Holland King

The case of Helvering v Gregory made popular one of the most famous tax quotes, which may also be one of the most misunderstood quotes. In his opinion, Learned Hand commented that “[a]ny one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

The IRS Fresh Start Program is much advertised to eliminate tax debts, but does it work that way? We will explore what this program is and is not and how it may help you.

A recent Court of Appeals casegarnered much attention due to the court’s outrage at being ignored. In that case,Baez-Sanchez originally applied for a specialized visa that required a waiver. The request first went to an immigration judge, then to the Board of Immigration Appeals, back to the immigration judge, back to the Board, then to the Court of Appeals.

In November, the Supreme Court agreed to hear the case between Google and Oracle, over the objects of the Department of Justice. While oral arguments have not been set yet, we do expect it to be heard and ruled on this term.

Overall, the Court seemed interested in following the precedent laid before it by the historical record. That history, storied as it may be, is also riddled with inconsistencies and authored by people that do not understand the subject.

For almost a decade now, Oracle and Googlehave been locked in a legal dispute over the Java API. To date, there has been a jury trial, several district court rulings, multiple appeals, one denial of cert by the Supreme Court, and one cert currently pending.

In Part I, we looked at recent cases that have eroded the scope of Circular 230 and asked whether or not this was the right result. In this part, we will look at the fundamental question that was presented in each of the three cases, should the act of preparing a tax return be considered practice before the IRS?

In the past few years, there have been several challenges to the scope of Circular 230, and consequently, the Internal Revenue Service’s ability to regulate those that practice before it. As a consequence, what was a fairly sweeping scope of authority, has been whittled away a little at a time to now a pretty limited focus.

The title of this post is a phrase that appears a lot in court cases and quoted often by administrative agencies. It almost always precedes a negative result for the taxpayer in question and conveniently ignored when a positive outcome is required.

Over the last year, while there has not been much activity here, I have seen two of my writings published. The first is one-of-many Peach Sheets that was co-authored. The second was my student Note.

II. Is a Change Needed?While only a small sample of states have been surveyed to this point, it quickly becomes clear that the few states that have determined if reliance is a required element for a breach of warranty claim do not agree with each other.

III. The Proposed RuleWhile Whitehead argues that the default rules should favor an anti-sandbagging regime, the mere fact that the parties are not incentivized to bargain for a sandbagging or anti-sandbagging provision is not reason enough to upset the balance of the negotiated terms.

C. Delaware 1. Delaware’s Express Warranty StatuteWhile the California court rejected the idea of using the language from the Uniform Commercial Code,[1]the New York court based its analysis on this section.

B. New York*1. Crocker-Wheeler Elec. Co. v Johns-Pratt Co.*One of the earliest cases to deal with the subject of reliance upon a representation, Crocker-Wheeler presents an instance in which a manufacturer of wiring insulation was sued over the product claims.

I. The Law TodayMany states have yet to consider the issue of whether a buyer must show reliance in order to proceed with a claim of breach of express warranty. Two states, however, have considered the issue a number of times, and reached almost polar opposite conclusions.

IntroductionIn the area of post-closing indemnification clauses, there exists a subset of provisions sometimes referred to as the sandbagging, or anti-sandbagging, provision. A sandbagging provision, often labeled as “Expectations” or “Benefit of the Bargain,” will generally provide that the right to indemnification is not affected by the knowledge of either party at any time.

ConclusionThe Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 introduced several small but important changes to the bankruptcy code that proved to improve the overall status of secured tax claims.

III.RecommendationWith a few simple changes, much has been accomplished to remove the discrimination against secured tax claims. However, tax claims still must choose between a secured status and the priority status that receive the protections granted by Congress.

II. Evolution of Tax Claims in the CourtsB.Post-2005 Court I.Greenwood In Greenwood Point, while evaluating a plan for reorganization that included seven classes,[1]the court determined that a secured tax claim could constitute a class for purposes of § 1123.

II.Evolution of Tax Claims in the CourtsA.Pre-2005 Court I.Haas The case of In re Haas, clearly demonstrates the discrepancy that existed between secured tax claims and priority tax claims.[1]In this case, the taxpayer had both types of claims, a claim for income taxes amounting to $617,000, and a claim for employment taxes amounting to $68,000.

I.History of Tax Claims in BankruptcyC.Post-2005 CodeI.1129 Much of section 1129 was left unchanged by 2005 act.[1]The most important change for the purposes of this paper were introduced in section 1129(a)(9)(D).

I.History of Tax Claims in BankruptcyB.Calls for Reform In 1997, the National Bankruptcy Review Commission released its final report of the tax advisory committee. In this report, the committee recommended that numerous changes to the Bankruptcy Code.

I.History of Tax Claims in BankruptcyIn 2005, the Bankruptcy Code experienced one of the largest revisions in its history. Part of this revision included a reevaluation of the treatment of secured tax claims in the bankruptcy process.

