Friday, September 2, 2011

New CID Annual Review of IRS Criminal Tax Enforcement

On July 25, 2011, the Treasury Inspector General's Office for Tax Administration issued its annual review of IRS Criminal Tax enforcement trends.  The Report noted that CID investigations were up by 12.3% for legal source income cases, and that CID completed 4,325 investigations, thereby surpassing its goal of 3,900 investigations.  CID also reduced the average amount of time involved in a case from 425 days the prior year to 365 days for fiscal year 2010, an improvement in efficiency of over 8%.  The CID's budget was increased from $598 million in fiscal 2009 to $607 million in fiscal 2010.  The federal conviction rate for recommended prosecutions is at 90.2%, and 2,184 convictions were obtained in fiscal 2010.  CID staffing increased from 2,725 in fiscal 2009 to 2,751 in fiscal 2010.  CID also exceeded its fiscal 2010 goal of initiating 4,000 investigations by actually opening 4,706 criminal investigations.  Tax related prosecution referrals numbered 1,507 in fiscal 2010.

DAD Tax Shelter Invalidated By Tax Court

The U.S. Tax Court, in Superior Trading, LLC, et. al. v. Commissioner, 137 T.C. No. 6, held that a purported partnership in Brazilian consumer receivables allegedly contributed by the original holder with high basis, built in losses, was not a true tax partnership and denied the investor partner's ability to claim losses with respect to those assets.  The Tax Court found that the two purported partners did not share a common purpose of managing and collecting the receivables for profit, but the purported contributing partner had no interest in continuing with the activity, and that it's purported redemption within a year of the purported partnership's formation was subject to step transaction analysis.  This case is the Tax Court's first repudiation of the DAD tax shelter.  Penalties were also imposed in the case.