In Brinkley v. Comm’r, T.C. Memo. 2014-227, all Goes Wrong for the Taxpayer
Here is a case that showcases how a routine business transaction could lead to tax grief for the parties involved. In this case we have a founder, CIO exec, who worked for a company called Zavers. The CIO was paid a salary, a bonus, and also received restricted shares, much like many founders and principals in venture capital start ups. Originally, he owned approximately 10% of the company. As it happens, the exec was diluted by later investment rounds and tried to negotiate with Zavers a minimum of 3% interest, or else, he would leave. There was no official documentation to that...
November 03, 2014 read more
A Multimillion Dollar Settlement Allocation Slap on the Wrist
Investment funds litigate and settle cases like many other taxpayers. The settlement process is usually handled by litigators, in-house or otherwise. Some litigators are attuned and aware of the tax issues related to settlements and others are not. As it may be the case, settlements have significant tax consequences, and as the recent decision of Healthpoint v. Commissioner, T.C. Memo. 2011-241 (October 3, 2011) demonstrates, could lead to further tax related litigation and penalties. What’s usually at stake? The two key tax elements of a tax settlement are character of income inclusion...
October 06, 2011 read more
Penalties and Retainer Letters After the Enactment of Economic Substance
As mentioned a few times on this blog, Congress codified the economic substance doctrine last year as part of the Health Care and Education Reconciliation Act of 2010. One of the aspects of the new law is the introduction of a strict liability penalty for engaging in transactions that lack economic substance. Before the enactment of the doctrine, usually, to avoid the 20% penalty under Sec. 6662 of the Code, funds either relied on “reasonable cause” or on “adequate disclosure.” However, newly amended Sec. 6662(b)(6) of the Code provides for a 20% penalty for “[a]ny...
March 11, 2011 read more