IntroductionMuch like other claims in bankruptcy, tax claims exist in three basic forms: unsecured, secured, and priority. The first class, unsecured, non-priority claims are treated much like a general unsecured claim would be treated, and is beyond the scope of this paper.

This paper continues to explore tax claims within a Chapter 11 Reorganization. In this paper, the focus shifts from the perspective of the trustee and plan creator, to that of the lien holder, or government entity.

It is probably obvious that much of the content posted here is derived (wholesale stolen) from papers that I write for any given class. While I have one paper ready to post, I am waiting until grades are released for that course before doing so.

III. The Path ForwardIn addition to the confusion regarding how a court should decide the issues of both policy and statutory construction, there remains the question of how these areas should be weighted if they result in different conclusions.

II. A Tale of Two QuestionsThe disagreement among the courts focuses on two main areas: whether policy allows a secured tax claim to vote, and whether the statutory language permits it.

B. Class Not all courts agree that a secured tax claim should be prohibited from having a status of a voting class. Several of the courts that ultimately decided against the class status at least recognized the arguments for it.

A. Not A Class Led by the Fourth Circuit,[1]a number of courts have rejected the idea that a secured tax claim should have the ability to vote on a reorganization plan.

I. The State of the CourtsDuring a Chapter Eleven reorganization, if the proposed plan of reorganization is not accepted by all classes, the court is justified in confirming the plan, if at least one impaired class without any insiders accepts the plan.

Introduction“[I]t is unsettled whether a secured tax claim may be classified for purposes of voting and cram down.”[1]The status of a secured tax claim, whether it is as a class with voting rights or not, has large implications for those determining how to classify creditors during a reorganization plan.

The paper I am posting next was a term paper for my introductory bankruptcy class. I am currently spinning this paper into a longer more detailed paper, but my professor’s initial feedback and my own research suggests that much of the content will change, or at least shift focus significantly.

Conclusion While there are multiple elections available throughout the code that provide for various strategies and planning opportunity, the elections of §884 allow a taxpayer enough opportunities in which planning can provide some substantial benefits and make the requirements simpler and easier on the taxpayer.

Taiyo Hawaii v. Comm. In the case of Taiyo Hawaii Company, Ltd v. Commissioner (108 TC 590), Taiyo Hawaii, Ltd was a Japanese corporation, formed in 1985 that primarily conducted business in Honolulu.

Elections Normally, interest is expensed under §884 on a cash basis regardless of the taxpayer’s method. Accrual basis taxpayers will only be able to recognize the amount that was actually paid within a year, even if more was accrued during that year.

Allocable Interest Allocable interest is initially defined as “any interest which is allocable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.

The branch interest tax is supposed to ensure that interest paid by a branch is not a form of profit stripping by a foreign parent. The statute starts out simply by deeming any interest that is allocated to the branch, but not actually paid, as being paid to the foreign parent.

Intentional Deception  In the OBH case, it appears that one way to avoid the rules of §246A is to intentionally keep poor or hard to trace records. While it was not the fact that everything ran through one account that kept OBH from incurring the §246A limitations, better records and separate accounts would have made any direct connections obvious and easier to trace.

OBH Finding The court found that there was no evidence that OBH used the funds from the indebtedness to purchase the stock. The traces that Mr. Powell conducted in order to conclude that there was initially a connection were found to be arbitrary and inconclusive.

OBH Tests When the court applied the purpose prong to the OBH transactions, it expanded it to include three tests, how tenuous the relationship is between the indebtedness and the acquisition of the stock, the testimony of the taxpayer, and the government’s ability to rebut the taxpayer’s case.

Plain Language Since the code does not explicitly define the term “directly traceable”, the court had to look elsewhere. The case of Watson v. Ray, 192 F.3d 1153, claims that if no “specific definition of the term is given in the statute itself, court should look to the ordinary common sense meaning of the words.

Directly Traceable Prong Test Background In Revenue Ruling 88-66, the service examines three fact patterns in order to determine if the each one would fall under the control of §246A. Each of the fact patterns are provided below, followed by the Ruling’s analysis and then an examination of how it applies to the case.

OBH, Inc. v. Comm. In OBH, Inc. v. Comm., the commissioner tried to assert that OBH, Inc (referred to as Berkshire) used proceeds from a loan to purchase short term stock investments.

General Limitations Imagine a time where you could borrow money, use that to buy money, and then be paid by the government for doing so. Prior to the enactment of §246A, a corporation could do this.

Consistency of Ownership  The court looked at the taxpayer’s argument that this should be a liquidation, primarily because it did not qualify for redemption status. The taxpayer pointed to the fact that in order for a transaction to qualify as a redemption there must be a “consistency of ownership”.

