Does a Tax Return Filed in the United States Virgin Islands (“USVI”) Start the IRS Statute of Limitations?

20-Jan-2022

The Internal Revenue Code (“IRC”) § 6662(a) permits the IRS to impose a twenty-percent (20%) accuracy-related penalty to an underpayment of tax, and there are several different defenses to this penalty depending on the facts of the case and the reason for the penalty. One of the most common accuracy-related penalties is the negligence penalty. Although there are multiple different reasons for the application of an accuracy-related penalty, only one penalty may be applied for each understatement.

 
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Wells Fargo v. US: A Potential Beginning of The End of The Objective Reasonable Basis Tax Penalty Defense

16-Sep-2021

The Internal Revenue Code (“IRC”) § 6662(a) permits the IRS to impose a twenty-percent (20%) accuracy-related penalty to an underpayment of tax, and there are several different defenses to this penalty depending on the facts of the case and the reason for the penalty. One of the most common accuracy-related penalties is the negligence penalty. Although there are multiple different reasons for the application of an accuracy-related penalty, only one penalty may be applied for each understatement. If a taxpayer faces the negligence penalty, one common defense is that the taxpayer’s return position has a reasonable basis under the relevant authorities. Until recently, most courts simply proceeded through a discussion on whether the authorities supported the taxpayer’s return position, and did not even reach whether the taxpayer actually relied on relevant authorities when forming a return position. However, over the past few years, several courts have begun to require a subjective actual reliance component to the reasonable basis standard, in addition to the other requirements described under the regulations. This article explores these concepts more in detail in six parts.

 
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Trumped: Constitutional Issues in the Trump Tax Return Cases

03-Nov-2020

Trump Tax Law Case - What are the Constitutional Issues?

Since his election, there have been non-stop court battles over President Trump’s refusal to release personal financial information. Several House Committees have sought President’s Trump's personal information on multiple different grounds, each claiming a valid legislative purpose for needing the information. President Trump argues the subpoenas do not serve a valid legislative purpose and that the House Committees are seeking this information to release to the public. The various sides have been locked in legal battles for years, with no end in sight.

 
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House of Cards-Implosion of the Bleeding Edge 831b Captive Industry (Feb.2019)

08-Jul-2019

captive insurance image

This article is discussing
the same lawsuit discussed elsewhere in this issue, Shivkov v. Artex Risk Solutions, Inc., Case No. 2:18-cv-
04514-GMS (D. Ariz. Dec. 6, 2018), but references a different plaintiff. It should be noted that Mr. Cantley
has a cocounsel arrangement with the tax shelter practice of Loewinsohn Flegle Deary Simon LLP, counsel
for the plaintiffs.

Aftermath: IRS & Private Litigation In Captive Insurance Companies

08-Jul-2019

lawyer in irs private litigation

Beckett G. Cantley teaches international taxation at Northeastern University and is a shareholder in Cantley Dietrich PC. Geoffrey C. Dietrich is a shareholder in Cantley Dietrich PC.

In this article, Cantley and Dietrich discuss two recent Tax Court opinions and their implications for section 831(b) captive insurance companies.

The Tax Shelter Disclosure Act: The Next Battle in the Tax Shelter War

07-May-2019

The Tax Shelter Disclosure Act

Beckett G. Cantley, The Tax Shelter Disclosure Act: The Next Battle in the Tax Shelter War, 22 Va. Tax Rev 105 (2002). Summary.  This article analyzed the most important sections of the draft “Tax Shelter Disclosure Act” (“TSDA”), including the significant amendments to the Internal Revenue Code that would have been made by the TSDA.  Two of the main provisions of the TSDA define what constitutes a “tax shelter” and raise the penalties associated with tax shelters.  The article synthesized and analyzed the criticisms of several important organizations who issued public comments on the legislation and provided policy assessments of its likely benefits and burdens.

Taxation Expatriation: Will the Fast Act Stop Wealthy Americans from Leaving the United States?

