Fraudulent Conveyance Litigation Expenses are Not Deductible

Expenses of business litigation, and litigation involving the production or collection of income or of property held for the production of income, are typically deductible under Code Sections 162 or 212. It is often forgotten, however, that if the subject of litigation is the defense of, or to perfect title to, real or personal property, such expenses must be capitalized into the asset and not deducted. See Treas. Regs. §1.263(a)-2(e).

Fraudulent conveyance litigation involves a party asserting, or defending against, a claim that property was transferred from one person or entity to another to avoid the transferred property from being reached by creditors of a transferor. In a recent Chief Counsel Advice, the IRS concluded that the defense of a fraudulent conveyance claim by the transferee of property was in the nature of the “defense of real or personal property.” The litigation expenses of the defender had to be capitalized and could not be immediately deducted under Section 162.

Chief Counsel Advice 201552028

Did You Get An Erroneous IP-PIN Number from the IRS?

Taxpayers who are the victim of identity theft in regard to tax filings are eligible to receive an IP-PIN number from the IRS. This is a special number issued to the taxpayer that the taxpayer uses when filing the income tax return. A new one is issued each year. If a taxpayer in the program files the return without it or with the wrong number, the return will not be processed, or its processing will be delayed while the IRS confirms the return was not filed by an imposter. This procedure protects the taxpayer from an imposter filing a false return to obtain a fraudulent refund of taxes paid by the taxpayer.

So late in December, the IRS mailed out millions of letters assigning new IP-PIN numbers for people to use on their 2015 tax return filings. The problem is that the letter said to use the number for 2014 returns, not 2015.

The IRS is now advising recipients that the letter was meant for the 2015 tax year, and the number should be used for 2015 tax year filings even though the letter says 2014. Hopefully, if you got one, you did not throw it away thinking that you didn't need such a number for the 2014 tax year since you had previously filed for 2014.

Understanding Your CP01A Notice

Tax Burden of Highest Earning Taxpayers Back on the Rise

This graphic from The Wall Street Journal shows that the share of taxes paid by the top 400 taxpayers is back on the rise (using 2013 tax data), as higher U.S. tax rates take effect.