In the case of Clark v. Rameker, Trustee, Justice Sotomayer penned an unanimous opinion finding that inherited IRAs are not afforded protection under the Bankruptcy Code against creditors. The Court found that inherited IRAs are not "retirement funds" within the meaning of Section 522(b)(3)(C) of the Bankruptcy Code. There were three primary factors that lead the Court to this conclusion that inherited IRAs are not "retirement funds" within its ordinary meaning. (1) the holder of an inherited IRA may never invest additional money into the fund; (2) the holder must make withdrawals from the IRA no matter how close to retirement; and (3) the holder can withdraw the whole amount at any time.
In light of this decision, a person may wish to carefully weigh the benefit of holding assets in an inherited IRA from a tax benefit perspective and an asset protection point of view. This determination will be heavily driven by a person's risk profile.
Tuesday, June 17, 2014
Wednesday, June 11, 2014
IRS Issues Taxpayer Bill of Rights
Yesterday, the
Internal Revenue Service released the Taxpayer Bill of Rights setting forth 10 rights of taxpayers that are contain in various parts of the Internal Revenue Code.
• The right to be
informed.
• The right to
quality service.
• The right to pay no
more than the correct amount of tax.
• The right to
challenge the IRS's position and be heard.
• The right to appeal
an IRS decision in an independent forum.
• The right to
finality.
• The right to
privacy.
• The right to
confidentiality.
• The right to retain
representation.
• The right to a fair
and just tax system.
Wednesday, June 4, 2014
Waiver of Privilege:Sharing Information with Deal Team in Tax Planning
In Schaeffler v. U.S., the taxpayer filed a motion to quash the U.S.'s request to discover information that was shared between lawyers, financiers and accountants under the attorney work product doctrine.
In short, the taxpayer owned a limited partnership that was funded by a consortium of banks to purchase a target company. Shortly, after the target company was acquired, the share price dropped significantly, and the taxpayer, the banks and the partnership were required to restructure. As part of the restructuring, the parties entered into an Attorney Client Privilege Agreement ("ACPA") and retained EY and Dentons US, LLP to assist with the restructuring. The U.S. sought via summons all documents shared under the ACPA.
First, the Court ruled that, although the banks had an large interest in the partnership's tax treatment, there was no common interest, so the common interest rule did not apply. In order for the common interest rule to apply, there must be: (1) a common legal, rather than commercial, interest, and (2) the disclosures were made in the course of that common legal goal. The Court held that the banks' interest was primarily commercial in that they were interested in how much they would have to finance to pay the tax burden. As such, their interest was commercial, not legal, and there was no attorney-client privilege.
The Court also rejected the work product argument as applied to EY in that the restructuring plan formed by EY was not in anticipation of litigation. The Court used the standard of whether EY would have created the document containing the opinion in a similar form even if litigation or an audit had not been anticipated. The Court found that EY would have had a legal duty to create similar memorandum under a similar form. The Court reasoned that Circular 230 and Treas. Reg. 1.6694-2(b) require tax practitioners in providing tax advice to base their opinions on all legal issues and risks regardless of anticipated litigation or audit. As such, EY was legally bound to provide a similar analysis even if an audit was not anticipated.
In this Office's opinion, the Court's opinion makes any tax advice from a non-lawyer to a client non-privileged because the tax practitioner must consider legal arguments and risks in formulating an opinion under Circular 230 and the regulations. Clients would be well advised to use law firms in place of accountancy firms in analyzing the risks of business transactions.
See Schaeffler v. U.S., 1:13-cv-4864 (SDNY May 28, 2014)
In short, the taxpayer owned a limited partnership that was funded by a consortium of banks to purchase a target company. Shortly, after the target company was acquired, the share price dropped significantly, and the taxpayer, the banks and the partnership were required to restructure. As part of the restructuring, the parties entered into an Attorney Client Privilege Agreement ("ACPA") and retained EY and Dentons US, LLP to assist with the restructuring. The U.S. sought via summons all documents shared under the ACPA.
First, the Court ruled that, although the banks had an large interest in the partnership's tax treatment, there was no common interest, so the common interest rule did not apply. In order for the common interest rule to apply, there must be: (1) a common legal, rather than commercial, interest, and (2) the disclosures were made in the course of that common legal goal. The Court held that the banks' interest was primarily commercial in that they were interested in how much they would have to finance to pay the tax burden. As such, their interest was commercial, not legal, and there was no attorney-client privilege.
The Court also rejected the work product argument as applied to EY in that the restructuring plan formed by EY was not in anticipation of litigation. The Court used the standard of whether EY would have created the document containing the opinion in a similar form even if litigation or an audit had not been anticipated. The Court found that EY would have had a legal duty to create similar memorandum under a similar form. The Court reasoned that Circular 230 and Treas. Reg. 1.6694-2(b) require tax practitioners in providing tax advice to base their opinions on all legal issues and risks regardless of anticipated litigation or audit. As such, EY was legally bound to provide a similar analysis even if an audit was not anticipated.
In this Office's opinion, the Court's opinion makes any tax advice from a non-lawyer to a client non-privileged because the tax practitioner must consider legal arguments and risks in formulating an opinion under Circular 230 and the regulations. Clients would be well advised to use law firms in place of accountancy firms in analyzing the risks of business transactions.
See Schaeffler v. U.S., 1:13-cv-4864 (SDNY May 28, 2014)
Wednesday, May 28, 2014
Zwerner Willfully Failed to File FBARs
Today, a Federal jury found that Carl R. Zwerner willfully failed to file FBARS and
is liable for penalties in those years. US v. Zwerner, CA No. 1:13-cv-22082. Oddly, the
jury held that Zwerner willfully failed to file FBARs in 2004,
2005 and 2006, but not in 2007. This is a substantial win for the government. We will follow up once more is known.
Tuesday, May 20, 2014
Monday, May 19, 2014
Credit Suisse Is Charged by DOJ
The U.S. filed charges today against Credit
Suisse in Virginia for conspiring to help American taxpayers evade taxes through the use of secret offshore accounts. The
charges were filed as an information indictment that means the defendant agreed to the form of the information indictment pre-filing. Practically speaking, because an information was filed, it indicates that Credit Suisse and the U.S. have already negotiated a plea agreement; however, it is still subject to the Court accepting the plea and then entering a form of sentence/punishment.
Thursday, May 15, 2014
Jury Soon to Determine "Willfulness" in FBAR Case
In the case of United
States v. Zwerner, a federal jury will determine whether a taxpayer acted willful in the failure to file FBAR reports. Seldom has this issue been litigated, and not recently. For international practitioners, this shall be a closely watched outcome.
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