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Tax Section

THE FLORIDA BAR September 2003Vol. XXII, No. 1

See “New FIRPTA Regulations,” page 2

See “Chair’s Report,” page 32

Coming up!* * *

CLE:“Family LimitedPartnerships –Transfer Tax

Planning DuringGood, Bad, Uglyand Uncertain

Times”

October 24, 2003Tampa, Florida

See pages 29-30.

WWW.FLORIDATAXLAWYERS.ORG

IN THIS ISSUE:The French Have a Word For

It ........................................ 5

Bylaw Amendment to BePresented at Fall Meetingfor Final Vote .................... 6

Florida Tax AmnestyUpdate .............................. 6

Tax Certification CommitteeResponds to Tax Section’sInput .................................. 7

Federal Tax Liens “Stick It” toEntireties ........................... 8

Is Church Bingo Legal? .... 13

What IRS Form 8082 Can DoFor You(and to you!) NowThat the IRS’ K-1 MatchingProgram is Underway ..... 15

The Dark Side of theProposed Tax ShelterTransparency Act ........... 25

Tax Certification ReviewCourse to Start in 2005 .. 27

Seminar: Family LimitedPartnerships - Transfer TaxPlanning During Good,Bad, Ugly and UncertainTimes .............................. 29

BulletinBulletinIRS Finalizes New FIRPTAWithholding RegulationsTINs Required After November 3; Mandatory Change InNon-Foreign Affidavits; Like-kind Exchanges RestrictedBy Jonathan H. (Jason) Warner, Esq., Law Offices of Jonathan H. Warner, P.A.,Miami, Florida

RICHARD B.COMITER

On August 4, 2003, the Internal RevenueService issued final regulations requiringtaxpayer identification numbers (TINs)from all parties at the time of filing any form,notice or election under Code Sections 897or 1445. Effective for transfers after Novem-ber 3, 2003, these new regulations maycause serious difficulty for real estate trans-actions involving a foreign seller, as even theIRS acknowledged that the current Interna-tional Taxpayer Identification Number(ITIN) process needs improvement. The fi-nal regulations adopt the July 26, 2002 Pro-posed Regulations without material change.

Effective September 4, 2003, non-foreigncertification forms for entities must includea statement that the entity is not a disre-garded entity. A disregarded entity’s owner,if eligible, must give the non-foreign certifi-cation. Practitioners will have to amendtheir forms to accommodate these new re-quirements.

The final regulations also provide that,effective September 4, 2003, the nonrecog-nition notice procedure can not be used in adeferred like-kind exchange, leaving thewithholding certificate procedure as the only

Chair’s ReportBy Richard B. Comiter, Esq., Comiter & Singer, LLP, Palm Beach Gardens, Florida

My term as Chair beganwith a roaring start at theTax Section’s July 4th Or-ganizational Meeting atAmelia Island Plantationwith over 350 attendees atthe Chair’s Welcome Re-ception Dinner. The recordattendance at Amelia isanother example of thecontinued overwhelmingsupport and enthusiasm Ihave received from the

membership in their desire to assist me inachieving my goals and aspirations for theupcoming fiscal year. I am certain the mem-bers who attended the Organization Meet-ing not only participated in CLE programs

and workshops which added a tremendousamount of value to their practices, but alsoin a bonding social experience among familyand friends. The social interaction and colle-giality among the members of the Tax Sec-tion fosters a family-like atmosphere whichmakes attendance at our meetings a memo-rable experience. I was especially excitedabout the first-time attendance of so manyyoung tax lawyers and the experienced taxpractitioners who have rekindled their in-volvement in the Tax Section.

The key factor in why the Tax Section issuch a successful and well-respected and rec-ognized Section of the Florida Bar is the con-tinued active involvement and participationof its Past-Chairs in Section activities and

• Volume XXII, No. 1 • September 2003

available mechanism for a foreigntransferor to avoid withholding. Ap-parently, some practitioners havebeen utilizing the nonrecognitionnotice procedure for deferred like-kind exchanges even though this pro-cedure left the transferee at risk ofFIRPTA non-compliance because thetransferee could not be certain at thetime of the initial transfer that thedeferred exchange would qualify astotally free of tax.

BackgroundCode Section 897 was enacted as

the Foreign Investment in Real Prop-erty Tax Act of 1980 (FIRPTA), for thefirst time generally imposing U.S.federal income tax on dispositions ofU.S. real estate interests (USRPIs) byforeign persons. After Treasury wasrebuffed in its attempts to enact arigorous withholding system to en-force FIRPTA, the Florida Bar TaxSection proposed a moderate, ratio-nal withholding system that enabledreal estate transactions to proceedrelatively unimpeded. Enacted asCode Section 1445 by the Tax ReformAct of 1984, that proposal’s innova-tive withholding procedures now arereplicated in other federal tax with-holding areas.

When a foreign person disposes ofa USRPI, the transferee must with-hold ten percent of the amount real-ized by the transferor at closing andremit the withheld amount to theIRS by the 20th day after the trans-fer. To avoid excess withholding whenthe required amount exceeds the tax

actually due, the transferor may filean application for withholding certifi-cate (Form 8288-B, generally) withthe IRS prior to closing. If at closingthe transferor provides the trans-feree a notice that the transferor hasapplied for a withholding certificate,the transferee retains the withheldamount (generally in an escrow ar-rangement with counsel) pendingreceipt of the IRS approval or denialof the application. The IRS is sup-posed to act on withholding certifi-cate applications within 90 days ofreceipt, but that seems to have be-come a mere aspiration.

If the IRS approves a lesseramount of withholding, the trans-feree remits that lesser amount (ifany) to the IRS with Form 8288 (in-cluding Form 8288-A) by the 20th dayafter receipt of the IRS response andrefunds the balance of the withheldamount to the transferor. The IRSstamps a copy of Form 8288-A andmails it to the transferor for inclusionin the transferor’s U.S. federal in-come tax return reporting the sale.

These forms and other notices andelections relevant to FIRPTA with-holding already call for the TIN of thetransferor and transferee. However,if the transferor or a foreign trans-feree did not already have a TIN, theprior regulations and forms accepted“Applied For” in lieu of the TIN andthe transferor’s TIN was not requiredto be provided until the transferorfiled its U.S. federal income tax re-turn reporting the disposition of thereal property interest.

New Regulations AccelerateRequirement to Provide TINs

The regulations under Code Sec-

tions 6109, 1445 and 897 now areamended to require a foreign personto provide a TIN at the time of filingany return, statement or other docu-ment required by the regulationsunder Code Sections 897 or 1445 fora disposition of a USRPI occurringafter November 3, 2003. If thetransferor’s TIN is not timely pro-vided, the transferee must still reportthe withholding on Form 8288 andremit, but the transferor cannot ob-tain a credit or refund of tax on thebasis of a Form 8288-A that does notinclude the transferor’s identifyingnumber. The Explanation of Revi-sions (the “Explanation”) states thatthe IRS will consider as incompleteand will not process a withholdingcertificate application or any othernotice or election under Code Sec-tions 897 or 1445 that lacks eitherparty’s TIN. The amended regula-tions state that an application forwithholding certificate will be deniedif not complete, including TINs.

The IRS notes in the Explanationthat it believes that the revised regu-lations do not impose a new obliga-tion on a foreign person but ratheraccelerate the current requirementto provide a TIN in connection withthe transferor’s tax return reportingthe disposition, or a transferee’swithholding return in connectionwith the acquisition, of the USRPI.Accelerating the requirement forTINS better allows the IRS to iden-tify foreign taxpayers and to moreeasily match applications, withhold-ing tax returns, notices, and electionswith the transferor’s income tax re-turn.

Potential Adverse Impact onReal Estate Closings

Foreign persons involved in buy-ing or selling USRPIs often are un-aware until immediately before clos-ing of the FIRPTA withholdingrequirement or the requirement toprovide a TIN. In this writer’s expe-rience, Florida real estate contractforms frequently do not provide a for-eign party with adequate notice ofthese procedures and FIRPTA com-pliance rarely is considered at thetime of contract. The current delaysand difficulties in obtaining an ITINfor a foreigner will preclude filing awithholding certificate applicationfor many foreign transferors unlessinitiated at the time of contract, and

NEW FIRPTA REGULATIONSfrom page 1

This newsletter is prepared and published by the Tax Section of The Florida Bar.

Richard B. Comiter, Palm Beach Gardens .................................................................ChairWilliam D. Townsend, Tallahassee ................................................................... Chair-electDavid Pratt, Boca Raton ....................................................................................... SecretaryJames B. Davis, Ft. Lauderdale .......................................................................... TreasurerRichard A. Josepher, Boca Raton ................................................... Immediate Past ChairElaine Bucher, Boca Raton ................................................................................... Co-EditorAndrew Huber, Palm Beach Gardens .................................................................. Co-EditorDonna Byrd, Tallahassee .............................................................. Program AdministratorLynn Brady/Dana Montenieri, Tallahassee ....................................... Typesetting/Layout

Statements or expressions of opinion or comments appearing herein are those of thecontributors and not of The Florida Bar or Tax Section.

Volume XXII, No. 1 • September 2003 •

perhaps not even that lead-time isadequate based on recent anecdotalevidence. Unless the ITIN procedureis improved or alternative proce-dures developed, it may be necessaryto advise foreign clients who own, orthat want to own, U.S. real estate toobtain ITINS in advance even if nototherwise needed.

Absent a swift and sure procedurefor foreign parties to obtain an ITIN,the new requirement may delay ordisrupt real estate closings. Some for-eign transferors may suffer excesswithholding at closing, perhaps evenhaving to put up additional cashwhen the net proceeds are less thanten percent of the purchase price. Thetransferor cannot utilize even theearly refund application procedureuntil TINs are available for bothtransferor and transferee.

The new TIN requirement alsoapplies to Code Section 1445(e)transactions. The requirement to fur-nish an ITIN should be less disrup-tive when only related parties areinvolved in these kinds of transac-tions, but time constraints mightpose an occasional problem.

Difficulties in Acquiring TINsIn the Explanation, the IRS ex-

pressed its belief that in many cases,the foreign taxpayer already willhave a TIN due to having filed a U.S.tax return. Other than for rentalproperty, that belief seems somewhatdubious. The IRS also expressed thebelief that foreign corporations canobtain employee identification num-bers (EINs) without delay throughexisting procedures, but there re-mains a serious question whetherForm SS-4 requires the principal of-ficer of an applicant U.S. or foreigncorporation to have a TIN. The re-verse of Form SS-4 says the officerTIN requirement is optional for a for-eign corporation seeking an EIN tocomply with U.S. withholding re-quirements (perhaps limited to thosecurrently listed on the Form, not in-cluding FIRPTA), but the instruc-tions to Form SS-4 state that the of-ficer TIN is mandatory. At least in thepast, it has been difficult to get SS-4s processed by some Service Centersif the officer EIN was not stated.

The Explanation notes that theIRS is exploring options to addressconcerns about the time it takes non-resident aliens to obtain ITINs, and

specifically is considering processingapplications for withholding certifi-cates in conjunction with TIN appli-cations. The Instructions to Form W-7 suggests that it takes 4-6 weeksafter filing to obtain an ITIN, butanecdotal evidence suggests that theprocess is slower and more difficulteven when an “acceptance agent” isused rather than mailing the FormW-7 to the IRS or visiting a domes-tic IRS Taxpayer Assistance Centeror a foreign IRS office (not all ofwhich accept these forms). It wouldnot be surprising if the November 3effective date is delayed further toallow time to implement a bettersystem.

Other Problem Areas with TINsThe amended regulations fail to

provide a procedure for foreign per-sons to use to supply their TIN to theother party. It may be assumed, butshould have been explicitly stated,that the TIN may be provided onForm W8-BEN.

The amended regulations also failto provide any sanction or relief forcircumstances where one party failsto provide its TIN timely. For ex-ample, if a transferee refuses to pro-vide its TIN to the transferor in timeto allow the transf-eror to file for a with-holding certificatebefore closing, thetransferor might suf-fer excess withhold-ing and substantialdelay in obtaining arefund, in somecases having to pro-vide additional cashat closing if the netproceeds are lessthan the requiredwithholding. Onemight imagine atransferee using ex-cess withholding asleverage to force con-cessions from atransferor.

A transferee, ofcourse, will need itsTIN by the 20th dayfollowing closing toavoid Code Section6651 penalties forlate remittance ofthe withheld amountand late filing of

Form 8288. If the transferor is unableor refuses to supply its TIN, thetransferee should file these forms (in-cluding Form 8288-A) and remit thewithheld amount without thetransferor’s TIN, even though theforms will not be processed. However,it is not clear that so filing exemptsan innocent transferee from all pen-alties for not obtaining thetransferor’s TIN. The regulationsshould state explicitly that, if thetransferee has requested the TIN butthe transferor does not timely supplyit, the transferee would not be sub-ject to any penalties for filing Form8288 without the transferor’s TIN.This would be consistent with Reg.Section 1.6045-4(l)(2), concerning asettlement agent’s request for TINsto be supplied on Form 1099. Poten-tially applicable penalties includethose under Code Section 6721 forfailure to file a correct informationreturn; Section 6722 for failure to fur-nish a correct statement; Section6723 for failure to comply with otherinformation reporting requirements(including the requirement to furnisha TIN); and Section 7203 for willfulfailure to supply information (includ-ing a TIN).

continued...


Important Address ChangesThe amended regulations update

a number of address specifications inthe prior regulations. Most Code Sec-tion 897 filings previously directed tothe Foreign Operations District inWashington, D.C. now go to the SmallBusiness/Self Employed Division inLanham, Maryland, or to the Phila-delphia Service Center at theFIRPTA unit’s address. For Code Sec-tion 1445 purposes, written commu-nications to the Philadelphia ServiceCenter now go to the address of theFIRPTA unit, and the address for fil-ing Forms 8288 and 8288-A and re-mitting is changed from the Philadel-phia Service Center to the addressspecified in Form 8288, currently theFIRPTA unit.

Disregarded Entities; Time toRevise Non-Foreign Affidavitsfor Entities

Effective September 4, 2003, a dis-regarded entity owning a USRPI willnot be treated as the transferor un-der Code Section 1445. Consequently,a U.S. disregarded entity cannot pro-vide a certificate of non-foreign sta-

tus, and the entity’s owner must givethe non-foreign certificate if eligibleto do so. Non-foreign certifications forentities will be required to state thatthe entity is not a disregarded entity.A revised sample statement is pro-vided in the regulations.

A potential problem with the pro-vision of the non-foreign certificationby the owner of a disregarded entityis that the withholding agent mightbalk at accepting the certificate froma person who has no legal status inthe transaction despite the regula-tory requirement that the owner givethe certificate. Unfortunately, theregulations did not include an affir-mative statement entitling the with-holding agent to rely on the owner’scertification and TIN. Practitionersmight revise their non-foreign certifi-cate form to state that the personproviding the certification is theowner of the disregarded entity, andthat the notice is provided on behalfof the transferor pursuant to theamended regulations.

Another potential problem is thatmany disregarded entities have TINsdifferent from that of the owner. Us-ing the owner’s TIN for FIRPTA pur-poses is inconsistent with the re-quirement of Form 1099-S under Reg.Section 1.6045-4 that the disre-

garded entity’s TIN be used.The Service should address thisinconsistency.

Deferred Section 1031Exchanges Restricted afterSeptember 4

The final regulations adoptthe IRS position that the expe-dited nonrecognition notice pro-cedure of Reg. Section 1.1445-2(d)(2) does not apply to adeferred Code Section 1031like-kind exchange because thetransferee cannot be sure at thetime of closing that the trans-action eventually will qualifyfor nonrecognition treatmentunder Section 1031 (for ex-ample, if the 45-day identifica-tion time limit or the180-daytransfer limit is not met) or thatit will qualify as entirely tax-free (for example, if boot is re-ceived by the foreign transf-eror). Instead, to avoid puttingup cash equal to ten percent ofthe amount realized and seek-ing a refund, the transferor can

apply for a withholding certificate.Although not specifically addressedby Reg. Section 1.1445-3, the IRSlong has accepted withholding certifi-cate applications for deferred like-kind exchanges and this procedurenow is incorporated into the regula-tions.

Apparently, the IRS has acceptednonrecognition notices in connectionwith deferred exchanges for yearswithout objection. Proponents of thissimpler mechanism for deferred ex-changes argued that the IRS shouldadopt a notice of intent approachsimilar to that used under Temp.Reg. Section 1.1445-9T(b)(6) (priorto the repeal of Code Section 1034)for replacement of a principal resi-dence.

In connection with formal adop-tion of the withholding certificateprocedure for deferred like-kind ex-changes, it is unclear how the IRSwill apply the provisions of amendedReg. Section 1.1445-3(b)(2) if the re-quirement to identify “all the parties”to the transaction extends to thetransferor of the replacement prop-erty. Often, the identity of such trans-feror is not established at the time ofthe initial transfer in a Code Section1031 deferred exchange. FurtherReg. Section 1.1445-3(b)(6) seems tocontemplate only a cash escrow of thewithholding tax. This is inconsistentwith prior IRS practice in acceptingwithholding certificate applicationsfor deferred Section 1031 exchangewith alternative security such as anirrevocable letter of credit in accor-dance with Rev. Proc. 2000-35, sec-tion 6. Requiring a transferor to ob-tain and place in an extended escrowadditional cash equal to ten percentof the exchange value is an unneces-sary hardship. But, considering thePreamble to the Proposed Regula-tions, it seems likely that the IRSdoes not intend that these technicalissues should hamper withholdingcertificate applications for deferredlike-kind exchanges.

Code Section 121 TransactionsNew Reg. Section 1.1445-3(b)(5)

details how a withholding certificatemay be sought if the nonresidentalien occupied the property as his orher personal residence for the requi-site time.

© Jonathan H. (Jason) Warner 2003

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NEW FIRPTA REGULATIONSfrom preceding pages


Chair-elect’s Message:

The French Have a Word For ItBy Bill Townsend, Esq., Steel Hector & Davis, LLP, Tallahassee, Florida

We need to recognize that our boy,Richie Comiter, and the tirelessDonna Byrd put on a great set ofmeetings for us at Amelia. Perhaps Ishall let Richie plan mine for 2004 aswell….mmm. Moreover, the sportiestof sports, Mr. Mike Jorgenson, withhis staff did a yeoman’s work settingup and staffing the Hospitality Suitedespite the fact that the cigar areawas probably a few square feet lessopen that the law allows under thatoppressive Ch. 396, Part II and theill considered Constitutional amend-ment. Take the time to drop Mike andthe guys a thank you by email…. im-press them with your techno-suavity.

* * *If you could have the time to sit

and think about all you’d say in a col-umn that didn’t really have to haveany kind of substance, and you had amind sort of off kilter anyway, youcan probably imagine the amount ofediting that would have to be donebefore the column got sent to theBulletin.

I’ve read some of the stuff my pre-decessors have written. . . and I amaware that there are those amongthem who shudder at what I mightdo to the gravitas of the office ofChair-Elect, let alone the sheer ter-ror they harbor at the potential HAP-PENINGS during 2004-2005. Ah,mes amis….épatering le bourgeoisand shattering l’esprit de notaire arecertainly two of the things I mostenjoy, but I shall endeavor to keep asmuch of that under control as I pos-sibly can… NOT!

In this regard, I direct your atten-tion to the thoughts of a modern phi-losopher, Toby Keith….(up here inthe hinterland, we listen to morethan hip hop, klezmer and Latinmusic) ….

