Recent Developments in US Federal Income Tax Litigation

Summer is winding down and fall is approaching. Here are a few of the significant tax cases from the last few weeks.

Tax Court

YA Global Investments, LP v. Commissioner, 151 TC No. 2 (Aug. 8, 2018): The Tax Court held that withholding tax liability on effectively connected income of foreign partners is a partnership liability that constitutes a partnership item. The Tax Court has jurisdiction over the issue in a partnership-level proceeding.
Illinois Tool Works Inc. & Subsidiaries v. Commissioner, TC Memo 2018-121 (Aug. 6, 2018): The Tax Court held that intercompany loans constituted bona fide debt for US federal income tax purposes.
Becnel v. Commissioner, TC Memo. 2018-120 (Aug. 2, 2018): The Tax Court holds that a property developer’s yacht related expenses are non-deductible entertainment facility expenses under Code section 274.
Kane v. Commissioner, TC Memo. 2018-122 (Aug. 6, 2018): Code section 6672 trust fund recovery penalties were imposed on a third-party vendor that performed bookkeeping services and held signature authority over certain accounts for a taxpayer delinquent on employment taxes. The Tax Court found that a collection officer did not abuse their discretion in denying a collection alternative during the collection due process proceeding, particularly when the taxpayer failed to submit an offer in compromise and already disputed the merits of the penalty during the appeals process.

Appellate Court:

Trusted Media Brands, Inc. v. United States, No. 17-3733-cv (2d Cir. Aug. 10, 2018): the Second Circuit affirms the judgment of the District Court, concluding the extended 10-year limitations period for refund claims does not apply to overpayments attributable to deductions claimed for foreign taxes paid under Code section 164(a)(3).
Good Fortune Shipping SA v. Commissioner, Dkt. No. 17-1160 (DC Cir. July 27, 2018): The DC Circuit found that Treasury Regulation section 1.883-4 constituted an unreasonable interpretation of Code section 883(c)(1), invalidating the IRS’s position that bearer shares are not a valid proof of ownership. For more reporting on Good Fortune, please see:
- DC Circuit Reverses Tax Court and Holds Section 883 Regulations Invalid under Chevron Test
Alta Wind v. United States, Nos. 2017-1410, 2017-1411, 2017-1412, 2017-1415, 2017-1417, 2017-1422, 2017-1423, 2017-1424 (Fed. Cir. July 27, 2018): The US Court of Appeals for the Federal Circuit reversed and remanded the proceeding, agreeing with the government’s position that certain purchase price asset allocations are needed. The lower court will need to perform those allocations and issues remain. For more reporting on the Alta Wind case please see: