Friday, July 29, 2011

From The Boston Tax Institute

Boston Tax Alert 2011-41, 2011-42, 2011-43

Lu Gauthier of The Boston Tax Institute has given me permission to republish his newsletter. The BTI newsletter is a regular feature of this blog now, although I have been a little irregular in putting them up. Be sure to check out the BTI catalog for great CPE value.

On 07/26/11, the United States Court of Appeals for the First Circuit affirmed the decision of the United States Tax Court in Recovery Group, Inc. v. Commissioner holding that a covenant not to compete, which was entered into in connection with the redemption of the stock interest of a 23% shareholder, was an amortizable section 197 intangible which had to be amortized over 15 years instead of over its one year term. The opinion states "According, we hold that, pursuant to this section, a 'section 197 intangible' includes any covenant not to compete entered into in connection with the acquisition of any shares--substantial or not--of stock in a corporation that is engaged in a trade or business." Note the reference to ANY shares! As you may recall, although the S corporation lost on this issue in the Tax Court, it was able to avoid the 20% taxpayer accuracy-related penalty on the built-in gains tax that resulted from the increase in its taxable income as a result of this decision based on reliance on professional advice.

I also noticed this case and put up the full-text on this site and did a commentary on it on my Forbes blog.

In a recent regular decision, Stephen G. Woodsum v. Comm., 136 TC No. 29 (06/13/11), the Tax Court upheld a 20% taxpayer accuracy-related penalty of $104,295 with respect to a $3.4M omission of an amount reported on Form 1099-MISC. The 1099 was scanned into the preparer's records for use in preparing the taxpayer's 2006 return. Although the taxpayer claimed to have relied on professional advice a la U.S. v. Boyle in order to avoid the penalty, the court concluded that in this case no advice was rendered--the preparers simply had made an error of omission, and the taxpayer should have caught it in his review of the return but did not. Perhaps if the results of the scanned information returns had been tied back to the original paper 1099s more carefully, this problem may not have arisen. This and other recent case law developments will be discussed in detail in our seminar on Current Tax Developments/New Tax Legislation on 08/17 in Waltham.

I had noticed this one but had trouble making much out of it.  Something tells me somebody else might end up paying that penalty.
On 07/19/11, MA DOR issued a working draft of Directive 11-XX - Seven-Month Extension for Combined Reporting Filers which reads in part as follows:

Effective for tax years beginning on or after January 1, 2010, a taxpayer corporation that is a member of a combined group and that must report income derived from the activities of that group in a combined report ("combined reporting filer") may receive an extension of seven months, in lieu of the six-month extension allowed to corporate excise filers under G.L. c 62C, § 19, to file its combined report upon the combined group's request for this extension. The seven-month extension also applies to the non-income measure filing required from any member of the combined group if the member has the same tax year as the combined group. For the tax year beginning on or after January 1, 2010 but before January 1, 2011, a combined reporting filer that has previously requested a six-month extension will be granted an extension of an additional month, for a total of seven months. Pending further instructions, these taxpayers need take no further action to obtain the additional month extension for the 2010 tax year.

This and other topics will be discussed in detail in our 1-day seminar entitled MA Combined Reporting on 08/16 in Waltham.

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