I wanna talk about me Wanna talkabout I Wanna talk about numberone Oh my me my What I think,what I like, what I know, what Iwant, what I see I like talkingabout you, usually, but occasionally,I wanna talk about me! I wannatalk about me…

In addition to keeping you advisedof the progress I’m making in devel-oping my programs for the year af-ter Richie, it will be my pleasure (it’sall about me ) to offer you my viewson diverse non-controversial topicssuch as religion, politics, sex, drugs(including libation) and rock and rollas well as to keep you abreast of cul-ture enhancing products and eventsto better enable you to cope with yourtiny little lives.

But first a poll….. Some of yougens de bien remember when therewere four Section meetings eachyear. Is there any interest in return-ing to the glorious days of yesteryear(hi ho Silver awaaaaaay!) and havinga 4th meeting? If there is a groundswell of support for that (I noted withinterest that the Reptile grouptrekked off to Sonoma for a meeting)we could therefore choose betweenmaking Donna figure out a cruisedeal or having her figure out a trip/meeting someplace like the WhiskeyTrail in Scotland or the RecreationalPowder Trail in Columbia or the“Duck!-- it’s an RPG” Tour ofBaghdad. This is a two part question,folks…. a) do you want a 4th meetingand, if you do, and/or, b) even if youdon’t, would you like one of our meet-ings to be extra-Florida?

There….. that serious note shouldallay some of the fear that I don’ttake this job seriously.

Pressing on, as you know we co-sponsor an annual State Tax Confer-ence with the FICPA and the IPTeach year. In the past few yearsthere has been some contretempswith the bean counters regardingcosts, splits, substance issues andother annoyances. We will againsponsor with them the 2004 Confer-ence acceding yet once more to oneof their requests – a change of venue.Should the Tampa location (Feb 5-6,2003) not result in an increase in at-tendance from the folks in greeneyeshades, we’ll be back in Orlandoin 2005 and likely WITHOUT theguys from down College Avenue. Ithas been suggested that the Sectionwith IPT and a couple of the Final

Four could do as good a job staffingand marketing this as the pencilnoses have. We’ll see. Film at 11.Louis Nizer once said “A gracefultaunt is worth a thousand insults.”Perhaps the beanies will read thiscolumn as a taunt, ça va?

For those of you who are notaware, the April meeting will includeamong other educational opportuni-ties, a garage sale….er…display ofnew gadgets, gizmos and other whiz-bang gewgaws to enhance the wayyou practice whatever type of tax lawyou engage in. Richie has asked meto put this Tekkie Thingy togetherbut if any of you have any specificdevices you’d like to have demon-strated please let me know (althoughI anticipate a degree of prurience, Mr.Minton, please keep it at somethingless than a four word response.)

Because this is about ME….I want you to be thinking about the

amount of registration fees you’recomfortable with for the meetings.Although some of our expenses areunderwritten by the sponsors (andhasn’t Nick La Roc done a HUGE jobwith that, Honey!!) some of the mealcosts can be reduced by increasingregistration fees. This is sort of likededucting state taxes from the fed-eral return – exporting the burdentype thing – since most firms pay theregistration fee and individual law-yer travel expenses and meal costs,we could increase that amount, allowyour firms to assist in feeding thewife and kiddies and thus reducingyour personal costs for Amelia. Feelfree to email me your thoughts.

Despite the fact that chacun à songoût, on any of the issues raised inthis column, I am sure that the nexttwo years will be an interesting andhopefully will leave the Section horsconcours!!!

Finally…a thought for the day:

“I feel so miserable without you, it’salmost like having you here.” –Stephen Bishop

Y.O.S.Bill

[email protected]


Bylaw Amendment to Be Presented at FallMeeting for Final VoteNOTICE: THE FOLLOWINGAMENDMENT TO SECTION 3(a) OFARTICLE III OF THE SECTION BY-LAWS WILL BE PRESENTED FORA FINAL VOTE DURING THESECTION’S FALL MEETING ONOCTOBER 25, 2003 IN TAMPA,FLORIDA. NO FLOOR AMEND-MENTS TO THE PROPOSEDAMENDMENT WILL BE ENTER-TAINED AT THE FALL MEETING.ALL COMMENTS TO THE PRO-POSED AMENDMENT SHOULDBE SUBMITTED BY E-MAILPRIOR TO THE MEETING TOEACH OF:

RICHIE COMITER, CHAIRBILL TOWNSEND, CHAIR-ELECTMITCH HOROWITZ, DIRECTOR,LONG RANGE PLANNING COM-MITTEEDONNA BYRD, SECTION ADMIN-ISTRATOR

ALL COMMENTS RECEIVEDPRIOR TO THE MEETING WILLBE READ TO THE SECTION MEM-BERS PRESENT PRIOR TO CALL-ING THE AMENDMENT FOR AVOTE. YOU DO NOT NEED TO AT-TEND THE MEETING IN ORDERTO PRESENT A COMMENT FORREADING.

Based on the discussion of the pro-posed amendment at the Section’s

Annual Meeting at the Portofino Ho-tel in April, the proposed amendmenthas been further revised as follows:

AS CURRENTLY APPEARS:

Section 3. Duties of Officers.

(a) Chair. The chair shall pre-side at all general meetings ofthe section, at all meetings ofthe executive council, and at allmeetings of the directors’ com-mittee. The chair shall appointand may discharge theofficers(except the chair-elect),and all chairs of the section’scommittees and subcommittees,shall be responsible for thepreparation of all reports to besubmitted to The Florida Bar,and shall perform such otherduties as customarily pertain tothe office of the chair.

PROPOSED AMENDMENT(underlined is new language)::

(a) Chair. The chair shall pre-side at all general meetings ofthe section, at all meetings ofthe executive council, and at allmeetings of the directors’ com-mittee. The chair shall appointand may discharge the officers(except the chair-elect), and allchairs of the section’s commit-tees, subcommittees, and CLEprograms, as the case may be;

provided that any such appoin-tees to certain committees, sub-committees, and CLE programs,pertaining specifically and ex-clusively to tax litigation andthe practice of law (e.g., Na-tional Tax Moot Court, Unau-thorized Practice, Bankruptcy,Tax Procedure (civil and crimi-nal), and Tax Court Bar Rela-tions/Tax Litigation) shall atthe time of their appointment,and throughout their term, beactively engaged in the full timepractice of law or shall be em-ployed as a full time facultymember at an accredited schoolof law in Florida (any reason-able combination of legal prac-tice and legal teaching as pre-viously described shall bedeemed to constitute the fulltime practice of law for pur-poses of this paragraph), orshall be an active member of theFlorida or Federal judiciary,unless exempted from theaforementioned practice, teach-ing, or judicial participation re-quirements by a majority voteof the executive council. Thechair shall be responsible forthe preparation of all reports tobe submitted to The FloridaBar, and shall perform suchother duties as customarily per-tain to the office of the chair.

Florida Tax Amnesty UpdateBy Tony Zarba, Esq., Miami, Florida

During the first special session ofthe 2003 legislative session, theFlorida Legislature passed a tax am-nesty program that will run fromJuly 1, 2003 and end October 31,2003. The amnesty program isFlorida’s first since 1988 and willapply to all taxes administered by theDepartment of Revenue, except un-employment tax. Tax liabilities in-curred on or after July 1, 2003, are

not eligible.This program is an opportunity to

voluntarily pay overdue taxes with nopenalty and reduced interest. That is,there is a 50% reduction in interest ifyou report and pay a tax liability thatthe department was unaware of, anda 25% reduction in interest if you areresponding to a department bill, au-dit, or other assessment. After Octo-ber 31, 2003, you will owe 100% of the

interest -- the interest rate will doublefrom 4 percent to 8 percent -- and pen-alties will apply. Of particular note,taxpayers expressly waive all rightsto protest, appeal, or receive refundsof taxes paid under amnesty. It is pos-sible to file and pay online and thedepartment has set up a web pagethat answers most questions at:http://sun6.dms.state.fl.us/dor/am-nesty.


Tax Certification Committee Responds toTax Section’s InputGuy E. Whitesman, Esq., Henderson Franklin Starnes & Holt, P.A., Ft. Myers, FloridaChair, Tax Certification Committee 2003-2004

At the organizational meeting ofthe Tax Section Bar at Amelia Island,members of the Tax CertificationCommittee (a committee appointedby the Florida Bar to work with theBoard of Legal Specialization andEducation) and the Tax Section’s Ex-ecutive Council held a joint meeting.The purpose of the meeting was todiscuss proposals to improve the taxcertification process. The goal of boththe Tax Certification Committee andTax Section’s task force was to (i) en-courage and promote certification ofFlorida tax lawyers and (ii) devise anexamination format which wouldfairly test the competency of mem-bers of the Florida Bar earning thetitle “Certified Tax Lawyer.” The TaxSection has encouraged members toseek to become certified tax lawyers.The Tax Certification Committee re-

viewed the results of surveys regard-ing the tax certification process pre-pared and disseminated by the TaxSection as well as view of the TaxSection’s task force on the format ofthe examination.

In response to suggestions madeduring this meeting, the Tax Certifi-cation Committee subsequently metvia conference calls in order to reviewthe examination format. As a resultof the input from the Tax Section, theTax Certification Committee agreedto modify the examination format.The format for the next exam is es-sentially as follows:

Part I (2 hours) is short answer.These will be a series of 10 questionsfrom which the applicant must an-swer 7. The questions will be drawnfrom various areas of tax law, includ-ing, corporate, partnership, state and

local, individual, foreign, procedure,transfer tax, etc.

Part II (2 hours), is a mandatoryessay covering Choice of Entity.

Part III, (2 hours), is one essayquestion chosen from topics pre-se-lected by the applicants (usually intheir area of concentration).

The Tax Certification Committeebelieves that this format is an im-provement over prior years and ismore reflective of the issues which taxlawyers in Florida may be called uponto advise clients on a daily basis.

The Tax Certification Committeeappreciates the work, suggestionsand cooperation of the Tax Sectionand those members of the TaxSection’s Executive Council who tookthe time to assist in promoting andbettering the tax certification pro-cess.


Federal Tax Liens “Stick It” to EntiretiesBy Robert C. Meyer, Esq. Robert C. Meyer, P.A., Miami, Florida

The simplest concepts become con-voluted when federal and state lawsintertwine or conflict. Until the 2002Supreme Court in Craft affirmativelyresponded to the question of whethera federal tax lien that arises by op-eration of federal law attaches to “allproperty and rights to property” of adelinquent taxpayer (26 U.S.C. §6321), including the delinquenttaxpayer’s rights in property held asa tenant by the entirety,1 there wasconfusion whether to apply federaltax laws on “property” as opposed toapplying state laws of “property.”Craft establishes that the collectionrights of the taxing authoritiesclearly exceed the private creditor’scollection rights in states which havea tenancy by the entirety propertyright. Florida residents are signifi-cantly affected as Florida’s tenancyby the entirety, which clearlyshielded assets from creditors forover a century,2 cannot shield theentiretical property from a federaltax lien after the Craft ruling.

The Sixteenth Century Englishlaw devised entireties estates toserve numerous ends which nolonger have merit: military organiza-tion in feudal states, male supremacy,and scriptural literalism. Florida hadheld the need to preserve entireties.3

Since that time, democracy and lib-eration have abounded. The Britishabolished entirety estates in 1925.4

Subsequently, some American juris-dictions abolished the same. Florida,unlike those other jurisdictions, con-tinues to uphold tenancy by entiretyownership in real property and hasexpanded such ownership interest topersonal property. At the same time,the Twentieth Century establishedtitle 26 of the United States Code(Tax Code) and created statutory lan-guage which the Supreme Court in-terpreted to overcome entireties con-cepts.

All tenancy by entirety propertiesare not equal.5 Certain jurisdictionsare referred to as “full bar states” andothers are called “modified barstates.”6 In full bar states, creditorsagainst one spouse cannot attach tothe entireties property or interests.7

In modified bar states, creditors can

attach to entireties but subject to theright of the nondebtor spouse.8 Thefull bar states were of greatest con-cern to the IRS as they imposedgreater limitations on creditor rightsand remedies. Florida – a full bar ten-ancy by entirety state – establishedtenancy by the entirety to be a credi-tor immunization which expansivelyprotects real and personal property.9

When a federal tax lien againstMr. Craft could not attach to his en-tireties real property,10 an appeal en-sued. The appeal before the SupremeCourt in Craft cited the reasons toreverse were: 1) a taxpayer who ownsentireties property in states wherecreditors cannot attach such propertyfor the debts of only one spouse istreated more favorably than a tax-payer who owns property in stateswhere creditors are permitted bystate law to attach such property; 2)the immunization of entireties prop-erty provides an avenue for easyavoidance of federal income tax laws;3) significant opportunities for ex-traordinarily facile evasion of taxobligations exist with the entiretiesexemption; 4) because personal prop-erty as well as real property may beheld in tenancy by the entirety, finan-cial assets may be purchased withuntaxed income and shielded fromtax collection process through thesimple artifice of placing ownershipin the “marital unit” through a ten-ancy by the entirety; and 5) theamount of potential loss of revenueeffected by the immunization of en-tireties property is extreme.11 TheDepartment of Justice argued thetaxing authorities should attach toentireties properties for economicallypersuasive (avoid loss of revenue),permissibly punishing (harm thosewho use evasive strategies), anddemocratically derived (treats alltaxpayers alike, regardless of resi-dent state) reasons. The Departmentof Justice, in its brief, recognized thatthe true aim of this issue was to de-feat the 14 states which created an“entireties bar” in what it describedas “full bar states.”12

The destruction of the entiretiesbar as to federal tax liens was notcreated by the Craft case alone. Be-

fore reviewing the Craft decision, onemust look to its extremely importantpredecessor, Drye v. United States,528 US 49, 120 S. Ct. 474, 145 L. Ed.2d. 466 (1999). Drye commencedchange to the concepts of property inregard to federal tax liens.13 Dryeclarified the conflicting federal courtdecisions on how to interpret statelaw and federal law when interpret-ing federal tax lien attachment cases.

Drye included grotesque factswhich the taxing authority imploredas evidence of abusive tax planning.Mr. Drye, who owed approximately$325,000.00 to the IRS, and wasdeemed to be insolvent because hisonly valuable assets were held as ten-ancy by the entirety, received an in-heritance from his intestate mother.Mr. Drye was the sole heir of a$230,000.00 estate and was ap-pointed administrator of the estate.Within six (6) months, he filed a Writto Disclaim any interest in hismother’s estate, clearly to avoid tax-able events from the IRS lien attach-ing to that money. Two days later, heresigned as the administrator of thatestate and was succeeded by hisdaughter. The daughter thereafterplaced all the inheritance money intoa spendthrift trust which named Mr.Drye, his wife, and daughter as thebeneficiaries of the spendthrift trust.Under state law, these assets wereclearly shielded from creditors as thebeneficiaries of the trust. The IRSfiled a tax lien notice against thetrust and commenced a levy on theaccounts. The trust responded with a§ 7426 lawsuit14 to which a counter-claim was filed by the IRS against thetrustee and the beneficiaries as wellas the trust. The Eighth Circuit, af-firming the District Court, ruled forthe IRS in Drye.15

Drye is not important under thesefacts. How Drye transcends its nar-row issue is very important. The Su-preme Court, once and for all, clari-fied the intertwined relationshipbetween state law and federal taxlien law in regard to federal tax lienattachment on “property.” “Property”for tax lien purposes was defined byDrye to be a “federal” issue.

Drye establishes that the analysis


of federal tax lien attachment is two-pronged. The jurisprudence of taxlien law had previously interpretedthose two prongs in a different man-ner than the Supreme Court did inDrye. The initial prong involves de-scribing the property interest and itsexistence. This analysis utilizes statelaw only. This was not a change. Thesecond prong involves characteriza-tion of the property. Drye establishesthis to be a question of federal lawwhen a federal tax lien is at issue.This was a change. Before Drye, thesecond prong often was interpretedunder state law. This change harmedthe planners in Drye and Craft.“Property” under state law is vastlydifferent than “property” under fed-eral law. Drye describes numerouscriteria for “property” and concludesthat the definition is extremely ex-pansive. “Property” under federal lawincludes: “every species of right orinterest protected by law and havingan exchangeable value.”16 The “prop-erty” of Drye includes:• “A right to gain possession of an

item, even if such possession doesnot include ownership;”17

• Assets or items available to thetaxpayer “within his/her reach toenjoy;”18

• “Any beneficial interest as opposedto ‘bare legal title’ in the asset;”19

• “A valuable, transferable, legallyprotected right to the property atissue;”20

• “Rights or interests that have pe-cuniary value and are transfer-able;” and21

• “More than a mere expectancy ofproperty and, even if valuable ortransferable.”22

The above-described criteria areintentionally extremely broad. Infact, the federal term “property” is abroadly construed and defined term23

so as to enable the IRS collection par-ties to gather or grasp as many as-sets as possible.24 Interestingly, Dryedid not deliver an absolute definitionof “property” and “rights of property,”but referred to prior definitionsthrough administrative analysis.25

Those definitions of property rightsbasically encompass most tangibleinterests.

