To say that the partnership allocation regulations under Internal Revenue Code section 704(b) (the “704(b) regulations”) are fiendishly complicated would be a serious understatement. While the regulations do a relatively good job of preventing …more

Normally, when a corporation distributes property to its shareholders, even stock of a subsidiary, the corporation is treated as having sold the property in a fully taxable sale, then distributed the property to its shareholders in a distribution that itself may be fully taxable. As a result, when a corporation distributes property typically …more

Sometimes it is difficult to determine whether a worker should be classified as an employee or an independent contractor. On other occasions there is little doubt that a worker is an employee, but the employer treats him or her as a contractor anyway. For employers having workers falling into the latter category, the IRS recently began a “voluntary compliance initiative.” The initiative allows employers to correct employee …more

In United States v. Howard et al., 108 A.F.T.R.2d 108-XXXX (9th Cir. August 29, 2011), the court held that a corporation, not its sole shareholder, owned the goodwill associated
with the corporation’s business. The shareholder therefore could not obtain a tax advantage by selling the …more

While the term originally had a specific legal meaning, “due diligence” now refers simply to the process of learning about a business before acquiring or forming a relationship with it. Tax due diligence is the process of …more

States have historically found it very difficult to collect sales and use taxes on purchases shipped from out of state. The scope of that problem has increased with the growth of Internet commerce. California recently enacted new laws to increase its ability to tax out-of-state sales. We expect to see …more

Occasionally a taxpayer understates the amount of income tax it owes and the government asserts that an “accuracy related” penalty is due with respect to the understatement. One way for a taxpayer to avoid the penalty is to show that the tax deficiency was the result of its reliance on a tax adviser. The Tax Court recently held in such a case that the penalty applied when the tax adviser was an employee and was avoided only when the adviser was an independent contractor …more

The U.S. Constitution prevents states from reaching taxpayers with whom they do not have adequate contact. A small amount of contact is adequate, and in many cases taxpayers are surprised to discover that they are taxable in states where they did not consider themselves to be active. States, particularly including California, are becoming more aggressive in seeking to collect taxes from all taxpayers over which they have jurisdiction. …more

We often suggest that our clients seek to deduct certain merger and acquisition transaction costs rather than capitalizing them. Under rigorous analysis, the law allows this for more costs than might be expected. A recent Revenue Procedure provides a simplified method of…more

Congress recently enacted, and the President has signed, a bill that eliminates some inconvenient tax reporting requirements at a cost to the Treasury of $21.9 billion. The basic requirement of tax reporting is that taxpayers inform the IRS of all income they receive. Taxpayers have occasionally been….more

While it is commonplace that the tax code is replete with loopholes and special benefits, it is surprisingly difficult to find one that a normally-situated taxpayer can actually use. The “recurring item exception” is widely applicable and can allow acceleration of tax deductions …more

Three different federal courts of appeal have recently decided a fairly obscure procedural tax question. As it happens, they did not agree with each other and the Supreme Court will probably have to resolve the issue. While the issue itself is …more

In California Franchise Tax Board Legal Ruling 2011-01, the California Franchise Tax Board (“FTB”) has announced its view that it has the power to tax the owner of an entity that is a “disregarded entity” for income tax purposes. More specifically, it has announced that in such a situation the owner will be considered to be “doing business” in California and therefore subject to California taxation…more

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