Category: Taxes

IRS still needs to shore up its fraud detection efforts

With a self reported estimate of $19.2 billion worth of tax return fraud each year, the IRS is working to improve its detection efforts.  The Treasury Inspector General for Tax Administration (“TIGTA”) issued a July report highlighting weaknesses in the IRS’ Return Review Program (“RRP”).  The TIGTA recommended that the IRS Chief Technology Officer implement the …

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Whistleblower’s litigation costs are deemed deductible business expenses

A federal district court, in the matter of Bagley, No. 2:10-cv-00483-RT-FMO (C.D. Cal. 8/5/13), has determined that Richard Bagley was engaged in the trade or business of pursuing False Claims Act lawsuits against his former employer and was thereby entitled to deduct legal expenses related to that endeavor as ordinary and necessary business expenses. The False Claims Act (FCA) …

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Consideration of Taxes in a Lost Earnings Calculation

Considering taxes in a lost earnings calculation related to personal injury matters may materially alter the damages amount.  In the well-known 1980 Supreme Court case, Norfolk & Western Railway Co. v. Liepelt, the Court ruled that courts should consider taxes and calculate lost earnings net of income taxes.  The Court’s rationale was that the damage …

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IRS warns of Dirty Dozen tax schemes

The IRS has released its annual list of the top 12 tax related schemes, described in detail here.  In summary, the list includes the following warnings for taxpayers: Identity Theft Tax fraud related to identity theft is at the top of the list.  For instance, a fraudster may use a legitimate taxpayer’s identity to fraudulently …

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IRS Whistleblower Program Grows

The IRS has had a whistleblower program for decades, but it was not widely used and not much was paid to whistleblowers. In February 2013, the IRS issued its annual FY 2012 report to Congress regarding use of Section 7623. The report shows substantial increase in the information reported by whistleblowers and the IRS consideration …

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Private Annuity Transaction Upheld As an Estate Planning Tool

In the Estate of Virginia Kite vs. IRS, T.C. Memo 2013-43 (February 7, 2013), affluent taxpayers were given support for a potentially substantial estate planning tool. This is a significant decision. The Tax Court described the underlying facts as follows: “Under the terms of the annuity transaction, the Kite children would begin payments to Mrs. …

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Is IRS Whistleblower the New Caped Crusader?

He strikes again. The IRS whistleblower known only as “Mr. ABC” has claimed his third payout for assistance in bringing down tax cheats.  Mr. ABC has been critical of the government’s ability to identify and investigate sophisticated tax shelters.  Whether motivated by a sense of justice or the pursuit of yet another seven figure reward, …

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Whistleblower Emerges From Jail and Collects Over $100 Million Reward

Despite prior criticism that the IRS hasn’t been properly paying under it’s whistleblower reward program (discussed here), it recently awarded a record amount  of $104 million to Bradley Birkenfeld.  The reward derived from information he provided leading to the 2009 agreement by UBS to pay $780 million in fines, penalties, interest and restitution related to allegations that …

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Tax Court expert witness discovery catches up

Federal Rule of Civil Procedure (FRCP) 26(b)(4) was amended in 2010 to shield from discovery (i) drafts of expert witness reports and (ii) certain pretrial communications with expert witnesses. This article provides the details of this earlier change.  Effective July 2012, the U.S. Tax Court “Rules of Practice and Procedure” were amended for the same …

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Whistleblower Recovery Is Ordinary Taxable Income

The Ninth Circuit decided a taxation case of first impression involving whether a qui tam or whistleblower recovery provides a taxable capital gain from a sale of property, or ordinary taxable income. The District Court in Los Angeles, and the Ninth Circuit both agreed with the IRS that the higher rate of taxation from ordinary …

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