

proposed regulation in their opening briefs, reply briefs, or sur-reply briefs.”

Court upheld the penalty despite Publication 590 and Prop. Reg. The IRS released Announcement 2014-15 which indicated the IRS

would follow the Bobrow Court’s decision, but would not enforce it until January 1, 2015. Extended the approach to the taxpayers, reducing the taxpayer’s liability and penalty

Take away – IRS publications are not considered substantial authority, but IRS notices and announcements may be.

Bobrow v. Comm’r, T.C. Memo. 2014-21

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Questions?

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