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Sunday, November 18, 2018

LL.M. Degree Not Deductible

A taxpayer went to law school in Spain and practiced law there for several years as an international attorney. He then moved to New York City and enrolled in an LL.M. program at NYU. He paid tuition expenses of $27,435. After obtaining his degree, he obtained a visiting attorney position in the U.S. at an international law firm, doing similar work to what he did in Spain. He then  took and passed the New York State bar exam - he was eligible because of his LL.M. degree. He passed and was admitted to practice in New York and continued working at the law firm.

The issue is whether he could deduct his tuition expenses. Code §162(a) allows a deduction for education expenses if (1) made by a taxpayer to maintain or improve skills required in the taxpayer's business or employment, or (2) to meet the express requirements of the taxpayer's employer, or the requirements of law or regulations, imposed as a condition to retaining his or her salary, status or employment. See also Treas. Regs. §1.162-5. However, no deductions are allowed if the education is part of a program of study that will lead to qualifying the individual in a new trade or business, or are needed to meet the minimum education requirements for qualification in the taxpayer’s employment. Treas. Regs.§ 1.162-5(b)(3)(i).

The Tax Court ruled that the deductions were nondeductible. While the taxpayer did perform similar job functions before and after the LL.M., and the LL.M. related to those functions, that the LL.M. allowed him to seek admission to the New York Bar sunk his boat by leading to qualifying him in a new trade or business. Also relevant was that he did not need the degree for his visiting attorney job.

Note that under the 2017 Tax Act, unreimbursed education expenses of employees are miscellaneous itemized deductions that are presently suspended through 2025.

Enrique Fernando Dancausa Valle, TC Summary Opinion 2018-51

Sunday, November 04, 2018

Filing a Claim against Estate Grants IRS More Than 10 Years to Collect

Code §6502(a)(1) provides a 10 year collection period to the IRS, measured from the assessment date. The particular language reads: “Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun. . . (1) within 10 years after the assessment of the tax. . .”

In U.S. v. Estate of Albert Chicorel, 122 AFTR 2d 2018-XXXX (CA6 2018), the IRS sought to collect on an income tax assessment more than 10 years old. The Estate sought to bar the collection under the above language. The IRS countered that since it had timely filed a claim in the probate proceedings against the Estate, then it had begun a “proceeding” within the above statute within 10 years and thus could complete the collection process outside the 10 year period. The Sixth Circuit Court of Appeals sided with the IRS.

The court found a claim filing constituted a proceeding because filing a proof of claim in Michigan has significant legal consequences for the creditor, the estate, and for Michigan law generally. For example, if the estate does not provide notice that a claim is not allowed, it is automatically allowed. Further, Michigan law specifically equates presentation of the claim with a proceeding. The court noted that the Code §6502(a)(1) extension does not require a “judgment” to be reached in the applicable proceeding.

Once the timely proceeding is undertaken, the collection period does not expire until the liability for the tax (or a judgment against the taxpayer arising from such liability) is satisfied or becomes unenforceable. Code §6502(a) [flush language]. However, the government doesn’t have forever - the court notes that “the statute does not permit the government to allow an assessment to lie dormant and then to attempt collection long after the assessment has passed from reasonable memory.”

Would this case apply in Florida? I could not locate similar language in the Florida Probate Code that equates presentation of a claim with a proceeding. However, the effect of filing a claim and the procedures for the estate to object or be bound by the claim are substantially similar to the Michigan effect, so I would speculate that is enough for the same principles to apply in Florida.

Note the claim here was timely filed in the estate proceeding. The flush language in Code §6502(a) describes a “timely proceeding in court for the collection of a tax...” The appellate court expressly declined to rule on what would happen if the claim had been untimely. I would speculate that a different result may arise, per the statutory use of the word “timely.”

An unrelated issue is whether the personal representative/executor of the estate has personal liability for the unpaid income tax. Code §6905(a) provides a procedure for an executor to make application for a discharge of personal liability (which does not impact estate liability).

Another unrelated issue is whether the IRS is barred by state law limitations periods if they do not timely file a claim against the estate. The answer to this is no.  Board of Comm'rs of Jackson County v. United States, 308 US 343 (1939) ; United States v. Summerlin, 310 US 414 (1940) .

U.S. v. Estate of Albert Chicorel, 122 AFTR 2d 2018-XXXX (CA6 2018)

Saturday, October 27, 2018

New Inbound Investment Reporting Requirements for Certain Industries

Regulations have been recently issued under the recently passed Foreign Investment Risk Review Modernization Act (FIRRMA) to implement a pilot program that expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) and imposes filing requirements on certain transactions in the U.S. technology sector.

Parties must file a declaration with CFIUS at least 45 days in advance of certain foreign-person investments in unaffiliated U.S. businesses if involved with critical technologies used in specified industry sectors. 27 U.S. industry sectors are involved.

The program will end by March 5, 2020, but permanent reporting requirements may have been put in place by then. It applies to transactions completed on November 10, 2018 or later, although there are other effective date provisions that may apply.

After filing, CFIUS has 30 days to review the declaration and then undertake certain requests for a long-form notice form, initiate a unilateral review, or clear the transaction – or the parties can file the long-form notice initially.

Parties failing to file a required declaration may be subject to a civil penalty up to the amount of the transaction value.

Businesses and professionals involved in assisting with and/or the reporting of inbound investments should add these new reporting requirements to their checklists and lists of reporting requirements.

FIRRMA PILOT PROGRAM REGULATIONS AND OTHER INFORMATION