The Court further reviewed five(5) common elements to property. In

order for an asset to be “property” or“right to property” under federal law,the IRS should show some of the fiveelements. The IRS does not need toshow all five elements. Proof of a fewwould suffice. Amazingly, tenancy bythe entirety (immune under statelaw) is clearly not immune under fed-eral law as it holds all five elements,which are:

1) the debtor spouse’s entireties in-terest is protected by law26;

2) the debtor’s spouse must “possess”or have “within his/her reach toenjoy” the asset27

3) the debtor spouse’s entirety shouldbe “exchangeable” and “transfer-able.”28

4) the debtor spouse’s entireties in-terest should be “valuable” at pe-cuniary value.”29

5) the debtor spouse should have abeneficial interest in the property,not just bear legal title and not amere expectancy.30

From Drye came Craft. In Craft, theCourt recreated a metaphor of havingproperty be more than just bricks andmortar or real es-tate, but charac-terized propertyas “sticks” in abundle which cu-mulatively cre-ated “property.”In Craft, thehusband’s “sticks”constituted a pos-sessory interest of“property” withinthe meaning of 26U.S.C. § 632131 ashe had the follow-ing rights:

1) The right touse the prop-erty;

2) The right toexclude thirdparties fromthe property;

3) The right to ashare of the in-come producedfrom the prop-erty;

4) The rights ofridership;

5) The right to become a tenant incommon with equal shares upondivorce;

6) The right to sell the property withthe respondent’s consent and to re-ceive half the proceeds from sucha sale;

7) The right to place an incumbranceon the property with therespondent’s consent; and

8) The right to block the respondentfrom selling or encumbering theproperty unilaterally.32

Those ownership interests com-prise what the court calls “essentialsticks in the bundle of rights that arecommonly characterized as prop-erty.”33 Craft countered that state lawprohibitions on tenancy by the en-tirety property – most importantlyCraft’s inability to unilaterally trans-fer the asset – proved that his prop-erty interest was not attachable ashis alienable interest depended uponthe termination of his marriage ei-ther by death or divorce – made hisinterest merely that of a conditionalowner. The Court responded that,

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“this court has already stated thatfederal tax liens may attach to prop-erty that cannot be unilaterallyalienated.”34 The U.S. SupremeCourt’s language can be neitherstronger nor more blunt as it broadlydefines property to be any propertyeven when such property cannot beunilaterally alienated. Such lan-guage clearly was drafted to affectentireties property as an entireties’property interest is one of a few own-ership interests that cannot be uni-laterally alienated.35

Between those two decisions, Dryeand Craft, tenancy by entirety prop-erty, under federal definitions of theterms “property” or “propertyrights,”is subject to the attack of theUnited States tax lien collectors, asopposed to private creditors; and, theU.S. tax collectors can now freely at-tach against almost all jointly heldproperties. In many critics’ minds,this conclusion was inevitable. Onecritic has claimed that prohibitingthe U.S. tax collectors from collecting

against entireties property failed forthree doctrinal reasons: (a) the IRS,not an ordinary or private creditor,has rights to collect against all prop-erties but those which are exemptedby the IRS rules or 26 U.S.C.§6334(a)36; (b) entireties property isan exemption to collection as opposedto a shield for taxpayers from federaltax liens; 37 and (c) state law on col-lection is irrelevant as one looks tostate law only to ascertain ownershipor “property” interests on the prop-erty sought to be attached by the taxlien.38

Moreover, a broadly versed clauseof 26 U.S.C. § 6334 states specificallythat unless the property is listed in §6334(a) as exempt, the property willnot be deemed exempt.39 The above-described doctrinal reasons no longerstand as the tax lien collectors’ argu-ment. The U.S. Supreme Court hasdetermined that the “bundle ofsticks” definition of property in a fed-eral context will allow the IRS liensto attach to most tangible property,with the exception being only thoseexempt under § 6334(a).40

The recent metamorphosis of thetax lien attachment has been rela-

tively quick. Infact, one could con-ceivably arguethat the Depart-ment of Justice hasvery wisely andadeptly utilizedthe appropriatecases to reach itsgoal in an admira-bly quick fashion –in a matter ofyears it has al-lowed tax liens toattach to entiretiesproperty. The utili-zation of Drye toobtain a proclama-tion by the Su-preme Court thatfederal law definesthe terms “prop-erty” or “rights toproperty” under 26U.S.C. § 6321 dras-tically inhibitedother federalcourts from utiliz-ing state conceptsof property totrump federal taxlien law and collec-

tion by the federal tax lien collector.No longer can the term “property” bereviewed under state law alone. In-stead, as stated by the SupremeCourt, the determination of whether“sticks” are “property” for the federaltax lien statute is a question exclu-sively of federal law.41

One open issue remains. The Craftcourt stated near the ending of itsopinion that an expectancy to prop-erty may or may not be “property” asdefined under 26 U.S.C. § 6321. Thecourt admitted that, “. . .we suggestedin Drye [that an expectancy] wouldnot constitute ‘property’ for the pur-poses of federal tax lien.”42 The Su-preme Court followed that, “[We donot mean to suggest] that an expect-ancy that has pecuniary value. ..would fall within § 6321 prior to thetime it ripens into a present estate.”43

The court left open this question asit stated that, “[D]rye did not decidethis question, however, nor do weneed to do so here.”44 The court con-cluded, “it is therefore not necessaryto decide whether the right to survi-vorship alone would qualify as ‘prop-erty’ or ‘rights to property’ under §6321.”45

The expectancy of property to beincluded as “property” which wouldthen be subject to attachment wouldbe the greatest victory for the tax liencollector. Expectancy of property wastangentially used as a defense to lienattachment. Mr. Craft argued thathis ownership of the entireties prop-erty was an expectancy of propertyas his ownership would not becomepronounced until he could alienatethe property. Craft concluded thatthe power to alienate the propertywould only arise upon his marriage’stermination by death or divorce. TheSupreme Court countered that en-tireties property is property underthe “sticks in a bundle” metaphoranalysis as described above.46 Thecourt countered this matter quicklyby reviewing the five (5) elements ofownership as described above [seefootnotes 25 - 29].

Within the United States SupremeCourt, the Craft ruling has its crit-ics. Justices Scalia, Stevens and Tho-mas, some of the more publishedmembers of that court on codifiedlaw, wrote strong dissents. JusticeThomas wrote that the entire opin-ion was an, “. . . amorphus construct[which] ignores the primacy of state

FEDERAL TAX LIENSfrom preceding page


law in defining property interest,eviscerates the statutory distinctionbetween ‘property’ and ‘rights toproperty’ drawn by § 6321, and con-flicts with an unbroken line of au-thority from this Court, the lowercourts, and the IRS.”47 Justice Tho-mas concluded, “I would affirm theCourt of Appeals and hold that Mr.Craft did not have ‘property’ or ‘rightsto property’ to which the federal taxlien could attach.”48

Moreover, Justice Thomas astutelyrecognized the distinction betweenDrye and its progeny with Craft. Thecases relied upon for the ruling ofCraft were Drye, supra., UnitedStates v. Mitchell, 403 U.S. 190 (1971)and United States v. Irvine, 511 U.S.224 (1994). All those cases dealt withproperty belonging to a taxpayer whothereafter utilized state law to dis-claim or exempt the property fromthe federal tax liability. For instance,in Drye, the debtor had no less thanan inchoate ownership of the intes-tate estate of his mother, but at-tempted to utilize state law to divesthimself of such interest, and create aspendthrift trust to prohibit or ex-empt the property from creditor at-tack. It is clear that at the time of thedisinheritance,49 Drye had some own-ership interest in the property andthe lien attached at the moment ofMr. Craft’s mother’s death. Drye,Irvine, and Mitchell were not con-cerned about the term “property” butwere rather looking to state laws toexempt property after the federal taxliability and the property interesthad been created.

Justice Thomas concludes that thefederal law of “property . . . creates anew federal common law of prop-erty.”50 Much to Justice Thomas’ dis-cern, federal law on “property” will bea largely litigated issue of the future.Property will no longer be an exclu-sively state issue. In federal tax liencollection practice, the definition of“property” will be reviewed exten-sively by the federal courts with anew federal jurisprudence; and, fed-eral common law will arise in defin-ing what assets are “property” towhich the lien can attach. The federalterm “property” may eventually in-clude “expectancy of property.”51

ConclusionIn states like Florida, an “absolute

bar state” for tenancy by the entirety

property, it is clear that the federaltax lien issues are now of paramountconcern. The practitioner must makeevery attempt to avoid a lien fromarising. Once that lien has arisen, theCraft decision permits that lien toattach to almost any type of entire-ties property, and the war is almostover.52 As stated by ProfessorJohnson, the tax collector is not anordinary creditor with ordinary col-lection activity.53 Instead, only thosecertain properties exempted under26 U.S.C. § 6334(a)54 are absolutelyimmune to tax attachment or collec-tion after the lien has been created.That list is modest and leaves verylittle in value to the taxpayer. Therevenue collection procedures of theInternal Revenue Service have beengreatly enhanced by the Craft rulingand addressing those issues will bevitally important for the marrieddebtor who jointly owns property inFlorida with his or her spouse.55

Endnotes:1 United States v. Craft, 535 U.S. 274, 122S. Ct. 1414, 152 L. Ed. 2d. 437 (2002)2 Having a tenancy by the entirety and prov-ing it are different issues. Proof has been es-tablished to be derived from a review as fol-lows:A viable tenancy by the entirety , with regardto either realty or personalty, must possessalways and at the same time the followingcharacteristics of form: unity of possession(joint ownership and control); unity of inter-est (the interests must be the same); unity oftitle (the interests must originate in the sameinstrument); unity of time (the interests mustcommence simultaneously); and, the unity ofmarriage.

First Nat’l Bank of Leesburg v. Hector Sup-ply Co., 254 So.2d 777, 781 (Fla. 1971)3 United States v. Gurley, 415 F.2d. 144, 149(5th Cir. 1969)4 Law of Property Act, 1925, 15 and 16 Geo.5, Ch. 20, § 37 (Eng).5 Florida, not surprisingly, is endowed withthe greatest debtor-protective entireties con-cept.6 The full bar states include Delaware, Dis-trict of Columbia, Florida, Hawaii, Indiana,Maryland, Michigan, Mississippi, Missouri,North Carolina, Ohio, Pennsylvania, RhodeIsland, Vermont, Virginia, Virgin Islands, andWyoming. The modified bar states includeArkansas, Kentucky, Massachusetts, Mon-tana, New Jersey, Oregon, and Tennessee.7 For instance, a judgment against onespouse cannot attach to property clearlyowned by husband and wife.8 Perhaps the best written opinion regard-ing the contrasting rights of a party againsttenancy by the entirety property is the FourthCircuit’s Sumy v. Schlossberg, 777 F.2d 921(4th Cir. 1985)9 See Dzikowski v. Blais, 220 B.R. 485, 490-491 (S D Fla. 1997) and In re Planas, 1998US Dist. LEXIS 20524 (S.D.Fla. 1998)

10 By operation of Michigan law11 Reasons cited in Department of Justice’sPetition for Writ of Certoriari12 See footnote 14 and 16 of Petition for aWrit Certiorari filed by the Department ofJustice, in United States v. Craft, Case No.:00-1831.13 Drye and Craft overturn U.S. v. Gurley, 415F.2d. 144 (5th Cir. 1969) and its progeny.14 See 26 U.S.C. § 7246(a)(1)15 Drye Family 1995 Trust v. United States,152 F.3d 892 (8th Cir. 1998)16 Drye, 120 S. Ct. at 48017 Drye, 120 S. Ct. at 48118 Drye, 120 S. Ct. at 48219 Drye, 120 S. Ct. at 48220 Drye, 120 S. Ct. at 48221 Drye, 120 S. Ct. at 48222 Drye, 120 S. Ct. at 48223 In Craft, the court recited language thatstated, “the statutory language authorized inthe tax lien ‘is broad and reveals on its facethat Congress meant to reach every interestin property that a taxpayer might have.’” cit-ing United States v. National Bank of Com-merce, 472 U.S., 713, at 719-720 (1985). Craft,122 S. Ct. at 1422.24 Craft,122 S. Ct. at 1422.25 Drye,120 S. Ct. at 481-48226 Drye, 120 S. Ct. at 48027 Drye, 120 S. Ct. at 48228 Drye, 120 S. Ct. at 48229 Drye, 120 S. Ct. at 48230 Drye, 120 S. Ct. at 48231 The Tax Code’s definition of attachableproperty.32 Craft, 122 S. Ct. at 1423.33 Craft, 122 S. Ct. at 1423, citing KaiserAetna v. United States, 44 U.S. 164, 176 (1979);Loretto v. Teleprompter $CATV Corp., 458 US419, 435 (1982).34 Craft, 122 S. Ct. at 1423, citing UnitedStates v. Rogers, 461 US 77 (1983)35 The other somewhat inalienable owner-ship is community property, but communityproperty is not entirely inalienable.36 Sec. 6334. - Property exempt from levy

(a) EnumerationThere shall be exempt from levy -(1) Wearing apparel and school books

Such items of wearing apparel and suchschool books as are necessary for the taxpayeror for members of his family;

(2) Fuel, provisions, furniture, and per-sonal effectsSo much of the fuel, provisions, furniture, andpersonal effects in the taxpayer’s household,and of the arms for personal use, livestock,and poultry of the taxpayer, as does not ex-ceed $6,250 in value;

(3) Books and tools of a trade, business, orprofessionSo many of the books and tools necessary forthe trade, business, or profession of the tax-payer as do not exceed in the aggregate$3,125 in value.

(4) Unemployment benefitsAny amount payable to an individual withrespect to his unemployment (including anyportion thereof payable with respect to depen-dents) under an unemployment compensationlaw of the United States, of any State, or ofthe District of Columbia or of the Common-wealth of Puerto Rico.

(5) Undelivered mail

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Mail, addressed to any person, which hasnot been delivered to the addressee.

(6) Certain annuity and pension paymentsAnnuity or pension payments under the

Railroad Retirement Act, benefits under theRailroad Unemployment Insurance Act, spe-cial pension payments received by a personwhose name has been entered on the Army,Navy, Air Force, and Coast Guard Medal ofHonor roll (38 U.S.C. 1562), and annuitiesbased on retired or retainer pay under chap-ter 73 of title 10 of the United States Code.

(7) Workmen’s compensationAny amount payable to an individual asworkmen’s compensation (including any por-tion thereof payable with respect to depen-dents) under a workmen’s compensation lawof the United States, any State, the Districtof Columbia, or the Commonwealth of PuertoRico.

(8) Judgments for support of minor chil-drenIf the taxpayer is required by judgment of acourt of competent jurisdiction, entered priorto the date of levy, to contribute to the sup-port of his minor children, so much of his sal-ary, wages, or other income as is necessary tocomply with such judgment.

(9) Minimum exemption for wages, salary,and other incomeAny amount payable to or received by an in-dividual as wages or salary for personal ser-vices, or as income derived from other sources,during any period, to the extent that the to-tal of such amounts payable to or received byhim during such period does not exceed theapplicable exempt amount determined undersubsection (d).

(10) Certain service-connected disabilitypaymentsAny amount payable to an individual as aservice-connected (within the meaning of sec-tion 101(16) of title 38, United States Code)disability benefit under -

(A) subchapter II, III, IV, V,, [1] or VI ofchapter 11 of such title 38, or

(B) chapter 13, 21, 23, 31, 32, 34, 35, 37,or 39 of such title 38.

(11) Certain public assistance paymentsAny amount payable to an individual as a

recipient of public assistance under -(A) title IV or title XVI (relating to supple-mental security income for the aged, blind,and disabled) of the Social Security Act, or(B) State or local government public assis-

tance or public welfare programs for whicheligibility is determined by a needs or incometest.

(12) Assistance under Job Training Part-nership ActAny amount payable to a participant underthe Job Training Partnership Act (29 U.S.C.1501 et seq.) from funds appropriated pursu-ant to such Act.(13) Residences exempt in small deficiencycases and principal residences and certainbusiness assets exempt in absence of certainapproval or jeopardy

(A) Residences in small deficiency casesIf the amount of the levy does not exceed

$5,000 -(i) any real property used as a residence

by the taxpayer; or(ii) any real property of the taxpayer (otherthan real property which is rented)

used by any other individual as a resi-dence.

(B) Principal residences and certainbusiness assets

Except to the extent provided in subsec-tion (e) -

(i) the principal residence of the tax-payer (within the meaning of section 121); and (ii) tangible personal property or real prop-erty (other than real property which isrented) used in the trade or business of anindividual taxpayer.37 United States v. National Bank of Com-merce, 472 U.S. 713, 722-723 (1985)38 Johnson, After Drye: Likely Attachment ofthe Federal Tax Lien to Tenancy by the En-tireties Interest, 75 Ind. L.J. 1163, 1172-1174(2000)39 Sec. 6334.(c) No other property ex-emptNotwithstanding any other law of the UnitedStates (including section 207 of the SocialSecurity Act), no property or rights to prop-erty shall be exempt from levy other than theproperty specifically made exempt by subsec-tion (a).40 The court wrote:A common idiom describes property as a‘bundle of sticks’ – a collection of individualrights which, in certain combinations, consti-tute property. State law determines onlywhich sticks are in a person’s bundle.Whether those sticks qualify as “property” forpurposes of federal tax lien statute is a ques-tion of federal law.

Craft, 122 S. Ct. at 1420.41 Craft, 122 S. Ct. at 1420.42 Drye, footnote 7 of the opinion43 Drye, 120 S. Ct. at 482.44 Craft, 122 S. Ct. at 1424.45 Craft, 122 S. Ct. at 1424.

46 Before Craft, all entireties properties werenot subject to creditor or tax attack becauseof the fact that the unilateral alienation pro-hibition of such property demanded the death(or divorce) of one spouse to make the prop-erty become vested in the name of the tax-payer or debtor which would be deemed orarguably deemed an ownership interest onlyas a right of survivorship. That right of survi-vorship did inherit the whole of the estate isthe argument of Craft that his ownership in-terest was merely an “expectancy whichwould not be property” under 26 U.S.C. §6321.47 Craft, 122 S. Ct. at 1427.48 Craft, 122 S. Ct. at 1427.49 Note, this is not a transfer according to theWestern District of Oklahoma BankruptcyCourt. In re Faulk, 281 B.R. 15 (Bankr. W.D.Ok. 2002)50 Drye, 122 S. Ct. at 1428.51 It is very likely that Justices Stevens, Tho-mas, and Scalia will absolutely rule againstincorporating expectancy of property as col-lectable or attachable property for tax lienpurposes. However, under the appropriate cir-cumstances, the Department of Justice maywant to bring the expectancy of property is-sue before the Supreme Court.52 Although the war may appear to be overto the nonbankruptcy practitioner, a Chapter13 petition allows one less jab against the IRS.In the case of In re Basher, 291 B.R.357(Bankr. E.D. Pa 2003), the bankruptcycourt allowed the debtor to strip the lien ofthe IRS pursuant to an evaluation of the se-cured claim. The secured claim’s value was“replacement value” as required under Asso-ciates Commercial Corp. v. Rash, 520 U.S. 953,138 L. Ed. 2d. 148, 117 S. Ct. 1879 (1997). Thedebtor can utilize 11 U.S.C. § 1325 (to stripthe lien). Interestingly, the court’s descriptionof the equity in the home was not an absolute50/50 split between the debtor husband andhis non-debtor spouse. The court requiredthat there be a review made under the for-mula of 50% modified by a percentage reflec-tive of the debtor’s survivorship interest asmeasured by applicable joint-life mortalitytables. As woman – according to the actuarialtables reflect – outlive their spouses, theirinterest in the entireties property is adjustedby their longer lives. Basher at 367.53 After Drye: Likely Attachment of the Fed-eral Tax Lien to Tenancy by the Entireties In-terest, 75 Ind. L.J. 1163, 1172-1174 (2000)54 See footnote 34 above.55 The homestead, although not exempt,probably will not be subjected to execution.Homesteads are specifically exempt for smalldeficiency cases. 26 U.S.C. § 6334 (a)(13)(A).

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www.FloridaTaxLawyers.org

FEDERAL TAX LIENSfrom preceding page


Is Church Bingo Legal?Thoughts on Avoiding Unrelated Business Income for Tax ExemptOrganizationsBy Adam S. Goldberg, Esq., Krause & Goldberg, Weston, Florida

Many people participate whenchurches, synagogues, fraternal or-ders, condominium associations andthe like host bingo games, often on aweekly basis. Rough estimates arethat ninety million dollars was spenton bingo last year. Bingo is so com-mon that the Internal Revenue Ser-vice (hereinafter the “IRS”) and thestate of Florida statutorily defined“bingo” beginning in 1969 and 1992,respectively.

Before answering the question ofwhether or not a tax exempt organi-zation can raise revenues throughbingo, it is important to understandthe definition of a tax exempt orga-nization. There are over thirty-eightthousand organizations that are clas-sified as tax exempt by the IRS. Ex-empt organizations were first estab-lished by the Tariff Act of 1894, whichprovided for a single category of ex-empt organizations. The InternalRevenue Code (hereinafter the“Code”) currently exempts from fed-eral income tax more than thirtytypes of organizations. The mostprevalent of these organizations are“Section 501(c)(3) organizations”which derive their name from Section501(c)(3) of the Code. Such organiza-tions include, but are not limited to,religious, charitable, educational, andscientific organizations. Section501(c)(3) organizations include bothpublic charities and private founda-tions.

Rather than being organized togenerate profits for owners or inves-tors, a tax exempt organization gen-erates resources to accomplish thepurposes for which it is organized.The focus of a tax exempt organiza-tion’s activity is outward, unselfishand directed at accomplishing a pub-lic purpose. These organizations arepermitted to engage in income-pro-ducing activity, however, such in-come-producing activity cannot beconducted with the sole intention ofproducing a return on investment; itmust also accomplish the exemptpurpose of the organization. If the or-ganization does not accomplish itsexempt purpose, it may be taxed on

any resulting income and/or have thetax-exempt status revoked, even ret-roactively.

A tax exempt organization cansave money for a new building, ex-pand operations, protect itself with areserve for lost or reduced financingor do any other activity for any validreason that serves its exempt pur-poses. A tax exempt organizationunder Section 501(c)(3) must be or-ganized and operated “exclusively”for a proper exempt purpose as de-scribed in the Code. The IRS inter-prets the term “exclusively” as mean-ing that the organization mustoperate primarily to further exemptpurposes. Thus, “exclusively” doesnot mean one hundred percent and“primarily” could mean a little morethan fifty percent. In each case wherethe IRS questions the activity of aSection 501(c)(3) organization, theIRS examines the facts and circum-stances on a case by case basis. Thus,there are few firm guidelines thatexist to provide guidance in this area.

