2023 Marcum Year-End Tax Guide

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“In other words, if the penalty is valid, a taxpayer might not be entitled to a refund merely because the government wrongfully collected it administratively.”

Taxpayers might have to argue the merits of their penalties if they wish to see refunds. Lastly, taxpayers who can rely on Culp and missed the petition filing deadline must carefully consider how to proceed. One advantage of litigating in Tax Court is that a taxpayer may challenge an asserted deficiency without paying it first. By contrast, if the taxpayer wishes to challenge a deficiency determination in a federal district court or the US Court of Federal Claims, the taxpayer must first pay the asserted deficiency and sue for a refund. Those failing to establish equitable tolling in Tax Court will have their cases dismissed and be required to pay the asserted deficiencies, but they will be barred from suing for refunds. Should they, therefore, risk trying to establish equitable tolling in Tax Court merely so they can challenge the deficiencies asserted against them without having to pay them first? Or, keeping in mind that failing to establish equitable tolling

would bar them from having their day in any court, should they forego Tax Court altogether, pay the deficiencies, and challenge them in federal refund suits? Nevertheless, do the decisions in these cases signal a trend that courts are, ostensibly, becoming more taxpayer‑friendly? If so, what does that mean for the taxpayers in Moore v. United States , a 2022 case decided by the US Ninth Circuit Court of Appeal in favor of the government but one that the Supreme Court in 2023 agreed to review? Moore is not a tax controversy case in the sense of Bittner, Farhy, or Culp , but the stakes are potentially high. The issue in Moore involves the Internal Revenue Code’s so‑called transition tax, which affects certain shareholders in certain foreign corporations. Some believe that a favorable decision for the taxpayers in that case could upend other taxing regimes, such as those that apply

to partnerships, S corporations, and dealers in securities and commodities. Yet others believe that a taxpayer‑ favorable decision could pre‑empt the government’s ability to impose a wealth tax. As with Bittner, Farhy , and Culp , a favorable decision for the taxpayers in Moore , depending on what the Supreme Court says in that case, might not necessarily be advantageous for other taxpayers or even for the taxpayers in Moore . For example, if the Court strikes down the transition tax, the income otherwise subject to that tax could eventually be taxed at a rate greater than the transition tax rate. Further, the viability of tax cuts enacted by the TCJA in 2017 and paid for in part by the transition tax could be cast into doubt because eliminating one piece of TCJA (the transition tax) raises questions of whether the TCJA must be struck down entirely. Stay tuned!

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