All posts in Taxes

Nice Summary of new Consumer Tax Issues from Cathy Moran

Yikes!  Cathy’s article is here. 

“Under the new tax law,  any damage award a consumer recovers stands to go in large part to the IRS.

So even if you are successful in court in vindicating your legal rights, the expenses of getting the award aren’t deductible from the gross award. The taxing authorities end up getting a large hunk of the total recovery.

Welcome to tax ‘reform.’”

Nice Summary of the Tax Law Changes from Reed Smith LLP

President Signs Federal Tax Bill into Law – What You Need to Know Before the End of 2017

At a Glance…

On December 22, 2017, President Trump signed into law H.R. 1, the “Tax Cuts and Jobs Act.” The Act, which the House and Senate both passed two days earlier, heralds the most expansive and significant tax legislation enacted in the United States since 1986. The wide-reaching legislation – which generally will apply to taxable years beginning after December 31, 2017 – permanently reduces the U.S. corporate income tax rate to 21 percent; creates a new – albeit temporary – schedule of lower individual marginal tax rates; eliminates, limits and/or modifies many corporate, pass-through and individual tax deductions, credits and expenses; dramatically expands the estate and gift tax exemptions; converts the United States to a territorial tax system with significant new barriers to moving operations and payments out of the United States; and imposes a one-time toll charge on offshore earnings, among its many changes. Read more…

This is Huge . . . California Dismantling the State Board of Equalization . . . and there is very little news about it

The California Board of Equalization administers taxes that account for about a third of the state’s revenues: sales taxes, use taxes, excise taxes, even cannabis taxes.  It also serves as the state’s tax court: if you contest any audit performed by a state taxing agency (Franchise Tax Board or Board of Equalization), you would file a petition with the Board of Equalization.  Five members sit on the Board: the state controller, and four elected members who serve geographical districts.

Many of our clients owe taxes to this agency. The split will definitely affect attorneys who practice bankruptcy law

On Thursday, June 15, the California Assembly voted to dismantle the Board of Equalization and create two new agencies.  One will administer taxes, and the other will handle the tax appeals that the Board currently handles.  The change will take effect on July 1, 2017 – in two weeks. Read more…

Ten-Year Clock on IRS Tax Debt

Most people don’t know that the IRS stops trying to collect on tax debt after 10 years. This 10-year clock can be valuable to people who owe back taxes from several years ago.

The statute of limitation on collecting tax owed is at 26 U.S.Code § 6502(a)(1): the IRS may start a collection proceeding only within 10 years after the assessment of the tax. The “assessment” date is determined as follows: (1) if the tax return was filed before the due date for that year, then the assessment date is the due date for that year (for example, 2016 tax returns are due by April 17, 2017). Thus, a 2016 return filed on March 13, 2017, will have an assessment date of April 17, 2017. (2) If the tax return is late-filed after the due date for that year, then the assessment date is the date the return arrives at the IRS. The assessment date starts the clock, and the IRS tries to beat the clock by collecting all taxes owed before the 10 years run out. Read more…

Los Angeles County is Challenging the BAP’s Decision in Mainline Equipment

I have been advised that Los Angeles County has appealed the adverse decision in Mainline Equipment to the Ninth Circuit.  It has filed its opening brief and the responsive brief should be coming in the next few weeks absent any extensions.  Obviously, the county disagrees with Judge Brand’s decision but we’ll see what happens.  It seems to me that the tax is still a priority debt and must be paid in full with interest (which is 18% at the present time) so it really only matters if the debtor is trying to sell the property free of the county’s lien.

My brief of the BAP decision is below: Read more…

Simplify the Tax Code by Reducing the Brackets? Give me a Break.

When I was in law school in the 70s, I took a tax class.  I still have the Internal Revenue Code I purchased for the class.  It is a small paperback of a few hundred pages – even then basically unreadable.  Today the code is thousands of pages – it is at least a few thick volumes.  The tax brackets take up two- three pages at most.  Once the taxable income is determined, it takes eighth grade math to compute the tax.  With fewer brackets, even if it is reduced to one, it would still probably take eighth grade math to compute the tax.

Will fewer brackets reduce the few thousand pages?  Of course not.  What are the few thousand pages anyway?  A portion is directed to how to figure the taxable income.  A portion is credits – special incentives offered to corps and others to supposedly motivate them to do stuff that the government essentially pays for.  But most of it is taxation of certain industries, certain income, certain different types of entities and special exceptions.   Read more…

Doing My Taxes – Calling My Son for Advice

My oldest son Joshua, the proud father of my two grandsons, is a CPA with a large firm in Phoenix.  I called him with a quick question on my taxes.  I am doing them today because I don’t want to wait until the last minute, Thursday.  He told me he is reviewing a return in his office now – an individual Form 1040 – that is 5,000 pages, literally and no joking!  The taxpayer obviously makes a lot of money.  My son said also that they shipped a return recently and the FedEx charge was $1,800.  I love the politicians that say they will make the code simple by reducing the brackets to a single bracket or two.  Right.