A charitable contribution for pur-poses of Code Section 170 is a volun-tary gift or transfer of money or prop-erty that is made with no expectationof procuring a financial benefit com-mensurate with the amount of thetransfer. See H.R. Rep. No. 1337, 83rd

Congress, 2d Sess. A44 (1954); S. Rep.No. 1622, 83rd Cong., 2nd Sess. 196(1954).

Code Section 512(a)(1) defines un-related business income as the grossincome derived by any organizationfrom any unrelated trade or businessregularly carried on by the organiza-tion less the deductions which aredirectly connected with the carryingon of such trade or business. Thereare three requirements that must bemet in order for an activity to consti-tute an unrelated trade or business,the income from which is taxable toa tax exempt organization:

1. The activity must constitute atrade or business.

The definition of “trade or busi-ness” under Code Section 513 coin-cides, practically word for word, with

the definition under Code Section162, which deals with trade or busi-ness expenses. The Supreme Courtreviewed the definition of the term“trade or business” in Commissionervs. Groetzinger, 480 U.S. 23 (1987). InGroetzinger, the court held that inorder to constitute a trade or busi-ness under Code Section 162, the tax-payer must be involved in the activ-ity “with continuity and regularity.”The Supreme Court declined to for-mulate an all-purpose test for defin-ing “trade or business” and limited itsdecision to the facts of the case. TheTax Court, however, quickly adoptedthe Groetzinger definition for pur-poses of unrelated business income.See also National Well Association v.Commissioner, 92 T.C. 75 (1989).

2. The trade or business must beregularly carried on.

In determining whether this ele-ment has been met, the IRS refers tothe frequency and continuity withwhich the activity is conducted andthe manner in which it is pursued.Pursuant to Treasury RegulationSection 1.513-1, if the activity mani-fests a frequency and continuity andis pursued in a manner generallysimilar to a comparable activity of afor-profit organization, the activity isregularly carried on.

3. The trade or business must notbe substantially related to theorganization’s exempt purpose.

Code Section 513(a) defines unre-lated business as any business theconduct of which is not substantiallyrelated to the exercise or perfor-mance by such organization of itscharitable, educational or other pur-pose. Pursuant to Treasury Regula-tion Section 1.513-1(d)(2), an activityis not “substantially related” to theorganizations’s exempt purpose orpurposes unless the activity “contrib-utes importantly” to the accomplish-ment of its exempt purposes. Pursu-ant to Sound Health Association v.Commissioner, 71 T.C. 158, 190(1978), acq., 1981-2 C.B. 2., because a

continued...


Section 501(c)(3) organization servesa public rather than a private inter-est, the class of persons to be benefit-ted by the activity must be suffi-ciently large so that it can betruthfully said that the public is be-ing served. As an example, TreasuryRegulation Section 1.513-1(d)(4)(iv),Example 4, provides that the opera-tion of a radio station by a tax exemptorganization whose purpose is to pro-mote public interest in classical mu-sic furthers the organization’s ex-empt purpose, but the sale ofadvertising time and services to com-mercial advertisers in the same man-ner as an ordinary commercial radiostation generates income from anunrelated business.

Under U.S. v. America Bar Endow-ment, 477 U.S. 105 (1986), the Su-preme Court held that the undis-puted purpose of the rules regardingunrelated business income is to pre-vent tax-exempt organizations from

competing unfairly with businesswhose earnings were taxed.

Code Section 511 imposes a tax onthe unrelated business taxable in-come of organizations exempt fromtax under 501(c). This poses the ques-tion, can a tax-exempt organizationraise revenues through the use ofbingo games without paying taxes onthe revenues raised? In order to an-swer this question, we must first de-fine the term bingo.

Bingo is defined in Code Section513(f)(2)(A) as any game where wa-gers are placed, the winners deter-mined, and the prizes distributed, allin the presence of the persons play-ing the game. Section 513(f)(2)(A) alsorequires that the game may not be anactivity ordinarily carried out on acommercial basis and that it must notviolate any state or local law.

Florida Statute Section 849.0931defines bingo as an activity whereparticipants pay a sum of money forthe use of cards. These cards areused, when the game commences, tobe covered or marked as numbers(marked 1-75) are drawn by chance,

one by one, and an-nounced. The gameends when a playerreceives a given or-der of numbers in apre-announced se-quence. For a chari-table organizationto hold a bingo ses-sion, the followingrules must be fol-lowed:

• The charity mustbe in existence andactive for at least 3years;

• The bingo jack-pots can not exceed$250 in value;

• No more thenthree (3) jackpots onany one day of playare allowed, nonjackpot games arelimited to a prize of$50 per game;

• Bingo sessionsmay be held nomore than twice aweek;

• No one under theage of 18 may par-

ticipate on be involved in the run-ning of a bingo game;

• Bingo games must be held on theproperty of the organization, onthe property that will receive thebenefit of the bingo proceeds or onproperty leased to the organiza-tion for 1 year or more;

• Vocal announcement must bemade of the numbers in the win-ning pattern; and

• Municipalities may add additionalrestraints.

Failure to abide by these rules canresult in a first degree misdemeanorcharge; a second offense is a 3rd de-gree felony.

In Julius M. Israel Lodge of B’naiBrith No 2113 v. Commissioner, 98F.3d 190 (1996), the Fifth CircuitCourt of Appeals affirmed the TaxCourt’s holding that an instant bingoactivity was neither substantiallyrelated to the organizations exemptpurposes nor was a bingo game un-der Code Section 513, even thoughTexas state law classified the gameas bingo. In this case, the partiesstipulated to the definition of “In-stant Bingo:” a game of chance inwhich an individual places a wagerby purchasing an Instant Bingo cardthat is preprinted with bingo cardpatterns and is covered with sealedpull tabs. To determine whether aprize is payable, the player pulls tabsfrom the front of the card and com-pares the preprinted patterns thathave been revealed with those pre-printed on the reverse. If the card isa winner, the player takes the cardto a cashier or usher and collects hisprize. The Fifth Circuit held that In-stant Bingo was not any game ofbingo since the winners were not de-termined in the presence of all per-sons placing wagers in such games.

Federal and Florida law allow forchurches, synagogues, and the like tohost bingo games. However, strictrules apply and every organizationconducting bingo should make certainthat the individuals running the bingosessions are aware of the laws regu-lating such sessions Though the IRSwill not consider revenues raised frombingo as unrelated business income,every tax-exempt organization shouldkeep in mind the unrelated businessincome rules “B-4" embarking on anynew revenue generating event.

CHURCH BINGOfrom preceding page


continued...

What IRS Form 8082 Can Do For You(and to you!) Now That the IRS’ K-1Matching Program is UnderwayBy T. Scott Tufts, Esq., Lowndes, Drosdick, Doster, Kantor & Reed, P.A., Orlando, Florida

With the IRS’ announcement ear-lier this year in IR 2003-271 that theIRS is resuming a program that willmatch information from SchedulesK-1 (hereafter “K-1”) filed by pass-through entities (partnerships, S cor-porations, and trusts) to what thepartners, shareholders, and benefi-ciaries report on their own returns,tax practitioners advising closely-held general or limited partnerships,LLCs, LLPs, or LLLPs (hereafter“Pass-Thru Entity(ies)”)2 and/or theirconstituents need to remain on theirtoes.3 By closely-held, reference ismade to those Pass-Thru Entitiesconsisting of 10 or fewer partners ormembers.4 As if mastering Subchap-ter K were not enough of a dauntingtask, tax practitioners might not re-alize just how critical it is to have astrong working knowledge of the uni-fied audit procedures under the TaxEquality and Fiscal ResponsibilityAct of 1982, as amended over theyears and as codified as SubchapterC of Chapter 63 of the Internal Rev-enue Code (“Code”), Sections 6221 to6234 (hereafter “TEFRA”).

Indeed, tax practitioners who as-sist in the formation of any Pass-Thru Entity, even those closely-held,need to be familiar with all of thedetails of the federal partnership taxreturn (“Form 1065”) and the accom-panying K-1s, including sections thatspecifically address applicability ofTEFRA’s unified audit procedures. Inparticular, Questions 2 and 4 ofSchedule B on the Form 1065 locatedon page 2 of the form direct thepreparer to answer “yes” or “no” tothe following questions:

2. Are any partners in this partner-ship also partnerships?

4. Is this partnership subject to theconsolidated audit procedures ofsections 6221 through 6233? If“Yes,” see Designation of Tax Mat-ters Partner below.

In Schedule B, the IRS ensures

that it is only with respect to thosePass-Thru Entities in which the “yes”box is indicated on Question 4 ofSchedule B that one is to proceedwith the designation of a tax matterspartner (“TMP”), by providing addi-tional information at the bottom ofthe page in Schedule B, as follows:5

Designation of Tax Matters Partner(see page 21 of the instructions)

Enter below the general partnerdesignated as the tax matters part-ner (TMP) for the tax year of this re-turn:

Name of designated TMP:Identifying number of TMP:Address of designated TPP:

In recent years, this particularauthor has observed an alarmingnumber of Form 1065s in which the“no” box has been checked on Ques-tions 2 and 4 of Schedule B of theForm 1065 (page 2), even though K-1s have been issued to partnerships(including land trusts treated as suchfor federal tax purposes), trusts (evengrantor trusts),6 LLCs (even single-member LLCs),7 and S corporations.8

By this, one suspects that many taxreturn preparers have only a vagueunderstanding of TEFRA, with littleregard for the kind of complicationsthat may arise when TEFRA’s proce-dures are imposed upon the Pass-Thru Entity and all of its membersor partners, including members orpartners ultimately impacted inlower tier entities (called “indirectpartners”). For example, when taxreturn preparers for these Pass-ThruEntities discover that errors havebeen made on the original Form 1065,a hasty, but erroneous assumptionmay be made just to file an amendedForm 1065, accompanied by amendedK-1s. However, if the Pass-Thru En-tity in question is reasonably deter-mined by the IRS to be an entity sub-ject to TEFRA (hereafter “TEFRAEntity”), then this approach is notpermitted.9 Instead, in such circum-stances, TEFRA mandates the filing

of the Form 8082, Notice of Inconsis-tent Treatment or AdministrativeAdjustment Request (AAR). Thisform effectively serves as a writtenrequest by the TMP for permissionfrom the IRS to amend the originalForm 1065. Indeed, literal compli-ance with the Form 8082 filing re-quirements seems to be required,10 asbelated efforts to cure any defectsmay be invalid.

Section 6231(a)(1)(B): The SmallPartnership Exemption & Rev.Rul. 2003-69

Tax advisors for many closely-heldPass-Thru Entities may just assumethat the entity qualifies for the smallpartnership exemption from TEFRAunder Code Section 6231(a)(1)(B) byhaving 10 or fewer partners. How-ever, this exemption only applieswith respect to partners who are in-dividuals (other than a nonresidentalien), a C corporation, or an estateof a deceased partner, with a husbandand wife (and their estates) treatedfor these purposes as 1 partner. So, ifa partner (i.e., member) in a Pass-Thru Entity is itself a partnership,LLC (taxed as a partnership, or alter-natively, as a disregarded entity oraffirmatively electing its way into Scorporation status), or trust (even arevocable one), then the small part-nership exemption will not apply andthe Pass-Thru Entity will be subjectto TEFRA.

Practitioners may be under theimpression that TEFRA’s unified au-dit procedures are intended for largetax-shelters. Nevertheless, when en-acting the TEFRA audit procedures,Congress cast a larger net, exceptingfrom its provisions only those CodeSection 6031(a) partnerships meet-ing the specific requirements of thesmall partnership exemption. Moreparticularly, Congress enacted thesmall partnership exemption to en-sure that only “simple” partnershipswould be excepted, and by simple,


K-1 MATCHING PROGRAMfrom preceding page

Congress meant those partnerships“whose members treat themselves asco-ownerships rather than partner-ships in which each co-owner re-solved his or her own tax responsi-bilities separately as an individualwith the IRS.”11 Thus, Congress rec-ognized the difficulties in having todeal with separate proceedings andhow potentially inconsistent resultscan arise even within the context ofvery small partnerships. Congressperhaps understood that relativelyfew partnerships can truly be said tobe “simple.” For these reasons, a nar-row construction of the small part-nership exemption apparently ismandated.12

Practitioners trying to make thesmall partnership exception call cantake some comfort in the recently is-sued Revenue Ruling 2003-69.13 Inthis ruling, the IRS addressed thequestion as to whether the smallpartnership exception applied to apartnership having either a tax-ex-empt organization or a foreign corpo-

ration as one of its partners.14 In look-ing to Treasury Regulation Section301.6231(a)(1)-1 (effective for part-nership tax years beginning on orafter October 4, 2001), the IRS firstexamined Code Section 1361(a)(2) forthe definition of a C corporation, bywhich a corporation was defined tomean all corporations which were notS corporations. By further referenceto the definition set forth in CodeSection 7701(a)(3) and the accompa-nying regulations under Regs. Sec-tion 301.7701-2(b), including Regs.Section 301.7701-3(c)(1)(v), the IRSthen made it known in the rulingthat if all of the named partners inthe partnerships at issue are eitherindividuals (other than a nonresidentalien) or C corporations (whetherdomestic or foreign), or tax-exemptorganizations under Section 501(a) ofthe Internal Revenue Code, suchpartnerships shall qualify for thesmall partnership exemption.

Section 6231(g) & the ReasonableDetermination Standard

Prior to 1997, the IRS found it dif-ficult to determine whether or not anentity treated for federal tax pur-

poses as a part-nership qualifiedfor the small part-nership exemp-tion from TEFRA.While partnershiptax returns maysuggest that aclosely-held Pass-Thru Entity exists(i.e., with fewerthan 10 partners),the IRS often hadno way of knowingwhether or notany of the part-ners were nonresi-dent aliens. If thisled the IRS to ap-ply the wrong pro-cedures, this couldjeopardize theirassessment due toeither the expira-tion of the appli-cable statute oflimitations or acourt’s lack of ju-risdiction over theitem at issue.

With enact-ment of the Tax-

payer Relief Act of 1997, and in par-ticular, Code Section 6231(g), Con-gress empowered the IRS to makereasonable determinations govern-ing the applicability of TEFRA, vis-à-vis the small partnership exemp-tion. This provision permits the IRSto apply TEFRA’s audit procedures if,based on the partnership’s return forthe year, the IRS reasonably deter-mines that those procedures shouldapply. Similarly, the provision per-mits the IRS to apply the normal de-ficiency procedures if, based on thepartnership’s return, the IRS reason-ably determines that those proce-dures should apply.

The IRS anticipates that the rea-sonable determination standard islikely to be a source of litigation inthe future.15 Thus, IRS personnel areadvised that they must be reasonablyassured that the information on thepartnership tax return they review iscorrect. If the IRS knows that a part-ner in a given Pass-Thru Entity is aparty ineligible for the small partner-ship exemption, then it will not bepossible for the IRS to “reasonablyrely” on the face of a partnership re-turn suggesting potential applicationof the exemption.16

TEFRA ConsistencyRequirements & Form 8082

Consistency requirements underTEFRA are of critical importance forthe “partners” in a closely-held Pass-Thru Entity that fall outside of thesmall partnership exemption. UnderCode Section 6222(a), each partner ina TEFRA partnership must file anincome tax return that is consistentwith the partnership’s Form 1065with respect to the reporting of thepartner’s distributive share of part-nership items (i.e., it must have thesame amount, the same characteriza-tion, the same timing) unless thepartner disagrees with the entity’sreporting of the partner’s distributiveshare of partnership items and takesaffirmative, prompt action to eithernotify the IRS of his election to treata partnership item inconsistentlywith the treatment on the Form 1065or otherwise request an administra-tive adjustment of the partnershipitems in question. Once again, tax-payers comply with this duty by wayof the filing of IRS Form 8082, check-ing the box marked “notice of incon-sistent treatment” and complying


with the instructions as to thecompletion of the form. Absent thetaking of such affirmative action bythe impacted “partner,” the IRS mayimmediately assess a deficiencyagainst any partner treating a part-nership item inconsistently with theentity’s treatment of those items, anddo so without notice, as a computa-tional adjustment.

If a partner desires to take a posi-tion on his or her return inconsistentwith a position taken on the closely-held Pass-Thru Entity’s Form 1065,he or she needs to use the correctform (i.e., Form 8082), as the merefiling of a Form 1040X is not suffi-cient for these purposes.17 In addi-tion, if a partner does nothing in re-sponse to the receipt of an erroneousK-1, this could prove fatal. For ex-ample, in Blonien,18 the Tax Courtnoted that by failing to file a Form8082 after receiving a K-1 from thelaw firm partnership, the taxpayerwas deemed to have accepted the po-sition stated on the K-1 he received(i.e., that Mr. Blonien was a “part-ner”). By doing nothing, the courtfound that the taxpayer deprived theIRS of the opportunity to address theissue before the expiration of thestatute of limitations period, andthereby, waived the right to take aninconsistent position on their return.In these situations, the taxpayer willnot have standing to assert that theyhave been deprived of due process.Assuming that the partner properlyfiles a Form 8082 calling sufficientattention to the inconsistency, theIRS then has the option of: (1) con-verting all “partnership items” aris-ing from the partnership into“nonpartnership items” and resolv-ing them at the partner level by sonotifying the partner under Section6231(b)(1)(A); or (2) determining theitems at the partnership level whileallowing the inconsistent treatment,pending the conclusion of the part-nership-level TEFRA proceedings.19

Or, presumably, the IRS may do noth-ing and leave the partners in a stateof quandary.20

A partner is protected from a com-putational adjustment only with re-spect to those partnership items theinconsistent treatment of which isreported. If a partner notifies the IRSwith respect to one item but fails toreport the inconsistent treatment ofanother item, the partner is subject

to a computational adjustment withrespect to that other item.21

The Regulations do not provide fora specific time period for filing theForm 8082. However, they do incor-porate by reference the instructionswhich accompany the form.22 In theInstructions for Form 8082, taxpay-ers are instructed to file the notice ofinconsistent statement with theiroriginal return. For these reasons, afailure to file a Form 8082 on a timelybasis (i.e., presumably with the filingof the taxpayer’s original return or inresponse to an amended K-1) mayrender any belated filing of such no-tice ineffective for purposes of theseconsistency rules.23

For those taxpayers far removedfrom the Pass-Thru Entity, but quali-fying as “indirect partners” vis-à-visthe source partnership, the consis-tency requirements are particularlyonerous.24 To qualify, the inconsis-tency that must be reported to theIRS is the inconsistency between the

indirect partner’s treatment of theitem in question and the sourcepartnership’s treatment of thatitem.25 The mere reporting of an in-consistency between the indirectpartner’s treatment of an item andthe pass-thru entity’s treatment ofthat item is inadequate to qualifyunder the rule, as only a notice of in-consistent treatment filed by thepass-thru entity which identifies theinconsistency of treatment with apartnership item coming from thesource partnership will act to protectany such indirect partner otherwisereporting consistently with regard tothe treatment of that item by thepass-thru entity through which theindirect partner holds his or her in-terest in the source partnership.26

Thus, for all partners (even indi-rect partners) acting in due regard tothe consistency requirements underTEFRA, identification of “partner-ship items” is critical. In defining the

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For more information contact: Donna Byrd @ 850/561-5630 [email protected].