07-May-2019

Taxation Expatriation

Beckett G. Cantley, Taxation Expatriation: Will the Fast Act Stop Wealthy Americans from Leaving the United States?, 36 Akron L. Rev. 221 (2003). Summary.  This article analyzed the recently enacted legislative solution to the problem of wealthy American citizens expatriating to a foreign nation to avoid taxes.  The article also discussed the last major attempt to prevent tax expatriation through the enactment of IRC Section 877 and the fact that Section 877 was being easily circumvented by tax expatriates and their advisors.  To stem the tide of tax expatriation, certain tax provisions were added to the Foreign and Armed Services Tax Fairness Act (“Fast Act”) that would bolster the previsions existing under Section 877.  Under the draft Fast Act, two of the ways tax expatriates will be punished are by (1) treating all of the tax expatriate’s holdings as if they had been sold the day before expatriation, thereby triggering all inherent capital gains on the holdings and (2) requiring that estate taxes due from the death of a tax expatriate be collected against a domestic heir of the tax expatriate, rather than the tax expatriate’s estate.  The article analyzes the operational and policy implications of the FAST Act, and concluded that while it adds additional deterrents to tax expatriation, it cannot eliminate it.

Corporate Inversions: Will the REPO Act Keep Corporations from Moving to Bermuda?

07-May-2019

Beckett G. Cantley, Corporate Inversions: Will the REPO Act Keep Corporations from Moving to Bermuda?, 3 Hous. Bus. & Tax. L.J. 1 (2003). Summary.  This article discussed the attempted legislative solution to the issue of “corporate inversions.”  A company undertakes a corporate inversion by forming a company in an offshore tax haven and then having the US based company become a subsidiary of the offshore company.  The result is that the offshore tax haven does not tax the offshore company on its profits and the US based company is not taxed on its offshore profits.  In addition, the US based company may also undertake an “earnings stripping” program to have significant US income redirected to the non-taxable offshore company.  The article discussed draft legislation called the “Reversing the Expatriation of Profits Offshore Act” (“REPO Act”), which would have amended the IRC in several significant ways to prevent companies from undertaking corporate inversions.  The article analyzed the draft REPO Act from an operational and policy perspective and concludes that the draft REPO Act will likely prevent corporate inversions.

How Long Must One Stay in the USVI to be Considered a ‘Resident’ to Qualify for the 90% Residency Tax Credit?

07-May-2019

Beckett G. Cantley, How Long Must One Stay in the USVI to be Considered a ‘Resident’ to Qualify for the 90% Residency Tax Credit?, 13 J. Transnat’l L. & Pol’y 153 (Fall 2003). Summary.  This article analyzed the length of stay requirement for obtaining residency in the United States Virgin Islands (“USVI”).  Residents of the USVI generally file their tax returns with the USVI tax authorities rather than the IRS.  Such residents also generally make all tax payments to the USVI taxing authorities.  Residents of the USVI can be eligible for as much as a ninety percent (90%) tax credit on their personal income or investment income from ownership in certain business entities, by taking advantage of the Economic Development Commission program for investment in the USVI.  These credits have been in existence for almost fifty (50) years and are filled with historical precedent.  These credits are also safely guarded by many members of the US Congressional Black Caucus.  The article concluded that it is clear that a person must reside in the USVI on the last day of the tax year to be considered a “resident”.  However, unlike the United States, the article concluded that there does not appear to be a one hundred eighty-three (183) day residency requirement to be considered a resident of the USVI.  The article further concluded that there are a series of possible residency requirements that depend on the facts and circumstances of each case.  The article discussed many of these facts and circumstances and provides a policy argument for which ones make the most sense.

The New Congressional Attack on Offshore Rabbi Trusts

07-May-2019

Beckett G. Cantley, The New Congressional Attack on Offshore Rabbi Trusts, 5 Or. Rev. Int’l L 5 (2003). Summary.  This article discussed certain tax provisions that were contained in the draft National Employee Savings and Trust Equity Guarantee Act (“NESTEG Act”).  These provisions would have made funds held in offshore rabbi trusts immediately subject to US income tax to the beneficiary of the offshore rabbi trust.  The estimated result to the US Treasury Department would have been a significant increase in tax collection.  Offshore rabbi trusts have become common vehicles for US persons employed abroad by foreign companies to set aside retirement funds.  In addition, many offshore hedge fund managers have used offshore rabbi trusts as a means to defer income from current taxation.  This article discussed the previously proposed legislation, the likelihood of such legislation’s passage in the next Congress and the legal doctrines and tax policy implications involved in making such a change in tax policy.