Understandably, the news about tax law has been dominated in recent weeks by the nation's struggle to avoid the Fiscal Cliff. The bill that passed yesterday was hardly a comprehensive "grand bargain." But it averted the cliff by blocking immediate income tax increases for most Americans and postponing painful spending cuts.
The Fiscal Cliff may have taken center stage, but that should obscure the fact that many tax law issues are resolved with lower profiles. Some of these issues are ironed out in rulings by the U.S. Tax Court. The Tax Court provides an important forum in which taxpayers can challenge the IRS in tax litigation.
For example, in one recent Tax Court case, Owen v. Commissioner, the issue concerned a taxpayer's attempt to defer taxable gain on the sale of stock in a small business by using the proceeds to buy shares in a new business. The IRS contested a taxpayer's attempt to do this. The agency claimed there was insufficient activity in the new business.
The new business in question was a jewelry business. The facts were that only about 8 percent of the assets of the new corporation were invested in jewelry. There had also been very few jewelry sales in the corporation's first year. The Tax Court agreed with the IRS that taxable gain could not be deferred.
This is only one example of the type of fairly technical, case-by-case factual determination that tax litigation often involves. Though the IRS won this one, taxpayers sometimes prevail in other cases.
To be sure, the storm and stress in Washington, DC, often drives what gets into the tax code. But for interpretation of those provisions, there is no substitute for thorough, focused tax litigation.
Source: "Some Tax Developments Unrelated To The Fiscal Cliff Drama," Forbes, Peter J. Reilly, 1-2-13
Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our tax litigation page.