October 24 & 25, 2003Family Limited Partnerships-Transfer Tax Planning DuringGood, Bad, Ugly & Uncertain

Times (CLE)and

Tax Section Fall MeetingHyatt Grand Tampa Bay, Tampa

January 16, 2004Tax Section Directors Meeting

Hyatt Regency, Miami

January 22 & 23, 200422nd Annual International Tax

Conference (CLE)Miami

February 5 & 6, 2004State Tax Conference (CLE)

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February 5-7, 2004Tax Section’s National Moot

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April 23 & 24, 2004Tax Section’s 26th Annual

Meeting & EducationalInstitute

PGA National ResortPalm Beach Gardens

May 14, 2004Annual Wealth Protection

Conference (CLE)Miami

July 2-4, 2004Tax Section Organizational

MeetingAmelia Island Plantation

continued...


term broadly, Congress refers to a taxitem “more appropriately determinedat the partnership level than at thepartner level.”27 While partnershipitems are subject to TEFRA’s central-ized audit procedures located in Sub-chapter C of Chapter 63 of the Code,

the tax treatment of nonpartnershipitems is to be determined at the levelof the individual partner’s return,pursuant to the normal notice of de-ficiency procedures of Subchapter Bof Chapter 63, Sections 6211 to 6216.

These provisions are mutually ex-clusive, which poses considerableheadaches for any practitioner tryingto determine whether or not a par-ticular item should be classified as a“partnership item.”28 In the past,

courts have stated that the “hallmarkof a partnership item is that it affectsthe distributive shares reported toother partners.”29 In other words, if apurported assessment arises from adetermination that has no impact onthe Pass-Thru Entity’s aggregate in-come, gain, loss, deductions, or cred-its, or on the other partners’ sharesof the income, gain, loss, deductions,or credits of the entity, courts haveviewed such items as nonpartnershipor affected items, disengaged from aTEFRA proceeding.30 However, thisreasoning now appears to have beenrejected by the 10th Circuit Court ofAppeals in Katz v. Commissioner,31

notwithstanding possibly soundpolicy reasons for not requiring a full-blown partnership-level TEFRA pro-ceeding when an alleged error in onepartner’s return with respect to apartnership item affects only oneother taxpayer, rather than all of thepartners.

If identifying “partnership items”were not difficult enough of a task forthe tax practitioner, Code Section6230(a)(2)(A) of TEFRA authorizesthe IRS to issue notices of deficiencywith respect to “affected items whichrequire partner level determina-tions” or for items which have becomenonpartnership items (for e.g.,through events of conversion or spe-cial enforcement considerations).32

Two types of affected items can comeinto play, but only after the underly-ing partnership item(s) is finally de-termined: (1) computational affecteditems which follow from the result ofa partnership level proceeding; and(2) affected items which may requirefactual development at the partnerlevel.33 Even if an item is identifiedas a “partnership item” (as opposedto an “affected item” or as a“nonpartnership item”), questionscan then arise as to whether someaction has occurred to convert theitem to a “nonpartnership item,” re-moving it from TEFRA consider-ation.34

Amending Partnership Items onPartnership Returns (UsingForm 8082)

When the small partnership ex-emption does not apply, Pass-ThruEntities and their constituent mem-bers or partners will be surprised tofind that TEFRA’s procedures do notallow for the mere filing of an



Special Thanksto the sponsors of the 2003-2004

Organizational Meeting held July 3-5, 2003 at Amelia Island Plantation

PlatinumBessemer Trust

Management Planning, Inc. (MPI)Poole, Carbone & Eckbert

GoldWachovia Wealth Management

SilverAmerican Financial Advisors, Inc.

Bernstein Investment Research & ManagementDeutsche Bank Private Wealth Management

First Financial ResourcesFlah & Company

Ken Hackett & Associates, Inc.Lafayette Insurance

LexisNexisNationwide Insurance

Shafe Group, Inc.Wilmington Trust

amended return below the IRS radarscreen. Instead, the entity must re-quest permission from the IRS to al-low for it to adjust its return. This isdone through the filing of an admin-istrative adjustment request (AAR),using Form 8082, and the proceduresset forth under Code Section 6227.The Form 8082 can be filed at anytime before the expiration of the stat-ute of limitations periods under CodeSection 6229(a) (as extended by CodeSection 6229(b)), but must be filedbefore the FPAA is mailed to the TMPfor that year.35 The AAR can be filedby the TMP on behalf of the Pass-Thru Entity, or alternatively, by anyother partner (i.e., indirect partner)on his own behalf. If the TMP filesthis AAR on behalf of the entity, theTMP can request that the AAR betreated as a substituted return, usu-ally done when the entity is report-ing an increase in taxable income oris reporting an increase or decreasein taxable income resulting from amathematical or clerical error.36

Alternatively, the TMP can file anAAR that is not treated as a substi-tuted return on behalf of the partner-ship. This type of AAR is used to re-port a reduction in partnershipincome which generates a refund tothe partners. Under Code Section6227, the IRS has several options indetermining how to respond to thistype of AAR. The IRS can allow thecredits or make refunds with respectto any or all of the changes requested(i.e., treat this AAR as a substitutedreturn), conduct a partnership-levelaudit, or take no action.37

Finally, any partner may file anAAR on his or her own behalf. If filed,the IRS may process the request asif it were a claim for refund or creditbased on a nonpartnership item, as-sess any additional tax resultingfrom the requested change, mail anotice to the partner that all partner-ship items for the year in questionwill thereafter be treated asnonpartnership items and resolvedat the partner level, or conduct apartnership audit. If a partner filesa Form 8082 AAR, it must be filed induplicate, with the original filed withthe partner’s amended income taxreturn and the other copy filed withthe IRS Service Center where thepartnership return is filed.38

If the IRS disallows all or part ofan AAR, the TMP or the other part-

ner filing the AAR has limited re-course. Under the procedures for ju-dicial review under Code Section6228, if the AAR was filed by the TMPon behalf of the partnership, the TMPcan file a petition for adjustmentwith the Tax Court, the federal dis-trict court, or the Claims Court. Thispetition must be filed within twoyears, but no earlier than six monthsafter the filing of the AAR. If the IRSnotifies the TMP or partner that allpartnership items have been con-verted into nonpartnership items,then the AAR is treated as a claim forrefund and the partner can bring acivil action for refund within 2 yearsafter the mailing of the IRS notice.Absent such notification of conver-sion, the partner will have to sue fora refund in a civil action and oncecommenced, all partnership itemsare reclassified as nonpartnershipitems. Again, any such action canonly be filed after the expiration ofthe six month period subsequent tothe filing of the AAR, but it must befiled within two years of the filing

date of the AAR.

Nominee Reporting Issues &the Unidentified Partner Rules

In practice, tax return preparersmay wonder if they might not be ableto bypass all of these TEFRA issuesthrough the mere use of a qualifyingindividual’s taxpayer identificationnumber or by claiming later on thatan individual or some other eligibleperson or entity is the de facto part-ner, under a nominee theory of re-porting. A closer analysis raises sig-nificant doubts as to whether thiswill protect against falling outside ofthe small partnership exemption ifan otherwise ineligible pass-thru en-tity is named as the “partner” on theK-1.

For starters, TEFRA defines “part-ner” broadly under Code Section6231(a)(2), to include not only a part-ner in the partnership, but also anyother person whose income tax liabil-ity is determined in whole or in partby taking into account directly or in-

continued...


directly partnership items of thepartnership, and the fact that onedoes not receive a K-1 does not meanthat they are home free from “part-ner” status.39 Second, use of nomineetheory to claim some unidentifiedindividual as the true, beneficialowner imposes affirmative reportingrequirements on the person to whomthe K-1 is delivered from the Pass-Thru Entity. According to the IRSInstructions to the Form 1065, anyperson who holds, directly or indi-rectly, an interest in a partnership asnominee for another person must fur-nish a written statement to the Pass-Thru Entity by the last day of themonth following the end of the Pass-Thru Entity’s tax year. This state-ment must include the name, ad-dress, and identifying number of thenominee and such other person, plusdescribe the partnership interestheld as nominee for such person, andany other information required bythe Regulations.40 If the nomineefails to do so, then he or she must fur-nish to the person for whom thenominee holds the interest a copy ofthe K-1 and related informationwithin 30 days of receipt.41

In addition, in light of Katz andBlonien and assuming the small

partnership exemption does not oth-erwise apply, a Form 8082 may needto be filed out of risk (or fear) that byfailing to do so, an admission of ac-ceptance will be made as to the “real”status of the partner/nominee iden-tified on the K-1. Furthermore, a spe-cial statute of limitations provisionexists under TEFRA with regard tounidentified partners, making it dif-ficult for a practitioner to advise anypotentially unidentified partner (in-cluding, perhaps, any indirect part-ners) as to whether the statute hasstarted to run. Under Code Section6229(e), absent the filing of the Form8082 (or other qualifying notifica-tion), the statute of limitations periodfor partnership items (or affecteditems) shall not expire with respectto the unidentified partner before thedate which is one year after the dateon which the name, address, and tax-payer identification number is fur-nished to the IRS.42

Practitioners wishing to make themost of the nominee K-1 game mustbe sensitive to the standards underCircular 230 for advising their clientswith respect to tax return positionsand for preparing and signing re-turns.43 These practitioners mustkeep in mind that the reporting re-quirements reflected in the instruc-tions incident to the preparation ofthe Form 1065 and K-1s (and Form8082) are incorporated by reference

into the TEFRA provisions.

Concluding Thoughts forPractitioners

Few practitioners dealing respon-sibly with closely-held Pass-Thru En-tities can escape the potential appli-cation of TEFRA. For example,transactional lawyers who accede tothe desires of individual or corporateprincipals to place their ownershipinterests in a Pass-Thru Entity insome kind of separate shell entity,whether a wholly-owned S corpora-tion or LLC (or even in a family lim-ited partnership, LLLP, or LLP), re-gardless of motivation, soon realizethat by this restructuring of interestsalone, TEFRA’s provisions are backinto play. In such cases, a failure tohave anticipated TEFRA’s applicabil-ity in the governing documents couldprove to be a disaster. Similarly, es-tate planning lawyers must recognizethat a simultaneous or subsequentestate planning transfer of member-ship or partnership interests to agrantor trust or single-member LLCbrings TEFRA into play in the taxyear of the change in ownership. Forbankruptcy attorneys, potentialTEFRA headaches abound, whetheras a result of the filing by an indi-vidual partner of a Chapter 7 bank-ruptcy petition and the problems evi-denced by the Katz decision, workoutsituations, or otherwise. For familylaw practitioners, TEFRA’s provi-sions can arise when married couplesfight it out over interests in a Pass-Thru Entity which itself holds inter-ests in other Pass-Thru Entities,whether because of innocent spouseprotections or otherwise. For the re-turn preparer or CPA who mightcovet the work of the entity and allof its principal constituent membersor partners, TEFRA’s consistency re-quirements alone present many di-lemmas.44

With the K-1 matching programunderway45 and the IRS empowered,via Code Section 6231(g), to reason-ably rely on the face of the Pass-ThruEntity’s Form 1065, and, in particu-lar, the names appearing on the re-turn and K-1, practitioners need toassist the Pass-Thru Entity and itsconstituents to make the properTEFRA “small partnership” call onthe front end, through proper duediligence that may need to carrythrough past the return preparation

Tax Section Bulletin 2003 - 2004Publication Guidelines

The Tax Section Bulletin will be published three time during the 2003-2004 fis-cal year, in the Fall, Winter and Spring. The Bulletin welcomes articles devotedto areas of professional interest to the Tax Section’s members, including sub-stantive and procedural law, activities of the Section and its committees, andtax policy. Topic proposals and articles should be submitted to the editor(s) ofthe Bulletin. Submissions must be made in electronic form, either on a 3 ½ ”diskette or by e-mail. Deadlines for submissions to the editors are:

Issue Topic Submission Article SubmissionDeadline Deadline

Winter December 5, 2003 December 19, 2003Spring/Summer March 24, 2004 April 9, 2004

Editorial Policies: The Bulletin does not edit articles for substance. The Bulletinreserves the right to edit articles for form (grammar, consistency, etc.), and torefer articles to the Federal Tax or State Tax Divisions for substantive review.The Bulletin encourages the fair use of its content, and does not generally ac-cept copyrighted material for publication.



phase. Ideally, possible application ofthe TEFRA audit procedures shouldbe addressed in the operating or part-nership agreement, beginning withthe entity’s proper designation of aneligible tax matters partner.46 Yet,even then, the ethical implications ofTEFRA’s provisions should not beoverlooked, with TEFRA’s consis-tency requirements bringing forththe potential for serious conflicts ofinterest to arise from the outset of anentity’s formation.47

For those practitioners with cli-ents that wish to game the system inthe post-Enron era, scoffing perhapsat TEFRA, there is the friendly re-minder of the tax return preparerpenalties that can be imposed inthese settings and the requirementsunder Circular 230.48 For the rest ofthe practitioners with clients thatdesire to deal responsibly with thepotential application of TEFRA’s pro-visions, there is the scary realizationthat even mistakes made by the taxreturn preparer when filing the Pass-Thru Entity’s federal income tax re-turn (i.e., Form 1065, and accompa-nying Schedule K-1) mayunknowingly subject one of their oth-erwise exempt client Pass-Thru En-tities (and all of its members or part-ners) to TEFRA’s unyieldingprocedures, especially the ever-dan-gerous consistency requirements.49

Now, with decisions like Katz andBlonien, the message is clear. Practi-tioners merely having a vague appre-ciation for TEFRA and the smallpartnership exception under Section6231(a)(1)(B) of the Internal RevenueCode will assume, at their peril,50

that TEFRA’s rules are limited tolarge tax shelters.

Endnotes:1 IR News Release 2003-27 (3/10/03) (remind-ing taxpayers and tax professionals of properspecific reporting and providing tips on howto avoid making errors related to K-1, whichincludes specific reference to the need to fileIRS Form 8082 when the small partnershipexemption does not apply) .2 For purposes of this article, the author re-fers to “closely-held” Pass-Thru Entities tomean limited liability entities with 10 orfewer members or partners potentially eli-gible for the small partnership exemption.3 Congressional leaders recently wrote to IRSCommissioner Mark Everson, expressingtheir views that the “success of the K-1Matching Program depends on the IRS’s abil-ity to develop a program that identifies tax-payers who are not meeting their tax obliga-tions while (at the same time) imposing the

least inconvenience possible on complianttaxpayers and small business owners.” “IRSK-1 Matching Program Must Not BurdenSmall Business, Snowe and Bond TellEverson,” BNA Daily Tax Report, No. 132 (7/10/03), at p.G-12 (further discussing GAO’sReport, GAO-03-667, released on May 30,2003, and entitled, “Tax Administration:Changes to IRS’ Schedule K-1 Matching Pro-gram Burdened Compliant Taxpayers,” andGAO’s efforts to assess the matchingprogram’s effectiveness at detecting and de-terring noncompliance); but see, Goldwyn,“IRS Researchers Using Schedule K-1 Datato Identify and Target Abusive Transactions,”BNA Daily Tax Report, No. 113 (6/12/03), atp.G-3 (suggesting that IRS’ study of abusivetax shelters and further analysis of K-1s arecritical to uncover noncompliance, after Con-gress authorized the IRS to transcribe K-1sbeginning with the 2000 tax year--somethingit had not done since tax year 1995).4 For an example of a two-partner limitedpartnership (consisting of an apparently af-filiated general partner and one limited part-ner) governed by TEFRA, see Mas One Lim-ited Partnership v. United States, 92A.F.T.R.2d 2003-5516 (S.D.Ohio 7/10/03) (IRSissues NFPAA with respect to partnership’s1994 tax return in November of 2000; case re-solved through summary judgment, in favorof the IRS).5 Quite often, tax return preparers go on toplace the names of non-qualifying persons asthe “TMP” at the bottom of page 2, which willbe treated by the IRS as if no TMP has beenappointed by theentity, further en-abling the IRS tomake their owndesignation of aTMP for the en-tity. Since onlythe IRS can ap-point an indirectpartner as a TMP(e.g., a non-mem-ber manager whois also an indirectpartner), this des-ignation powercould come asquite a surpriseto the unsuspect-ing designee, whomust then worryabout all of thepractical andethical problemsthat accompanysuch designationas a TMP. See,Mather, 624 T.M.(BNA), Audit Pro-cedures for Pass-Through Entities,at A-16.6 See, FSA199938016 (9/24/99) (discussinghow IRS could notaccommodate de-sires of grantortrust partnerswho wanted tohave the IRS helpthem to elect out

of TEFRA by intentionally issuing an un-timely notice of final partnership administra-tive adjustment less than 120 days after is-suing notice of beginning of administrativeproceeding); see also, Primco Management Co.v. Commissioner, T.C.Memo 1997-332 (S cor-poration whose sole shareholders were 2grantor trusts didn’t qualify for “small S corp”exception to the then-in-effect unified S cor-poration audit and litigation procedures).7 For an example of a two-member LLC find-ing TEFRA applicable because of the presenceof a single-member LLC, see CCA 200250012(relying on fact that “Section 6231(a)(9) de-fines a ‘pass thru’ partner as ‘a partnership,estate, trust, S corporation, nominee or othersimilar person through whom other personshold an interest in the partnership,” to showCongressional intent to make the TEFRA pro-cedures apply whenever indirect partnersexist whose identity will not be reflected onthe face of the partnership return). Cf. Bailif,Unified Audit & Litigation Procedures forPass-Through Entities, ¶ 2.01, n.8 (relying onWhite v. Commissioner, T.C.Memo 1991-552,author suggests that a prerequisite to classi-fication as a pass-thru partner under TEFRAis the holding of legal title in the partnershipinterest, enabling intermediaries to hold anindividual’s interest without running afoul ofthe small partnership exemption).8 Under these circumstances, a reasonabledetermination made by the IRS under Sec-tion 6231(g) of the Code would appear to bethat the small partnership exemption does