Meet the New Face of the IRS in the Central District

Last Saturday I attended the CDCBAA CLE on “Handling Tax Debt Dischargeability and Bankruptcy Tax Disputes.”

The speakers were Judge Kwan, Arnold H. Wuhrman, Esq. of Serenity Legal Services, P.C., and assistant U.S. Attorneys Robert F. Conte, Esq. and Najah Shariff. Judge Saltzman and Judge Houle’s former law clerk, Jolene Tanner also made a special guest appearance. Najah and Jolene are the two new faces of the IRS. They will have the primary responsibility for all bankruptcy related litigation in the entire Central District of California.

Judge Kwan

(from far left to right: Jolene Tanner, Robert Conte, Najah Shariff, Judge Kwan, and Arnold H. Wuhrman)

Read more…

IRS Substitute For Return (SFR) Isn’t Always Nondischargeable

Debtors can discharge their taxes in bankruptcy so long as they meet certain tests: the three-year test, the two-year test, the 240-day test and no fraud. I lay it out in the first paragraphs here and in the last paragraphs here.

One of the tests is that the return has to have been actually filed: “A discharge . . . does not discharge an individual debtor for any debt  . .. for a tax or a customs duty . . . . with respect to which a return  . . .  was not filed or given.” 11 USC § 523(a)(1)(B)(i). A “return” must satisfy non-bankruptcy law, and can be a return prepared by the IRS under IRC § 6020(a), but not under 6020(b). 11 USC § 523(a).

This jargon and its cross-references mean that a taxpayer has to have submitted their own, good-faith tax return in order to have the resulting tax be dischargeable. Under IRC § 6020(b), the IRS can prepare a return without the taxpayer’s cooperation and make an assessment on it. This is known as a “substitute for return” (or SFR), and its assessment is never dischargeable. The taxpayer can never replace the SFR with a late-filed return after taxes owed from an SFR have been assessed.

How do you know that the IRS has filed a substitute for return? You look at the taxpayer’s account transcript. The first entry is almost always under TC (transaction code) 150. When the taxpayer files his own return, the entry states “tax return filed,” and it shows the taxes due on the return such as on this transcript. When the IRS files the taxpayer’s return, the entry states “Substitute tax return prepared by IRS,” and it shows a dollar entry of “0.00” such as on this transcript.

Read more…

What’s a Taxpayer Thinking When S/he Tries to Evade a Tax?


If the government can prove that you “willfully attempted in any manner” to “evade or defeat” a tax, then you cannot discharge that tax debt in bankruptcy.  11 U.S.C. 523(a)(1)(c).   I’ve always seen this as a very low bar for the IRS to prove, because the elements are simple: 1) the taxpayer had a duty to pay a tax; 2) the taxpayer knew that he had this duty; and 3) the taxpayer voluntarily and intentionally violated that duty.  Payment of any expense beyond subsistence, such as a child’s college tuition, at a time when taxes remain unpaid could meet the standard.  That’s what the cases around the country teach.

The 9th Circuit, however, has changed the standard here in California and elsewhere in its domain.  In Hawkins v. FTB, Case No. 11-16276, decided on September 15, 2014, the court has held that the taxpayer needs to have a specific intent of evading tax for this discharge exception to apply.  Outside the 9th Circuit, a “willful attempt “ to intentionally violate the duty to pay tax means a deliberate act that results in nonpayment of tax.  Here in the 9th Circuit, the “willful attempt” means a deliberate act with the intent of evading tax.


The facts in Hawkins are rather shocking to this former IRS attorney.  The debtor-taxpayer made a fortune in Silicon Valley enterprises, and tried to shelter some of his capital gains through sophisticated yet dubious transactions.  A large tax bill ensued, and then his enterprises lost a great deal of money. Yet he continued to live large: in the face of of a $25 million tax bill, he continued to maintain two residences worth a total of more than $6 million, and bought a fourth family car (in a two-driver family) for $70,000.  The family spent between $17,000 and $78,000 more per month than its income for several years.

I think that the result in Hawkins is wrong.  This kind of spending by a taxpayer who knows he owes $25 million in taxes is dishonest.  As a taxpayer, I do not want my fellow Americans to get away with this by saying “gee, I wasn’t trying to avoid paying the taxes, but I just couldn’t stop myself from spending.”  But I do salute the attorneys who reached this result.  It is a good result for my clients, and I intend to use it until the Supreme Court reverses the 9th Circuit.