Attribution Rules  Section 318(a)(1)(A) directs that an individual is considered to own the stock of his or her parents or child; “in general, an individual shall be considered as owning the stock owned, directly or indirectly, by or for […] his children, grandchildren, and parents.

Analysis  In this specific case, the taxpayer was trying to escape the realm of tax-free organizations. The taxpayer wanted the step up in basis that a purchase of assets would provide.

Acquiring the assets of another corporation, in a tax free transfer, and provided that the owner of the transferring corporation also owns the acquiring corporation is considered a “type D” reorganization.

Future After having focused on past events and activities, a look to the future is in order. The activities leading up to the Notice 2008-83 are well known and documented. Some of the reasoning behind the issuance of the Notice are known, but it is unlikely all of the reasoning will ever be fully known.

Court Support While the question of the Service’s authority and ability to issue Notices that change the interpretation of the Statute, taxpayers have the ability to rely on this Notice during the time period between its release and Congress’s response.

Congressional Response P.L. 111-5 Apart from the letters from various Congressional members to the Treasury and the Inspector General, there seemed to be no official response from Congress to the Notice.

Treasury’s Response In December, the Treasury formerly responded to Schumer’s letter. Eric Solomon, an Assistant Secretary of the Treasury, in a written response to Senator Schumer, attempted to address each of Schumer’s concerns.

Immediate Reaction to 2008-83 Public and Grassley The reaction to the Notice was widespread. There were companies, which immediately took advantage of the benefit, such as Wells Fargo. Other companies were less enthusiastic about the consequences.

IRS Notices – Purpose and Authority While Congress authors the Internal Revenue Code and associated Regulations, the responsibility of enforcement is given to the Treasury. The Treasury has the power to author Regulations, but delegates its responsibility of enforcement and collection to the Internal Revenue Service, an agency within the Treasury.

Introduction to the Notice The “Infamous IRS Notice”, or Notice 2008-83[i], was issued on 10/01/2008, days after failure of several banks. In less than a page, the Internal Revenue Service (IRS) effectively rewrote §382, and allowed banks to ‘buy’ net operating losses (NOLs) through mergers and acquisitions.

The next few posts will be from an paper I wrote a few years ago concerning the banking crisis and the IRS Notice 2008-83. While I had not thought of this topic in quite a while, the current conversations around Bank of America’s purchase of Countrywide and the latest settlement makes this a touch more relevant at the moment.

While the Affordable Care Act (“ACA”) was handed down some time ago, I am still processing the decision. 132 S. Ct. 2566. One of the first issues the Court had to address is whether the taxpayer had standing to bring the suit.

III. ProposalAs the debate over if Price’s burden shifting scheme and motivating factors can and should be applied to retaliation claims after Gross continues, the right question must be asked before the right answer can be determined.

II. AnalysisB. The 1991 Amendment – Revisited However, Kenney’s analysis is inherently flawed. Regardless of if Pricecontrolled all of Title VII at the time of decision, Congress’s actions during the 1991 amendment is ultimately controlling.

II. AnalysisA. The Meaning Of Because As some commentators have noted, the confusion created by Price and Gross, can be summarized by determining if Price applied to all of Title VII.

I. BackgroundD. Smith V. Xerox Corp. After Gross, the Fifth Circuit had the task of deciding if the Price scheme was still good law, and if so, what limits did it have.

I. BackgroundB. Legislation Change In the wake of Price, Congress amended both Title VII,[i]in part to codify the burden-shifting scheme introduced in Price,[ii]as well as the Age Discrimination in Employment Act (ADEA).

I. BackgroundA. Price Waterhouse V. HopkinsThe history of burden shifting in a mix-motive situation begins with the case of Price Waterhouse v. Hopkins.[i]In Price, the plaintiff accused the defendant, a public accounting firm, of gender discrimination when it failed to promote the plaintiff to partner.

Over the next few days, I will be posting may paper on whether or not retaliation claims under Title VII should have access to the Price burden shifting scheme. This was originally completed for a law review competition.

So, yes this has been published for a few months, but I just started this, and wanted to get more publicity around the article. The November 2011 issue of The Journal of Multistate Taxation and Incentivescontained an article authored by Eric Anderson, Marc Pearson, and myself.

The Tax Lawyer has released its latest issue. Of interest is one article on the CA EZ politics from last year. While I have not had a chance to read the full article yet, the title and conclusion seem to echo many of the ideas that were tossed around during the budget process last year.

As previously noted, the CA Supreme Court released its opinion yesterday in the matter of Dicon Fiberoptics, Inc v. Franchise Tax Broad. The Court responded to many of Dicon’s arguments directly, siding with the FTB in every instance.

The CA Supreme Court released the opinion in Dicon vs. FTB yesterday. In a unanimous decision the Court reversed the prior decision holding the CAEZ vouchers are not prima facie evidence.