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not apply, mandating a TEFRA proceeding.The mere checking of the “no” box as to theapplicability of TEFRA is not binding on theIRS. Buchsbaum v. Commissioner, T.C.Memo2002-138.9 Treasury Regulations governing the appli-cation of TEFRA consist of those provisionsapplicable for partnership taxable years end-ing after October 4, 2001. For years beginningprior to then, see Temporary Regulations, asrevised on April 1, 2001. See, for e.g., Regs.§301.6222(b)-1(a) (statement identifying in-consistency shall be filed by filing the formprescribed for that purpose in accordancewith the instructions accompanying thatform); Regs. §301.6227(c)-1 (AAR filed by TMPon behalf of partnership shall be filed on formprescribed by IRS for that purpose in accor-dance with that form’s instructions); Regs.§301.6227(d)-1 (AAR filed on behalf of part-ner shall be filed on form prescribed by IRSfor that purpose in accordance with form’s in-structions); Instructions to Form 8082.10 For e.g., Phillips v. Commissioner, 106 T.C.176 (1996) (court rejects efforts by taxpayerto avoid recapture of investment tax creditclaimed with respect to a disposition of part-nership property, through the filing of anamended return, but without the Form 8082attached; amended return held ineffectivebecause it did not conform to the Section 6227administrative adjustment request require-

ments); but see, Wall v. United States, 77A.F.T.R.2d 96-2204 (9th Cir. 1996) (under pe-culiar facts of the case, court concludes thatbecause taxpayer substantially complied withthe procedures governing requests for admin-istrative adjustment of partnership itemsunder Section 6227(b), no purpose served byrequiring taxpayer to have filed, in additionto his second Form 1040X, a partnershipForm 8082 that would have reflected no ad-ditional information beyond what was alreadyset out in the second Form 1040X and K-1);FSA 1999-746 (Vaughn #557) (In a 1992 fieldservice advice, IRS concluded that anamended partnership return could be treatedas a “substituted return if the TMP providesall the information required on a Form 8082,along with revised K-1s and further requestis made that the treatment on the amendedreturn be substituted for the treatment on theoriginal return).11 Dhillon v. Commissioner, T.C.Memo 1999-214 (rejecting effort on the part of 50% part-ners to rely on TEFRA in general to file apetition more than 90 days after the IRS is-sued its notice of deficiency).12 Harrell v. Commissioner, 91 T.C. 242 (1988)(Hamblen, J., dissenting opinion); FederalIncome Tax Project Subchapter K--Proposalson the Taxation of Partners, ALI 411 (adoptedMay 20, 1982, published 1984); Tax Compli-ance Act of 1982 and Related Legislation:Hearing on H.R. 6300 Before the HouseComm. on Ways and Means, 97th Cong., 2dSess. 256 Sess. 256 (1982); cf. Z-Tron Com-puter Program v. Commissioner, 91 T.C. 258(1988) (“An exception for small partnerships,

with few partnersand few complexi-ties, was deemedadvisable.”).13 2003-26 IRB 1118(6/27/03).14 In Chapter 13 ofthe MSSP TrainingGuide on TEFRA inthe IRS’ InternalRevenue Manual,the IRS states thata partnership con-taining less than 11partners willqualify as a TEFRApartnership if it hasas a partner anyone of the follow-ing: (1) partnership;(2) LLC (which filesa Form 1065); (3)Trust (any type, in-cluding grantortrusts, even if theSchedule K-1 con-tains the SSN ofthe grantor); (4)nominee; (5) non-resident alien indi-vidual; (6) S corpo-ration; (7) Ccorporation (exceptfor partnership tax-able years endingafter August 5,1997). In this sec-tion, the InternalRevenue Manualstates that the “cur-

rent position is that all types of Form 1120(except Form 1120S) are to be treated as thesame and further, that all corporate entities(other than S corporations) are treated as Ccorporations for the purpose of the small part-nership exception regardless of whether theyare taxable under subchapter C.” These ma-terials go on to advise IRS agents that if a K-1 identifies the entity type of the partner as acorporation, without specifying whether it isa S corporation, the examining agent is tosecure an IDRS print to settle the issue. Theagents are also advised to look for the identi-fication of a partner as a LLC on the K-1 andto further determine whether it has filed aForm 1120 or Form 1065. Id.15 Id.16 See FSA 199938016, at n.1, supra, fn.6.17 Rothstein v. United States, 81 A.F.T.R.2d 98-2132 (Ct.Fed.Cl. 1998) (dismissing limitedpartner’s refund action because TEFRA didnot authorize IRS to consider taxpayer’s Form1040X as a valid AAR when it was not accom-panied by a Form 8082 which conformed toestablished regulations); Regs. §301.6227(c)-1 (AARs filed by TMP on behalf of partner-ship); Regs. §301.6227(d)-1(AARs filed on be-half of partners); Mather, supra, atpp.A-31-A-32 (discussing how partner mayavoid a consistency assessment in one of twoways: (1) filing Form 8082; or (2) establishingthat the partner reported consistently with aschedule received from the partnership, eventhough the K-1 is erroneous).18 Blonien v. Commissioner, 118 T.C. 541, 556(2002).19 Id. at 556; Regs. §301.6222(b)-2(a).20 See, for e.g, in Wolgin v. Kennington Ltd.,Inc., 87 A.F.T.R.2d 2001-885 (3rd Cir. 2001),aff ’g, 84 A.F.T.R.2d 99-6855 (E.D.Pa. 1999),infra, n.50.21 Regs. §301.6222(b)-2(b); see also, Blonien,at 556 (claiming that by not filing the Form8082, the taxpayer led the IRS to believe thatMr. Blonien was a partner in Finley Kumble,and that had the taxpayer properly notifiedthe IRS at the time the taxpayer filed the1992 return of their position that he was nota partner, the IRS could have converted theitem to a partner-level item or could have ad-dressed the issue in a partnership-level pro-ceeding within the statute of limitations pe-riod).22 Regs. §301.6222(b)-1(a).23 Wolgin v. Kennington Ltd., Inc., 87A.F.T.R.2d 2001-885 (3rd Cir. 2001), aff’g, 84A.F.T.R.2d 99-6855 (E.D.Pa. 1999) (discussingpartner’s failure to file Form 8082 withamended return which violated court order;not acceptable to have filed mere disclaimer,or to have later filed Form 8082); Blonien(taxpayer’s failure to file a Form 8082 in re-sponse to the taxpayer’s receipt of a K-1means that he or she will be deemed to haveaccepted the position stated on the K-1); cf.In re Klemen, 64 A.F.T.R.2d ¶ 89-5320 (Bankr.Ill. 1989) (in a pre-TEFRA case, suggestingthat partner might not be bound by partner-ship return that didn’t claim a bad debt loss).24 These consistency requirements extend tobeneficiaries of any estate or trust, with simi-lar provisions governing notification and theeffect of a failure to notify the IRS. Code§6034A(c).25 Regs. §301.6222(a)-2(c)(1); Regs.§301.6222(a)-2(d), Example (2).26 Regs. §301.6222(a)-2(c)(3)(ii).



27 Code §6231(a)(3); Regs. §301.6231(a)(3)-1(a)(partnership items include: (1) “the partner-ship aggregate and each partner’s share of” alist of items, including income, gain, loss, de-duction, or credit of the partnership, expen-ditures by the partnership not otherwise de-ductible, tax preference items, tax-exemptincome, partnership liabilities, and otheramounts determinable at the partnershiplevel with respect to partnership assets, in-vestments, transactions and operations; (2)guaranteed payments; (3) optional adjust-ments to basis under Section 754, and (4) cer-tain items relating to contributions to thepartnership, distributions from the partner-ship, and transactions governed by Section707(a) and Section 707(c)); Regs.§301.6231(a)(3)-1(b) (also includes the ac-counting practices and the legal and factualdeterminations that underlie the determina-tion of the amount, timing, and characteriza-tion of items of income, credit, gain, loss, de-duction, etc.).28 See, for e.g., Weiner v. United States, 255F.Supp.2d 624 (S.D.Tex. 2002), motion forreconsid. denied, 255 F.Supp.2d 663 (S.D.Tex.2002) (in case involving an invalid return,signed by a non-partner treasurer, court con-strained to hold that it has jurisdiction toreach a FPAA limitations issue, despite con-flicting authorities like Chimblo v. Commis-sioner, 177 F.3d 119 (2d Cir. 1999) andSlovacek v. United States, 36 Fed.Cl. 250(1996), disclaiming jurisdiction with regard toa partner’s statute of limitations defense). Seealso, Weiner v. United States, 255 F.Supp.2d673 (S.D.Tex. 2002) (taxpayer granted refundof tax-motivated interest due to presence ofprofit motive when investing in sham part-nership).29 Grigoraci v. Commissioner, T.C.Memo 2002-202 (citing to Blonien v. Commissioner, 118T.C. 541, 551-552 n.6 (2002); and relyingheavily on the reasoning of the Tax Court’sdecision in Katz v. Commissioner, 116 T.C. 5(2001)). The Tax Court’s decision in Katz asnow been reversed on appeal by the 10th Cir-cuit Court of Appeals, 92 AFTR 2d 2003-5153(10th Cir. 2003).30 See, for e.g., Grigoraci, T.C.Memo 2002-202(determination of whether a partner is a cor-poration or an individual has no impact onpartnership level issues and since there wasno dispute about the amount of the alloca-tions made to the partners, such items werenot partnership items); Hambrose Leasing v.Commissioner, 99 T.C. 298, 308-309 (1992)(determination of partner’s amount at riskwas not a partnership item because it affectedonly the status of the partner and not thepartnership); Gustin v. Commissioner,T.C.Memo 2002-64 (holding that a partner’sbasis in his partnership interest is not a part-nership item); cf. Blonien v. Commissioner,118 T.C. 541 (2002) (Tax Court held that a de-termination that an individual was a partnerin a partnership was a partnership item be-cause such determination affected the dis-tributive shares of the other partners).31 In Katz v. Commissioner, Case No. 01-9009,BNA Daily Tax Reporter, No. 131, at p.K-5(10th Cir. 7/7/03), the 10th Circuit reversed alower Tax Court decision and held that theIRS may not challenge a taxpayer’s allocationof partnership losses between himself and hisbankruptcy estate in a proceeding involvingonly the taxpayer-debtor. Rather, the 10th Cir-

cuit held that the IRS must first bring a part-nership-level proceeding under TEFRA. On atechnical reading of the special enforcementbankruptcy regulation, Regs. §301.6231(c)-7T(a), the 10th Circuit rebuffed efforts on thepart of the IRS to claim that they were en-titled to use the normal statute of limitationsprocedures, viewing taxpayer debtor’s filingof bankruptcy as having converted partner-ship losses into nonpartnership items. How-ever, the 10th Circuit noted that the citedregulation only converts partnership itemsarising in any partnership tax year ending onor before the last day of the latest taxable yearof the partner with respect to which the UnitedStates could file a claim for income tax due inthe bankruptcy proceeding. In the case, the10th Circuit found that 1989 (as opposed to1990) was the latest tax year for the filing ofthe claim. The majority of the 10th Circuitfurther rejected the Tax Court’s view that apartner in bankruptcy and his bankruptcyestate are properly treated as a single part-ner for purposes of TEFRA’s procedures. Inother words, the 10th Circuit has now rejectedthe notion that the subdivision of a partner’sshare of a partnership tax item between thepartner as an individual and that partner’sbankruptcy estate does not implicate TEFRA.Policy concerns raised by the IRS were un-availing (“it would require a gross distortionof the regulation’s language to read the word“partner” to include the bankruptcy estate”and while “(t)here may be sound policy rea-sons for not requiring a full-blown partner-ship proceeding when an alleged error in onepartner’s return affects only one other tax-payer rather than all thepartners” but “for now thelaw is otherwise.”).32 The mere filing of aForm 8082 does not con-vert an affected item ornonpartnership item intoa “partnership item.”Jenkins v. Commissioner,102 T.C. 550, at 554(1994).33 Jenkins, at 554 (section707(c) guaranteed pay-ment is a partnershipitem; but receipt of theguaranteed payment as alump-sum payment undersection 104(a) might be anaffected item which re-quires a factual determi-nation at the partnerlevel); N.C.F. Energy Part-ners v. Commissioner, 89T.C. 741, 744-745 (1987).34 The presence of specialenforcement consider-ations may empower theIRS to determine that iftreating items as partner-ship items will interferewith the effective and ef-ficient enforcement of theCode, then the IRS mayconvert partnership itemsto nonpartnership items,and exempt the samefrom the partnership-level proceedings. For ex-amples of special enforce-ment considerations, see

Regs. §§301.6231(c)-1 (carryback and refundadjustments based on partnership items);301.6231(c)-2 (refund claims based on part-nership items from abusive tax shelter part-nerships); 301.6231(c)-4 (termination andjeopardy assessments); 301.6231(c)-5 (crimi-nal investigations of partners); 301.6231(c)-6(determinations of a partner’s taxable incomeis being determined by an indirect method ofproof); 301.6231(c)-7 (bankruptcy and receiv-erships); and 301.6231(c)-8 (with respect to apartner on whose behalf a request for promptassessment of tax under Section 6501(d) isfiled).35 Code §6227(a); §6227(b).36 See, PPC’s 1065 Deskbook, 12th Ed. (2001),at 26-15 (Illustration 26-2) (indicating that“amended” Form 1065 is attached to com-pleted Form 8082, but without entering anyamounts on the return, but writing across topof this Form 1065, “See attached Form 8082for AAR per IRC Sec. 6227(b)(1)”; plus filingK-1s for partners showing amended amountsfor each partner).37 Id., at p.26-15, 26-16.38 Id., at p.26-16 (Example 26H-2).39 In Oceanic Leasing v. Commissioner,T.C.Memo 1996-458, the IRS refused to let theprocedural difficulties of TEFRA reward ataxpayer for having invested in sham entitiesthat did not file separate partnership tax re-turns for the years for which he claimed ficti-tious partnership losses. The taxpayer washeld to have held an interest in sham equip-ment leasing partnership even though hewasn’t listed on K-1s attached to various part-

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nership returns that all tied to the same tax-payer identification number.40 See Regs. §1.6031(c)-1T(a).41 Regs. §1.6031(c)-1T(h). According to the2002 IRS Partner’s Instructions for ScheduleK-1 (Form 1065), a nominee who fails to fur-nish when due all the information required,or who furnishes incorrect information, issubject to a $50 penalty for each statementfor which a failure occurs, with a maximumpenalty of $100,000 for all such failures dur-ing a calendar year. If the nominee intention-ally disregards the requirement to report cor-rect information, then the per statementpenalty increases to $100 or, if greater, 10%of the total amount of items required to bereported, and without any maximum penaltycap.42 See Mather, at A-24 (raising questions asto whether an undisclosed owner’s distribu-tive share of partnership items is itself a part-nership item); Blonien (partner determina-tion a “partnership item” under the facts andcircumstances of the case); cf. Hang v. Com-missioner, 95 T.C. 74 (1990) (in a case dealingwith the old unified audit procedures appli-cable to S corporations, beneficial ownershipissues to be determined at the shareholderlevel).43 Section 10.21 of Circular 230 (per finalregulations released in July of 2002, modify-ing preexisting duty by requiring that, in ad-dition to notifying the client of the fact of thenoncompliance, error, or omission, the prac-titioner has to advise the client of the conse-quences as provided under the Code and regu-lations of the noncompliance, error, oromission).44 Section 10.29 of Circular 230 (requiringpractitioners to obtain informed consent, con-firmed in writing, to representation by a prac-titioner when the representation of one cli-ent will be directly adverse to another clientor there is a significant risk that the repre-sentation of one or more clients will be mate-rially limited by the practitioner’s responsi-bilities to another client, a former client or athird person or by a personal interest of thepractitioner).45 Supra, n.1 (after having abruptly ended anearlier matching program launched last June,the IRS says that the K-1 matching program

will result in the issuances of notices to sometaxpayers later this year which will requestinformation about their 2001 tax returns. TheIRS says that they have implemented suffi-cient filters to assist with the screening pro-cess to substantially reduce the number ofnotices issued. In addition, the IRS indicatedthat it now has plans to revise the ScheduleK-1 and Schedule E, to make these forms andrelated instructions easier to understand. Notime frame has been given for the redesign ofsuch forms, however).46As the IRS advises its field agents in Chap-ter 13 of the MSSP Training Guide found inits Internal Revenue Manual, “the proper des-ignation of a qualified tax matters partner iscritical” since “(a)n improper designation caninvalidate a statute extension or the bindingeffect of settlement agreements on non-noticepartners.” The IRS warns that an invalidTMP is the equivalent of no TMP, and cau-tions that the TMP designation entered on aForm 1065 should not be accepted, automati-cally. The designated TMP must be qualifiedto serve. Agents are to determine if a termi-nating event has occurred from the time thepartnership return was filed to the presentand not to assume that the TMP for one yearis the TMP for another year. Events whichserve to terminate the TMP designation canbe found in the regulations, Sections301.6231(a)(7)-1(l) and 301.6231(c)-4 through(c)-8.47 Under Rule 4-1.13 of the Rules Regulatingthe Florida Bar, a lawyer employed or re-tained by a Pass-Thru Entity organizationrepresents the organization acting throughits duly authorized constituents (presumably,the managing members of a member-man-aged LLC, or the managers of a manager-managed LLC, or general partner of a LTD.or LLLP). In particular, Rule 4-1.13(d) man-dates that when the lawyer deals with anorganization’s constituents, the lawyer shallexplain the identity of the client when it isapparent that the organization’s interests areadverse to those of the constituents withwhom the lawyer is dealing. Rule 4-1.13(e)makes it clear that a lawyer representing anorganization may also represent any of itsconstituents, but subject to rules governingconflicts of interest. If consent is required topermit dual representation, then the organi-zation is to provide such consent. Under Cir-cular 230, tax practitioners authorized to ap-pear before the IRS are obligated to identifytheir client and explain the ramifications ofTEFRA’s potential application.

48 See, for e.g., Goulding v. United States, 957F.2d 1420 (7th Cir. 1992) (tax return preparerpenalty imposed on attorney who preparedpartnership tax returns and K-1s for severallimited partnerships when he included con-tingent debt in depreciation basis and soughtto deduct start-up costs).49 One of the author’s favorite examples ofsuch a filing is a Form 1065 filed by a LLCwhich identifies only one “partner” member,issuing a single K-1 for the entire tax year.See I.R.C. § 6233 (if a partnership return isfiled by an entity for a given taxable year, butthe entity is later determined not to be a part-nership or is determined not to exist, the UALprocedures still apply to such an entity andto all persons holding an interest in such en-tity for the tax year as to which the partner-ship tax return was filed); Alhouse v. Commis-sioner, T.C.Memo 1991-652 (participants in atriple net lease computer program, utilized inconjunction with comprehensive manage-ment agreements, created a shared economicinterest in the profits and losses of the ven-ture, and therefore, treated for federal taxpurposes as a partnership requiring a TEFRAproceeding and permitting IRS to precludetaxpayer from contesting “partnership”items.).50 See, for e.g, in Wolgin v. Kennington Ltd.,Inc., 87 A.F.T.R.2d 2001-885 (3rd Cir. 2001),aff ’g, 84 A.F.T.R.2d 99-6855 (E.D.Pa. 1999), adispute arose over the allocation of certain taxlosses incurred by a partnership known asGreen Island Associates (“GIA”) by and be-tween its two partners, the Wolgins and acorporation known as Kennington Ltd., Inc.(“Kennington”). A panel of arbitrators con-cluded that the tax losses had not been prop-erly allocated, and entered an award order-ing Kennington to either file amendedpartnership tax returns for GIA for the 1994,1995, and 1996 years or allow the Wolgins todesignate an accounting firm to prepare andsign the returns. When GIA’s accountant con-ferred with the Wolgins’ accountant, he gaveindications that the amended returns wouldreflect substantial losses of approximately $4million being assigned to Kennington, withrelatively minimal losses of approximately$250 thousand assigned to the Wolgins. The1994 GIA amended returns were required tobe filed by August 30, 1998, but GIA’s accoun-tant did not file the 1994, 1995, and 1996amended partnership tax returns until Sep-tember 11, 1999. In addition, and unlike theestimates made known to Wolgins’ accoun-tant based on a strict interpretation of thepartnership agreement, on the amended re-turns, GIA’s accountant assigned approxi-mately $1 million of losses to Kennington and$3.1 million of losses to the Wolgins. Ratherthan attach a Form 8082 with the amendedreturn, GIA’s accountant attached a dis-claimer that stated that the amended returnsmay not be in compliance with TreasuryRegulations, even though prepared pursuantto court order. GIA’s accountant later filed theForm 8082; nevertheless, the taxpayer wasstill held in civil contempt for violating thecourt order. The court noted further that itdidn’t yet know whether the failure to attachForm 8082 voided the amended returns, ren-dering the amended returns invalid and per-haps, foreclosing acceptance by the IRS.


Tax SectionFall Meeting

October 24 & 25, 2003Hyatt Grand Tampa Bay

For more informationcall 850/561-5630.


The Dark Side of the Proposed Tax ShelterTransparency ActBy John J. Koresko, V, Esq., CPA. Koresko & Associates, P. C., Bridgeport, Pennsylvania

Editor’s Note: Mr. Koresko pre-sented his strong concerns at the or-ganizational meeting of the Tax Sec-tion at Amelia Island regarding thepotential adverse impact on tax prac-tice of legislation working its waythrough Congress, the Tax ShelterTransparency Act (“TSTA”). Mr.Koresko was asked to provide the TaxSection with an article regarding theTSTA for the Tax Bulletin. The viewsexpressed herein are Mr. Koresko’sand not positions of the Tax Sectionof the Florida Bar.

