Larry's Tax Law

It is hard to believe it, but 2017 is close to an end.  We have had a truly interesting year in the world of tax law.  Attempts to eliminate the Affordable Care Act and the enactment of the Tax Cuts and Jobs Act in late December are highlights of this past year.  In early January, I plan to provide readers with a multi-part series on the new tax law.

During the past 12 months, we have explored several topics, including:

In November 2016, the Board of Commissioners of Cook County, Illinois, passed (by a slim margin of one vote) the Sweetened Beverage Tax Ordinance (“Soda Tax”).  It imposed a tax at the rate of one-cent-per-ounce for all sweetened beverages sold at the retail level in the county.

The Soda Tax was expected to generate $200 million a year for Cook County. If you assume a population of 5.2 million in Cook County (home to the city of Chicago), the annual tax collections equate each citizen consuming over 10 ounces of sweetened beverages per day.  That is an alarming figure. Factoring in visitors to the county, the number is likely a bit less than that figure, but nevertheless the number, or shall I say, “consumption assumption,” is definitely larger than one would expect.

The NYU 76th Institute on Federal Taxation (IFT) is taking place in New York City on October 22-27, 2017, and in San Francisco on November 12-17, 2017.  This year, I will be presenting my latest White Paper, The Built-in Gains Tax Revisited.  My presentation will include a discussion about the history of the tax; application and impact of the tax; ways to avoid or potentially minimize the tax; the complexities of Code Section 1374 and the regulations promulgated thereunder; valuation issues; planning opportunities; traps that exist for the unwary; relevant cases and rulings; and practical tax practitioner guidance.

The IFT is one of the country's leading tax conferences, geared specifically for CPAs and attorneys who regularly are involved in federal tax matters.  The speakers on our panel include some of the most preeminent tax attorneys in the United States, including Jerry August, Terry Cuff, Wells Hall, Karen Hawkins, Stephen Looney, Stephen Kuntz, Mark Peltz and Bobby Philpott.  I am proud to be a part of IFT.

This will be my fifth year as an IFT presenter, and I am speaking as part of the Closely Held Business panel on October 26 (NYC) and November 16 (San Francisco).  As in previous years, the IFT will cover a wide range of fascinating topics, including tax controversy, executive compensation and employee benefits, international taxation, corporate taxation, real estate taxation, partnership taxation, taxation of closely-held businesses, trusts and estates, and ethics.

I hope you will join us this year for what will be a terrific tax institute.  Looking forward to seeing you in either New York or San Francisco!

View the complete agenda and register at the NYU 76th IFT website.

As reported on March 8, 2017, the U.S. Tax Court issued a taxpayer-friendly decision in Estate of George H. Bartell, et. al. v. Commissioner, 147 TC 5 (June 10, 2016).  The ruling seemed too good to be true. I advised readers to proceed with caution!

Many taxpayers, exchange accommodators, and real estate professionals have been touting the ruling as a clear green light for reverse parking exchanges exceeding the 180-day period pronounced in Revenue Procedure 2000-37 despite the facts that:

• • Judge Gale of the U.S. Tax Court clearly said in the opinion that the court was not giving any opinion with respect to reverse exchanges that exceed the 180-day safe harbor; and
  • The Bartell case involved transactions that pre-dated the effective date of Revenue Procedure 2000-37 and Treasury’s issuance of the deferred exchange regulations.

In 2015, the U.S. Tax Court issued its ruling in the case of David W. Laudon v. Commissioner, TC Summary Option 2015-54 (2015).[1] The case may not raise or even resolve any novel tax issues, but it reminds us of what is hopefully the obvious relative to the deductibility of business expenses. The Court’s opinion and its recitation of the underlying facts, however, make for an extremely interesting and entertaining read.

Judge Ruwe ruled in Jeremy M. Jacobs and Margaret J. Jacobs v. Commissioner, 148 T.C. 24 (June 26, 2017), that a free lunch may exist today under Federal tax law. In this case, the taxpayers, owners of the Boston Bruins of the National Hockey League, paid for pre-game meals provided by hotels for the players and team personnel while traveling away from Boston for games.

Pursuant to the union collective bargaining agreement governing the Bruins, the team is required to travel to away games a day before the game when the flight is 150 minutes or longer. Before the away games, the Bruins provides the players and staff with a pre-game meal and snack. The meal and snack menus are designed to meet the players’ nutritional guidelines and maximize game performance.

During the tax years at issue, the taxpayers deducted the full cost of the meals and snacks. Upon audit, the IRS contended the cost of the meals and snacks were subject to the 50% limitation under Code Section 274(n)(1) which provides in part:

For more than a year, I have been discussing the potential that Oregon lawmakers will pass a corporate gross receipts tax. On May 26, 2017, we discussed recent events that would lead a reasonable person to believe that the dream of a corporate gross receipts tax was definitely alive and well in Oregon. In fact, the passage of it certainly appeared to be gaining steam in the legislature. Maybe that is not the case – at least for now.

Late yesterday, Oregon Democrats announced that they are abandoning any efforts to enact a corporate gross receipts tax this year as they have been unable to garner adequate legislative support to pass such a measure. Article IV, Section 25 of the Oregon Constitution requires a three-fifths majority of all members elected to each house of the legislative assembly to pass bills for raising revenue and that the presiding officer of each respective house sign the bill or resolution. So, it appears a three-fifths vote in favor of a corporate receipts tax in each the house and the senate is not currently attainable.

As reported in my April 7, 2016, October 3, 2016 and October 27, 2016 blog posts, former U.S. Tax Court Judge Diane L. Kroupa and her then husband, Robert E. Fackler, were indicted on charges of tax fraud. Specifically, they were each charged with one count of conspiracy to defraud the United States, two counts of tax evasion, two counts of making and subscribing a false tax return, and one count of obstruction of an IRS audit. The indictment was the result of an investigation conducted by the Criminal Investigation Division of the Internal Revenue Service and the United States Postal Inspection Service.

Please join me on June 29, 2017 in Portland, Oregon, for what will be a dynamic presentation on the new partnership audit rules by Jerald August.  Jerry is a Partner in the preeminent New York City-based boutique tax firm Kostelanetz & Fink, LLP.  He has served as a chair of NYU's Institute on Federal Taxation for a number of years and specializes in federal and state income taxation, including taxation of pass-thru entities and tax controversy.  Jerry is not only one of the brightest tax lawyers you will ever meet, he is an outstanding speaker.  We are very fortunate to have him present at the Portland Tax Forum on this important topic.  We all need to learn about the new partnership audit rules – they come into play on January 1, 2018.

Please join me at the NYU Summer Institute in Taxation this July in New York City. This year, I will be presenting "Entity Classification – Another Look at the Check-the-Box Regulations" on Day 2 (July 27) of the Institute’s Advanced Income Tax and Wealth Planning Conference, where I will discuss recent developments, flexibility and planning opportunities created by the regulations, traps that exist for the unwary, and practical tax practitioner guidance.