Sec. 482, 301(a), 331, & 453(a)

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L.B. Carpenter is an IRS Code Section 482 Specialist. He provides pragmatic accounting analysis of other Code issues as well that most often give rise to controversy between taxpayers and the IRS. His practice is dedicated to the resolution of litigation matters before the US Tax Court and workouts with the IRS. He is a CPA Member of the Bar United States Tax Court and Certified U.S. Tax Court Litigator. He trained at the Tax Law Institute and will lecture there during the Judicial Conference & Lecture Series in Winter, Spring and Fall 2020.

"If the matter concerns Federal taxes and litigation then you should be talking to us"

IRS Code Section 482

Authorizes the IRS to adjust the income, deductions, credits, or allowances of commonly controlled taxpayers in order to prevent evasion of taxes or clearly to reflect their income. Application of Section 482 to multinational operations may involve a wide range of technical and factual issues.

This Specialist believes there may be more issues going forward with Section 482 as it can be applied in all the repatriation tax issues under the new tax law. Since the IRS will have to know how much income is from within the U.S. and how much from outside the U.S.

Photo of Above Text Courtesy of Tax Law Institute

IRS Code Section 301(a)

  • Provides that a distribution of property (as defined in § 317(a)) made by a corporation to a shareholder with respect to its stock shall be treated in the manner provided in § 301(c).

IRS Code Section 331

  • Contains rules governing the extent to which gain or loss is recognized to a shareholder receiving a distribution in complete or partial liquidation of a corporation.

IRS Code Section 453(a)

  • Provides that, generally, a taxpayer shall report income from an installment sale under the installment method. Section 453(b) defines an installment sale as a disposition of property for which at least one payment is to be received after the close of the taxable year of the disposition.

Growing Practice Areas
  • Airplanes and Yachts

The 1%ers are buying more and more airplanes to avoid commercial flying. Our Specialist wonders how many of those will be deducted as business expense, and whether or not the IRS has the manpower to try to audit them. Those could be among the explosion of new cases for litigation if they are audited, and the taxpayers can afford the fees to contest it. Also, some people with large yachts will put them out for charter and also use them personally. For example, an unnamed client was planning on taking his boat to the Mediterranean, where he says he could charter it for $100,000-a-week as it is a very big boat. Our specialist believes there could be some allocation, or reallocation issues for some people like this unnamed client.

  • New Tax Law: "Banned Professions" or Employees

The Specialist suspects that we'll also see some cases going forward where people who are in the banned professions, (or employees), try to re-configure their filings to look like they qualify for the 20% pass-through income exclusion. That one will be just too tempting for many people. But again, these will be a few years away yet and the IRS will have to do field audits to catch those. But they're doing few field audits today and don't have the budget to increase them.

  • Reclassification of independent contractors as employees

One of the hot issues at the state level now is workers' compensation insurance. The insurance companies are auditing and re-classifying many independent contractors as people who should be covered by workers' compensation insurance. The insurance companies apparently have the state's laws on their side and are winning most of those cases. Our specialist wonders if the IRS will be able to find out about these and ride the coattails of the insurance company audits to reclassify workers as employees for income tax purposes. Those could be expensive cases where a number of employees are involved. For example, a recent case involves a trucking company where about 50 people were reclassified for workers comp insurance. They hired a lawyer to fight it and lost. Losing here causes payroll tax penalties, busted pension plans, needing to cover workers for health insurance, etc. The companies want to fight these, and the state laws here are not exactly parallel to the IRS rules regarding workers but are similar. 

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