History of TSTAOn April 8, 2003, the Senate

passed the Charity Aid Recovery andEmpowerment (CARE) Act (S. 476).CARE was designed to create newtax incentives for charity. SenatorsMax Baucus (D-MT) and CharlesGrassley (R-IA) of the Senate Fi-nance Committee attached the TSTAto CARE as a revenue off-settingmechanism. Little was said aboutTSTA when CARE was reported outof the Finance Committee.

The speed with which TSTAemerged and was attached to CAREleft very little time for considerationby interested parties. TSTA appearsto allow the Internal Revenue Ser-vice broad powers to implement itsintent. CARE’s sponsor, Sen. RickSantorum (R-Pa), expressed reserva-tions about TSTA in a letter toMessrs. Baucus and Grassley prior tothe bill’s advancement to the Senatefloor.

Although CARE has not been en-acted by the House as a stand-alonebill, the TSTA provisions were scoredas a revenue raiser by the JCT. Con-sequently, Representatives Bill Tho-mas (R-Ca) and Charles Rangel (D-NY) have now decided to use thepositive revenue score of TSTA to payfor other legislation introduced bythem in the House. According tosources at the Ways & Means Com-mittee, Chairman Thomas may rein-troduce TSTA to pay for new foreigntax legislation that is intended to re-place the Foreign Sales Corporationprovisions.

Treasury’s Strategy“One thing I have become con-

vinced of since joining Treasury is theimportance of acting even without alegislative mandate. We don’t alwaysneed laws to tell us the differencebetween right and wrong or to tell uswhat we ought to do.”

Statements of Asst. Treas. Sec.Pamela Olson, Univ. So. Cal. TaxInst., Jan. 27, 2003. [http://www.treas.gov/press/releases/kd3804.htm]

While TSTA was pending on Capi-tol Hill, the Treasury Departmentwas pursuing a parallel strategy toissue tax shelter disclosure regula-tions under sections 6011, 6111 and6112 (the “Disclosure Regulations”).These regulations, predominantlysec. 1.6011-4, introduced the newterms “listed transactions” and “re-portable transactions” that also ap-pear in the TSTA. Basically, Treasurynow requires that INDIVIDUAL tax-payers [not just corporations] dis-close their participation in “poten-tially abusive transactions” that theIRS periodically “lists” in Notices.Disclosure must occur twice -- on in-come tax returns and a special noticeto the IRS Office of Tax ShelterAnalysis (“OTSA”). The Regulationsalso require promoters to keep listsof participants. These lists are meantto simplify the IRS’ ability to acquiretaxpayer identity information for thepurposes of examination.

The part of the regulations thatdeals with the sec. 7525 privilege andthe common law attorney-client privi-lege seems to be flawed. According tothe regulations, if a taxpayer or itsadvisor intends to claim a privilegefrom disclosure, he or she would haveto inform the OTSA. The issue arisesas to whether such a communicationwould act as a waiver of privilege.

Because the Disclosure Regula-tions contained no new penalties,they were not met with the greatestopposition by either the ABA orAICPA. It was not problematic forthese organizations to agree thatthere should be more “transparent”disclosure, especially if failure to dis-

close implicated nothing but the ex-isting hierarchy of penalties.

While professional groups werepaying lip service to these initiativesby Treasury, they overlooked the pos-sible impact of the proposed penaltiesof TSTA. More disturbingly, profes-sional groups gave little attention tothe deviation of the 1.6011-4 and1.6012 regulations from the expresslanguage of the law. Section 6111 re-quires that taxpayers register anddisclose participation in “tax shel-ters.” Section 6111 defines “tax shel-ter” specifically as an investment inan arrangement that produces $2 ormore of tax reduction for each $1 ofinvestment AND which is subject tosecurities laws or requires a substan-tial investment. “Substantial invest-ment” is an aggregate investment of$250,000 in the arrangement ex-pected to be made by 5 or more in-vestors. In 1997, the definition of taxshelter was expanded to include cor-porate arrangements having a sig-nificant tax avoidance purpose, madeunder conditions of confidentiality,and generating over $100,000 of feesto promoters. Section 6112 requiresorganizers maintain lists of investorswith respect to “potentially abusive[corporate] tax shelters.” Section6112(b) defines ‘’potentially abusivetax shelter’’ as transactions for whichregistration is required under section6111, and “any entity, investmentplan or arrangement, or other planor arrangement which is of a typewhich the Secretary determines byregulations as having a potential fortax avoidance or evasion.”

Congress envisioned disclosureand registration for transactions de-signed to deliver far more tax reduc-tion than investment. Since a dollarof deduction only gets someone 40cents of tax reduction, it appears thatCongress was not concerned with dis-putes over whether a particular itemor business expense was deductible.More importantly, Congress ex-tended list maintenance require-ments only to those significant trans-actions described in section 6111 and

continued, next page


POTENTIAL TAX AVOIDANCE(“PTA”) arrangements determined byREGULATIONS. It does not appearthat Congress intended the Treasuryto unilaterally extend section 6111reporting to include section 6112 PTAarrangements. There is no evidencethat Congress contemplated thatTreasury could avoid the regulatoryprocess by creating Listed Transac-tions by Notice, thus amending theDisclosure Regulations without com-plying with the Administrative Pro-cedure Act, the Regulatory Flexibil-ity Act, or the Small BusinessRegulatory Enforcement FairnessAct. This leads to the argument thatthe Disclosure Regulations may bevoid both as to their intended effecton individuals and their potential forinappropriate amendment.

Provisions of the TSTA of NoteThe broad language in TSTA del-

egating considerable authority to theIRS to define “listed transactions”and tax shelters in general is a con-cern. The TSTA does not define listed

transaction in the way the Codespecifies the definition of the term“tax shelter” in sections 6111 or 6662.Consequently, the IRS, under TSTAwould appear to end up with exces-sive authority to extend penalties tounlimited types of transactions andarrangements.

TSTA imposes no identifiable legalstandard on Treasury as to what con-stitutes a listed or reportable trans-action. All the transaction need be isone the Commissioner identifies as“potentially abusive.” Given that vir-tually any tax deduction can be uti-lized by a taxpayer in a potentiallyabusive manner, TSTA needs to bechanged to include a definition thatis consistent with sections 6111 and6112 of the Code.

Section 706 of TSTA wouldbroaden the exceptions to the statu-tory privilege currently found undersection 7525. Section 7525(b) woulddrop the references to “corporations,”thus making communications withindividuals about “tax shelters” sub-ject to disclosure.

The TSTA does more than simplypermit IRS to define the activitiessubject to penalties. Section 702 and708 of TSTA add new Code section

6707A, and newpenalties in thenew section andamendments tosection 6707. Thepenalties are as-sessable againsttaxpayers andtheir material ad-visors. The penal-ties are large:$50,000 for a re-portable transac-tion; $100,000 fora “listed transac-tion.” They getworse for largetaxpayers. Thepenalties doublewhen net worthpasses a certainlevel: $2 millionfor individuals,$10 million for cor-porations.

Section 709adds a $10,000 perday penalty forfailure to make asection 6112 taxshelter list avail-

able to the Secretary. This penaltycould be abated for reasonable causein the discretion of the Service.

Although there is an internal ad-ministrative appeal procedure forTSTA penalties, the legislation doesnot allow taxpayers and others anyright of appeal to a court of law.

TSTA also provides that anyoneinvolved with a listed transactionwould be denied the section 7525(b)communication privilege as to thattransaction. How far in either direc-tion of the taxpayer’s action will theIRS deem the listed transaction?Does privilege end when the clientmerely mentions the listed transac-tion? Does it end when he partici-pates or when he takes the tax returnposition? Does privilege ever re-at-tach if the lawyer or tax advisor con-sults the client on other matters con-cerning a tax return that has beenaffected by a listed transaction? Inother words, it appears that there isno firm point at which an attorney orother advisor can know that privilegehas disappeared.

To recap, under the current pend-ing version of TSTA, the IRS wouldbe allowed to (1) define the transac-tions subject to penalties with com-plete discretion; (2) propose the as-sessment of the penalties; (3) decidethe outcome of any appeal; and (4)collect the penalties.

The Attempt to Defend TSTATreasury has defended TSTA as

simply a disclosure provision thatnobody should worry about exceptthe bad guys. TSTA is not a pure dis-closure provision. It is meant to pin-point the IRS examination resourcesand consequently increase tax re-ceipts [which explain why it has beenscored as a revenue raiser].

The TSTA model basically createstwo classes of taxpayers. For theGMs, Fords, IBM’s, Microsoft, etc.,TSTA will be of little consequence.They have sufficient resources to de-fend their tax positions, even if theymust disclose their positions. On theother hand, small businesses will notplace huge examination spotlights onthemselves, regardless of the sound-ness of their positions.

The Eternal Dilemma – What is atax shelter, and when is it “abu-sive?”

Lawyers must be diligent when

SHELTER TRANSPARENCY ACTfrom preceding page


persuasive factions attempt to influ-ence legislation by substitutingcatchy labels for good law. The word“tax shelter” evokes such emotionthese days, and we have to ask our-selves, “Why?” Under the classicdefinition, a tax shelter is nothingmore than a transaction or methodof investing that results in lesstaxes than others. This definition issimple enough and should not im-mediately signal alarms among us.None of us disagrees that a tax-payer has the legitimate right tominimize his taxes by arranging hisaffairs in a certain way, yet whoamong us really knows for surewhen good tax planning “crossesthe line.” That becomes a subjectivetest, changing from IRS agent toIRS agent, and administration toadministration. These are mattersbest left for an objective observer,like a judge, or perhaps a legislator,but certainly not a tax collector.

TSTA Operates To Overrule Pre-sumptions and Doctrines Favor-able To Taxpayers

Supporters of TSTA and the Dis-closure Regulations argue that in-creased disclosure obligations donothing more than highlight transac-tions the IRS might not otherwisediscover in the standard examinationselection process. This argument as-sumes that the “reportable transac-tions” are “abusive” in the first placeand are worthy of special disclosure.It also assumes that the IRS processof determining reportable transac-tions is fair and objective. The threatof litigation, which disclosure spawnswhen the IRS does not like some-thing, is the functional equivalent ofan act of Congress to repeal a taxbenefit.

TSTA contemplates that privacyinterests of individuals will be com-promised on the basis of terms like“potentially abusive.” No one can yetdefine “abusive” with any reasonableparticularity. Yet, the Senate, at thebehest of Treasury, would increasethe vagueness by adding the term“potentially.” Clearly, every provisionin the Internal Revenue Code is “po-tentially” subject to execution by ataxpayer in a fashion not consistentwith Treasury’s interpretation. Thereis no limitation, therefore, on thepower of the IRS to effectively eradi-cate taxpayer-friendly interpreta-

tions of the Code, even when the IRShas no legislative or judicial author-ity in support of their views.

Please Act NowCongressmen Clay Shaw and

Mark Foley of Florida are influentialmembers of the Ways & Means Com-mittee. Elizabeth Nicolson of Mr.Foley’s staff is especially interestedin gathering comments from Floridaconstituents. [Her web address [email protected].]Senator Bob Graham has his ownbase of power as a member of theSenate Finance Committee. Staff forWays and Means Committee Vice-Chairman, Phil Crane (R-Il),[[email protected]] is

not sold on TSTA and recognize theproblems illuminated in this article.Tax Counsel for the House SmallBusiness Committee is also inter-ested in views of professionals whorepresent small businesses.[[email protected].] If youagree that TSTA is a proposed lawthat should not be passed, pleaseshare your thoughts with Treasuryand your representatives.

Copyright 2003 John J. Koreskoand The Tax Section of The FloridaBar All rights reserved. The authoris a shareholder in the suburbanPhiladelphia law firm of Koresko &Associates, PC. He is Co-Chairman ofthe Civil Tax Procedure Committeeof the Florida Bar Tax Section.

Tax Certification ReviewCourse to Start in 2005By Mitchell I. Horowitz, Esq., Fowler White Boggs Banker P.A.,Tampa, Florida

Shortly after the organizationalmeeting at Amelia Island, the TaxCertification Task Force (MarkHolcomb, David Pratt, and MitchHorowitz), together with SectionChair Richie Comiter, had a confer-ence call to determine how best toproceed with changing the existingAnnual Review of Income Tax into aTax Certification Review Course. TheAnnual Review has been a two-dayprogram in February which has beentaught for over 20 years by ElliottManning and Jerry Hesch, both ofthe University of Miami. Because theAnnual Review has been such a highquality program for so long, the TaskForce did not want to switch to a cer-tification review course without as-suring ourselves that we would main-tain the first class status of theprogram.

Given the timing for starting thecertification review course for thisyear, it was the considered opinion ofthe Task Force that it would be bet-ter to wait until 2005 to make thechange. In this way, the re-vamping

of the course materials could be donein such a way as to ensure that thiswould be the very best program thatcould be put together. We also lookforward to the participation of asmany former chairs of the Section asare available to speak at the first cer-tification review course. This, we be-lieve, will help to realize the goals ofthe Task Force to make the certifica-tion exam, which is administered bythe Bar’s Tax Certification Commit-tee, more approachable for attorneyeligible to sit for the Exam.

The Task Force would also like tothank the Tax Certification Commit-tee for its fair consideration of theSurvey results, which suggested thatnon-certified tax lawyers would beinterested in sitting for a fair andbroad ranging Exam. The Committeeis considering a change in the formatof the Exam, which will hopefully beim-plemented with the 2005 admin-istration of the Exam.

We look forward to keeping Sec-tion members informed of ourprogress over the next year.


Currently, there are nearly 4,000 attorneys BoardCertified by the Florida Bar. Board certificationsymbolizes specialized skills, experience, andprofessionalism in the practice of law. It is oneway of helping the public make a more informeddecision when selecting a lawyer and it is avaluable resource for referrals among thosewithin the profession. The Supreme Court ofFlorida has approved standards for certificationin the following specialty practice areas:

Thinking About Becoming BOARD CERTIFIED?Visit our website at www.flabar.org

“Merit selection of judges and board certification of lawyers are two of the jewels in

the crown of the Florida justice system. The character, competence and commitment

that defines professionalism is also the essential formula for certification.”

The Honorable Harry L. Anstead

Justice, Supreme Court of Florida

✔ Personal pride, peer recognitionand professional advancement

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✔ Separate listing in The FloridaBar Journal directory issue andon the Bar’s website

✔ Identification as “board certified”or a “specialist”

✔ A minimum of 5 years in thepractice of law

✔ Substantial Involvement✔ Passage of an exam✔ Satisfactory peer review✔ Completion of the certification

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* To review the specific standards for each practicearea, please refer to Chapter 6, Rules Regulating TheFlorida Bar, in your directory issue of the Bar Journal.

If you are interested inbecoming Board Certified,please contact the area's

staff liaison below:

800/342-8060 or850/561-5842Linda Cook - ext. 6794

[email protected]* Criminal Trial (2nd Cycle)* Criminal Appellate (2nd)

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The Florida Bar Continuing Legal Education Committee and theTax Section present

Family Limited Partnerships –Transfer Tax Planning During Good, Bad,Ugly and Uncertain TimesCOURSE CLASSIFICATION: ADVANCED LEVEL

One Location: October 24, 2003 • Hyatt Regency Westshore6200 Courtney Campbell Causeway • Tampa, Florida • 813-874-1234

Course No. 5414R

CLE CREDITS

CLER PROGRAM(Max. Credit: 7.0 hours)

General: 7.0 hoursEthics: 0.0 hours

CERTIFICATION PROGRAM(Max. Credit: 7.0hours)

Tax Law: 7.0 hoursWills, Trusts & Estates: 7.0 hours

Seminar credit may be applied to satisfy both CLER and BoardCertification requirements in the amounts specified above, not toexceed the maximum credit. Refer to Chapter 6, Rules RegulatingThe Florida Bar, for more information about the CLER and CertificationRequirements.

Prior to your CLER reporting date (located on the mailing label ofyour Florida Bar News) you will be sent a Reporting Affidavit or aNotice of Compliance. The Reporting Affidavit must be returned byyour CLER reporting date. The Notice of Compliance confirms yourcompletion of the requirement according to Bar records and thereforedoes not need to be returned. You are encouraged to maintain recordsof your CLE hours.

10:30 a.m. – 11:00 a.m.Late Registration

11:00 a.m. – 12:15 p.m. (lunch provided)Family Limited Partnerships: The Continuing Saga Plus aPanel Discussion by Practitioners, an Appraiser and theIRS on Recent Trends and Valuation TechniquesE. Jackson Boggs, Esq., TampaDonald R. Tescher, Esq., Boca RatonMary Lou Edelstein, Esq., National Appeals Family Limited

Partnership Coordinator for the IRS, MiamiMartin E. Basson, Esq. Supervisory Attorney, Estate & Gift

Taxes, South Florida Territory of the IRS, PlantationTimothy K. Bronza, ASA, CPA, Management Planning, Inc.,

Orlando

12:15 p.m. – 12:30 p.m.Break

12:30 p.m. – 12:55 p.m.Transfer of Family Limited Partnership Interests toCharitable Lead Trusts: A Lifetime and TestamentaryPlanning Technique that Must Be Considered by High NetWorth FamiliesBarry A. Nelson, Esq., North Miami Beach

12:55 p.m. – 1:20 p.m.Using Family Limited Partnerships as an Asset ProtectionTechniqueBarry A. Nelson, Esq., North Miami Beach

1:20 p.m. – 2:00 p.mBad Facts are Making Bad Law: Putting Your Clients in aDefensive Posture in Order to Avoid a Successful IRSAttack Under IRC Section 2036David Pratt, Esq., Boca Raton

2:00 p.m. – 2:15 p.m.Break

2:15 p.m. – 3:05 p.m.Utilizing Sophisticated Planning Techniques in anUncertain Tax and Interest Rate EnvironmentRobert H. Waltuch, Esq., Tampa

3:05 p.m. – 3:55 p.m.Family Limited Partnerships and NimcrutsPaul S. Lee, Esq., Director of the Wealth Management Group,

Bernstein Investment Research and Management,New York, NY

3:55 p.m. – 4:45 p.m.How Should General Partners and Trustees Invest Assetsin Order to Achieve Cash Flow Objectives Associated withSophisticated Transfer Tax Planning Strategies and toSatisfy the Fiduciary Standards Imposed on Them?Paul S. Lee, Esq., New York, NYJohn J. Pankauski, Esq., Associate Fiduciary Counsel,

Bessemer Trust, Palm BeachSandy Spitz, Managing Executive, Financial Planning Group,

Wachovia Wealth Management, Charlotte, NC

4:45 p.m. – 5:15 p.m.Questions and Answers

5:15 p.m. – 6:00 p.m.Reception (included in registration fee)

TAX SECTIONRichard B. Comiter, Palm Beach Gardens — ChairWilliam D. Townsend, Tallahassee — Chair-elect

David Pratt, Boca Raton — CLE Co-ChairWilliam R. Lane, Tampa — CLE Co-Chair


REFUND POLICY: Requests for refund or credit toward the purchase of the course book/tapes of this program must be in writing andpostmarked no later than two business days following the course presentation. Registration fees are non-transferrable, unless transferred to acolleague registering at the same price paid. A $15 service fee applies to refund requests. Registrants that do not notify The Florida Bar by 5:00p.m., October 13, 2003 that they will be unable to attend the seminar, will have an additional $30 retained. Persons attending under the policy offee waivers will be required to pay $30.

HOTEL RESERVATIONS: A block of rooms has been reserved at the Hyatt Regency Westshore Hotel, at the rate of $169 single occupancyand double occupancy. To make reservations, call the Hyatt Regency Westshore direct at (813) 874-1234. Reservations must be made by10/03/03 to assure the group rate and availability. After that date, the group rate will be granted on a “space available” basis.

Register me for the “Family Limited Partnerships - Transfer Tax Planning During Good, Bad, Uglyand Uncertain Times” SeminarONE LOCATION: (112) HYATT REGENCY WESTSHORE, TAMPA (OCTOBER 24, 2003)TO REGISTER OR ORDER COURSE BOOK/TAPES, BY MAIL, SEND THIS FORM TO: The Florida Bar, CLE Programs, 651 E. JeffersonStreet, Tallahassee, FL 32399-2300 with a check in the appropriate amount payable to The Florida Bar or credit card information filled inbelow. If you have questions, call 850/561-5831. ON SITE REGISTRATION, ADD $15.00. On-site registration is by check only.

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COURSE BOOK — AUDIOTAPES

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Delivery time is 4 to 6 weeks after October 24, 2003. TO ORDER AUDIOTAPES OR COURSE BOOKS, fill out the order formabove, including a street address for delivery. Please add sales tax to the price of tapes or books.

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______ COURSE BOOK ONLY: Cost $30 plus tax TOTAL $ _____________ AUDIOTAPES (includes course book)

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Please include sales tax unless ordering party is tax-exempt or a nonresident of Florida. If this order is to be purchased by a tax-exemptorganization, the course book/tapes must be mailed to that organization and not to a person. Include tax-exempt number beside organization'sname on the order form.

REGISTRATION FEE (CHECK ONE):

" Member of the Tax Section: $155" Non-section member: $170" Full-time law college faculty or full-time law student: $100

" Persons attending under the policy of fee waivers: $30Includes Supreme Court, DCA, Circuit and County Judges, General Masters, Judges of Compensation Claims, Administrative Law Judges,and full-time legal aid attorneys if directly related to their client practice. (We reserve the right to verify employment.)

METHOD OF PAYMENT (CHECK ONE):

" Check enclosed made payable to The Florida Bar

" Credit Card (Advance registration only. Fax to 850/561-5816.) $ MASTERCARD $ VISA

Name on Card: __________________________________________________________________________________________

Card No. _______________________________________________________________________________________________

Signature: _____________________________________________________________________ Exp. Date: ____/____ (MO./YR.)


Tax Section Featured SponsorsSeptember 2003

The Tax Section is pleased to in-troduce you to two of the many finesponsors who have generously par-ticipated in the sponsor program for2003-2004. Take a moment and famil-iarize yourself with Bernstein andPoole Carbone Eckbert. Please besure to visit the sponsor recognitionpage in future issues of the Bulletinfor additional features.

BERNSTEIN was established in1967 to manage investments for pri-vate families and individuals. Its mis-sion soon grew to include investmentresearch and institutional asset man-agement, but private clients have re-mained a central focus. Today, as aunit of Alliance Capital ManagementL.P., Bernstein Investment Researchand Management oversees some $44billion in private capital for a clientelethat includes some of the nation’smost prominent families and individu-als. Each of our clients’ portfolios istailored to meet client-specific needs,yet all share the goal of maximizinglong-term return at a controlled risklevel. We advocate the constructionof diversified portfolios among low-correlated asset classes around theworld’s capital markets, and manageeach with a disciplined approach. Taxconsiderations are carefully inte-grated into our decision-making pro-cess where appropriate to meet ourclients’ best interests. Our proprietaryplanning tools rank among the mostsophisticated in the wealth-manage-ment industry and are designed tohelp our clients make better-informeddecisions about the issues that con-cern them most whether retirementplanning, complex asset-allocationstrategies, annual budgeting, single-stock strategies, multigenerational in-vestment planning or philanthropicgiving. We are proud of our long his-tory of creating and preserving wealthfor our clients and are gratified by thetrust and confidence we’ve earned

from our clients for over 35 years.

POOLE CARBONE ECKBERT.The family of PCE companies pro-vides a variety of corporate financialservices through its subsidiaries: PCEInvestment Bankers, formerly PooleCarbone Eckbert, (www.pccap. com),Stratus Valuations (www.stratusvaluations.com) and PCE Advisory.PCE Investment Bankers. PCE In-vestment Bankers, formerly known asPoole Carbone Eckbert, providesmerger, acquisition and growth capi-tal services to Florida-based compa-nies with revenues from $5 -$100 mil-lion. In addition, its principals – withextensive experience in owning andoperating businesses – provide advi-sory services to owners for businessplanning through PCE Advisory. ThePCE partners founded the firm with acommitment to serving Florida’s smalland mid-sized businesses that oftenare neglected or ignored by large, in-stitutional investment banks. At PCE,Florida companies have immediateaccess to a team of local, seasonedprofessionals who will help them over-come the financial obstacles tostrengthening the value of their enter-prise. Our principals and advisors un-derstand the challenges of entrepre-neurship and the commitment requiredto sustain the growth of a company.Our personal experiences as businessowners, institutional bankers, analystsand investors enable us to effectivelycommunicate and negotiate for busi-ness owners to execute mergers, ac-quisitions and growth capital transac-tions. The principals of PCE have beeninvolved in the execution of over $3.25billion in corporate finance, mergerand acquisition transactions for largeand middle market enterprises. And,through our advisory service engage-ments, we help business owners as-sess opportunities and risks, establishobjectives, appraise alternatives andnegotiate terms and conditions lead-

ing to a transaction event. StratusValuations. Stratus Valuations isFlorida’s premier full-service valuationfirm providing market-driven, custom-ized valuation products for businessowners and their advisors. The com-pany delivers a full array of high, qual-ity customized business and estate/gift valuations with an emphasis onFlorida-based companies and affili-ates. As a business owner, you willseek business valuations for a vari-ety of reasons throughout the lifecycle of your company. Stratus Valu-ations helps Florida business ownersunderstand and evaluate the presentand future value of their businessesin any scenario. Born out of an invest-ment banking environment, StratusValuations delivers market-relevantvaluations that go beyond an aca-demic valuation approach. Further,our principals have worked in Floridafor two decades with the influentialplayers who drive tax and accountingpolicies and laws. Our team of valua-tion professionals includes analysts,a valuation-accredited CPA, invest-ment bankers and seasoned valua-tion experts with business, legal andtax expertise that translates into morecredible, supportable valuations.Based in Winter Park, Florida, Stra-tus Valuations is in close proximity toits Florida clients and representatives,providing for a high level of personal-ized service and advantageous localperspectives. PCE Advisory. PCEAdvisory provides business ownerswith advisory services and strategiesthat lead to creating shareholdervalue, succession planning and liquid-ity events. Strengthened by its day today association with PCE’s invest-ment bank, PCE Advisory offers stra-tegic guidance in a variety of areas,including day-to-day operations: cashand asset management; liquidity op-tions, shareholder administration, per-sonnel and estate planning.


programming. Past Chairs, JoelBronstein (1996-1997), Jason Warner(1992-1993) and Marvin Gutter(2000-2001) were discussion leadersfor a Breakfast Workshop on “WhatYoung Tax Lawyers Should KnowAbout the Practice of Tax Law andHow to Solve Office Problems.” Theirpractice tips, suggestions and recom-mendations will aid all of the attend-ees in their tax practice and makethem better tax lawyers. Sam Ullman(1977-1978) once again organized the“Ullman Year of Review”, a three-hour program in which experiencedFlorida tax practitioners discussedrecent changes and developments inthe their area of tax law and howsuch recent events have impactedtheir practices. Past Chairs who par-ticipated in the CLE program in-cluded Bob Panoff (1994-1995) onCivil Tax Procedure, Lauren Detzel(1997-1998) and Don Tescher (1984-1985) on Estate and Gift Tax, LarryGragg (1991-1992) on PartnershipTax, Hank Rattaama (1983-1984) onTax Exempt Organizations, LouConti (2001-2002) on Limited Liabil-ity Companies and Sam Ullman(1977-1978) on C Corporations.(Chair-Elect Bill Townsend in an at-tempt to groom himself for being aPast Chair also made a presentationon State Tax Law Developments.) Imust also mention Past Chair RickJosepher (2002-2003), who spentcountless hours during the past yearpreparing me for my year as Chair.The heart and soul of the Tax Sectionis the continuing leadership andguidance provided by Past Chairswho take time out of their businesspractices to assist in Tax Section ac-tivities and programming. They areour spirit and inspiration of the TaxSection. They energize the Tax Sec-tion and serve as mentors to itsyounger members. This is the reasonwhy the Tax Section is such a specialSection of The Florida Bar.

The Organizational Meeting alsoincluded a workshop on RE-RULPAin which Greg Marks, the Chair ofthe RE-RULPA Task Force, updatedSection members on the status of thisTax Section led project to draft a re-vised Revised Uniform Limited Part-nership Act (“RE-RULPA”) for the

State of Florida based upon the re-cently passed model act adopted byThe National Conference of Commis-sioners on Uniform State Laws. Oneof my goals as Chair is for the TaxSection, in conjunction with the sup-port and assistance of the BusinessLaw and Real Property & ProbateSections of the Florida Bar, to have aRE-RULPA statute drafted for sub-mission to the Florida legislature. Inconjunction with the RE-RULPATask Force, Guy Whitesman, the Co-Director of the Federal Tax Divisionof the Tax Section, has assumed therole as chair of the drafting commit-tee. His charging order is to workwith other members of the Tax Sec-tion to develop a prototype FamilyLimited Partnership Agreementbased upon RE-RULPA along withmemoranda and other practice toolaids to assist tax practitioners indrafting family limited partnershipagreements under RE-RULPA whenthe revised statute is adopted.

The Organizational Meeting alsoincluded a State Tax Law Forum or-ganized by Rex Ware and Tony Zarba,the Co-Directors of the State Tax Di-vision. Kevin O’Donnell, Chief TaxCounsel, Florida Department of Rev-enue, spoke on the Amnesty Programrecently instituted by the FloridaDepartment of Revenue. AlanJohansen, Staff Director, FloridaSenate Finance and Tax Committee,predicted there would not be any sig-nificant new state taxes enacted dur-ing the 2003-2004 legislative session.Jeff Kielbasa, the Deputy ExecutiveDirector, Florida Department of Rev-enue, talked about the great workingrelationship between the FloridaDepartment of Revenue and TheFlorida Bar Tax Section.

The Organization Meeting alsoincluded a Workshop organized bySam Ullman and Bill Townsend on“What All Tax Lawyers Should KnowAbout Sarbanes/Oxley and New SECTax Audit Rule Representation Re-strictions on Auditors”. Bill’s insight-ful slide show was the hit of the pro-gram. Thank you to BernieMcCarthy, Gerald Wiele and KevinHerzberg for their thorough presen-tations of the issues created by thenew legislation and Sam Ullman andBill Townsend for their eloquent andsomewhat passionate analysis ofSarbenes/Oxley from a tax lawyer’sperspective.

All and all I believe my “Back toBasics” theme is off to a flying start.As I have always said, the best taxlawyers are those who know moreabout the tax law, communicate withtheir clients and do the “right thing”.I cannot express how lucky a chair Iam to have tax lawyers of such a highcaliber agreeing to serve as membersof the Executive Council and Boardof Directors during my term. I wouldlike to personally thank each of youin advance for your time, effort andcommitment to the Tax Section. Iknow that the success of my admin-istration will depend upon how suc-cessful you are in implementing mygoals and aspirations. Let’s keep themomentum going.

I would also like to thank the TaxSection Sponsors whose names arereferenced throughout the Bulletin.Tax Section members have com-mented to me not only about thefriendliness and professionalism ofour sponsors, but also of the knowl-edge and high level of expertise theyhave for assisting members in theirpractices. I cannot thank Nick Lioceenough for his herculean effort in for-malizing and developing a well-orga-nized sponsorship program, and KenHackett, of Ken Hackett & Associ-ates, Inc., for his efforts in connectionwith organizing the Tax Section’ssponsors into a cohesive group. Mygoal of creating a mutually beneficialpartnership-type relationship withthe Tax Section’s sponsors is in theprocess of being achieved to a levelbeyond my greatest expectations.There is still a lot of work to do andwith Nick as our Sponsorship Chairand Ken as the sponsor coordinator,I know Bill Townsend will be in goodhands. Please assist Nick in obtain-ing other quality sponsors consistentwith my objective of a mutually ben-eficial relationship. Without the sup-port of the sponsors, the high caliberof events and quality of food and en-tertainment at Tax Section meetingswould not be attainable.

I very much look forward to visit-ing with all of the members of theExecutive Council at the TaxSection’s Fall Meeting at the GrandHyatt Tampa Bay on Friday, October24th and Saturday, October 25th. Theweekend will start with an excellentCLE Program put together by the Co-Directors of the Education Division,David Pratt and Bill Lane, along with

CHAIR’S REPORTfrom page 1


Assistant Director Hunter Brownlee.The CLE Program is titled “FamilyLimited Partnerships - Transfer TaxPlanning During Good, Bad, Uglyand Uncertain Times”, and will focuson the latest developments pertain-ing to family partnerships afterStrangi III. A Past Chair, David Bow-ers (1999-2000), will lead a BreakfastForum titled “A Long Range Plan-ning View for the Florida Bar TaxSection”. David was the discussionleader at the highly successful TaxSection Long Range Planning Re-treat a few years ago. I believe thisFall Meeting will be a good time tohave an open forum in which themembers of the Tax Section can ex-press to Bill Townsend (Chair-Elect)and Mitch Horowitz (Chair-Elect Des-ignee) their views pertaining to wherethey believe the Section should beheading in light of continual changesin the federal and state tax and busi-ness laws and the enactment ofSarbenes/Oxley. Is the current direc-tion of the Tax Section consistent withthe goals developed at the LongRange Planning Retreat? Should itbe? I can’t think of a more appropri-ate section leader than David Bowersto lead this Breakfast Forum. Mem-bers should make every effort to at-tend this Breakfast Forum. MichaelPoole, a member of the Board of Di-rectors of the Federal Reserve, ourkeynote speaker, will address themembers at the beginning of the Sec-tion Luncheon on Saturday. ChristinConley and Kevin Nelson, Co-Chairsof the Fall Meeting, will once againmake sure that the Hospitality Roomis up to Tax Section standards.

I am super excited about the An-nual Meeting being held at the PGAResort in Palm Beach Gardens,Florida. As a result of the efforts ofNick Lioce, the PGA Resort has madeextremely favorable weekend roomrates available to our membership,making attendance at the AnnualMeeting a difficult offer to refuse. TheAnnual Meeting will be a weekendaffair starting out Thursday nightApril 22nd with a Board of DirectorsMeeting. The Education Institute onApril 23rd will be on “Income andEstate Planning Through the LifeCycle of a Closely Held Business”. Inaddition to the normal DivisionMeetings, Section Meeting, Lun-cheons, Dinner and Tax Lawyer ofthe Year Presentation, the CLE

Workshops will focus on tax practicemanagement and the latest technol-ogy available to assist tax lawyers intheir practices. The Annual Meetingwill include a sponsor sponsored golftournament, spa packages at the newspa at the Resort, live entertainmentthroughout the weekend and theHospitality Suite. Nick Lioce, theChair of the Annual Meeting, withhis Co-Chairs Barbara Shore andMarc Wisniewski, promise to makethis a very special weekend.

A special thank you needs to begiven to Mike Jorgensen, the Chairof the Organizational Meeting atAmelia Island. What a great job Mikeand Co-Chair Ian White did with

stocking the Hospitality Suitethroughout the weekend. Mike, yourtime and effort does not go unnoticedand is greatly appreciated. The July4th weekend would not have been thesame without you. You are the typeof person that makes the Tax Sectiona family of friends rather than just agroup of tax lawyers.

It is not too late to become involvedin Section activities. Please call me ifyou want to become more involved inthe Tax Section. “My door is open, mye-mail is always up and my phone isnever too busy for new blood.” I lookforward to visiting with the membersof the Executive Council on Fridaynight, October 24.

Florida Bar CLE Courses Offer:• Quality Speakers!• Convenient Locations!• Reasonable Costs!• On-line registration and tape sales at

www.flabar.org!• Courses online at Legalspan.com and

Taecan.com!

Visit the Bar’s website atwww.FLABAR.org and

click on “CLE,” then“Searchable CLE

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Florida Bar Tax Section CLEAudio Tapes

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TO ORDER TAPES, MAIL THIS (OR A COPY) TO:

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650 Apalachee ParkwayTallahassee, Florida 32399-2300

Please include sales tax unless ordering party is tax-exempt or a nonresident of Florida. If this orderis to be purchased by a tax-exempt organization, the tapes must be mailed to that organization andnot to a person. Include tax-exempt number under the organization’s name on the order form.

Out of State residents do not pay tax.

To qualify for section member price, the attorney must be a member of the section sponsoring the coursebeing purchased. Entities (law firms, libraries, govt. agencies, etc.) are not section members.

Purchase of Audiocassette includes course book.

METHOD OF PAYMENT: " Check Enclosed (Payable to The Florida Bar) By mail only." Credit Card Orders: Mastercard or Visa only. Mail or Fax.

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____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

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on page 35.


Tax Section CLE Audio TapesEACH ORDER IS CUSTOM MADE, THEREFORE PLEASE ALLOW TWO TO FOUR WEEKS FOR DELIVERY.

CourseNo.

COURSE TITLE

Gen.

EthicsProfessionalism

Substance Abuse

DateTape

Expires

CREDIT HOURS

COSTSS = Section Member

N = NonSection Member

Audio Video

Certification Hours

*Audio Only

Revised May 2003

8.0 10/26/2003*Mergers, Acquisitions andConversionsBL = 6.0 TX = 6.0

S = $160.00N = $175.00 N/A

5118R 0

7.0 11/10/2003*The Power of Asset Protection –Annual Wealth ProtectionConferenceCA = 0.5 CR = 0.5EP = 4.5 TX = 7.0

S = $145.00N = $160.00 N/A

5121R 1. 0

4.0 04/18/2004*UPIA– It’s Not Short for UtopiaEP = 3.0 TX = 3.0

S = $120.00N = $135.00 N/A

5315R 0

17.0 07/23/2004*21st Annual International TaxConferenceBL = 13.0 CT = 13.0HL = 3.0 IM = 2.0IL = 17.0 TX = 17.0

S = $320.00N = $335.00 N/A

5248R 0

6.5 10/11/2004*Insurance 2003 –The New UniverseTL = 5.0 WT = 5.0

S = $200.00N = $225.00 N/A

2081-2 2.5

9.0 11/09/2004* Annual Wealth Protection“The Need for Asset ProtectionGrows Every Day”

S = $185.00N = $200.00 N/A

5250R 0

BL = 4.5 IL = 4.5TX = 9.0 WTE = 4.5

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The Florida Bar650 Apalachee ParkwayTallahassee, FL 32399-2300

PRSRT-STDU.S. POSTAGE

PAIDTALLAHASSEE, FL

Permit No. 43

Board Certified in Tax LawThe Tax Law Certification Committee would like to congratulate these applicantswho became board certified in tax law, effective June 1, 2003:

Michael W. Fisher Jacksonville

Brian Kirk Jordan Vero Beach

Kevin Alan Kyle Ft. Myers

John J. Lancaster Lakeland

Michael J. Silva Miami

If you are interested in obtaining an application for Board Certification, please complete the formbelow and return it to The Florida Bar, or contact Michele Lamar-Acuff at 850/561-5690, [email protected] for more information.

APPLICATION REQUEST FOR TAX LAW CERTIFICATION

Full Name License Number

Address Room/Suite

City State Zip

Return to: The Florida Bar / Legal Specialization & Education /651 East Jefferson Street / Tallahassee, Fl 32399-2300

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