Attorney-at-Law

TWELVE PAGES, TWENTY-TWO LAWYERS

In Uncategorized on 10/28/2019 at 16:00

It was Thomas Jefferson, to whom was ascribed the statement concerning lawyers, that they are those “whose trade is to question everything, yield nothing, and talk by the hour.”

Well, today Judge Kerrigan takes twelve (count ’em, twelve) pages to knock out the asserted Section 6662(h) 40% chops to Eaton Corporation and Subsidiaries, 153 T. C. 6, filed 10/28/19, which has to be a record-breaker for brevity in a seven-year-old case that has produced some great blogfodder.

IRS canceled some APAs (advance purchase agreements, sort of PLRs for transfer pricing situations, avoiding Section 482 adjustments), which Judge Kerrigan reinstated, because IRS was arbitrary and capricious. See my blogpost “Breaking Bad,”7/26/17.

Eaton and IRS are at the Rule 155 beancount, and the only thing they’re fighting about is penalties. Thus, thirteen (count ‘em, thirteen) lawyers for Eaton, and nine (count ‘em, nine) lawyers for IRS, are necessary to help Judge Kerrigan wrap it up in twelve (count ‘em, twelve) pages.

IRS wants the penalties because Section 482 adjustments would shatter the $20 million or 20% of gross ceiling that Section 6662(h) requires before the 40% chop, which exceeds the standard 20% understatement. Eaton claims that’s new matter, IRS had the burden of proof, and they didn’t sustain it.

Judge Kerrigan doesn’t care.

“We do not need to decide whether the imposition of section 6662(h) penalties is a new issue for the purposes of Rule 155.  Even if we were to assume, for purposes of argument, that this is not a new issue, we nevertheless would conclude that there were no net section 482 adjustments to support imposition of section 6662(h) penalties.”  153 T. C. 6, at p. 9.

Remember, the APAs were never rightly canceled.

“In this case we did not address whether there was an abuse of discretion regarding a section 482 allocation.  We never reached that step.  Rather, we addressed whether it was an abuse of discretion for respondent to cancel the APAs.  Because Eaton II concluded that the cancellation of the APAs was an abuse of discretion, the APAs remained in effect.  There was no allocation of income and deductions by the Secretary pursuant to section 482 and no “net increase in taxable income for the taxable year * * * resulting from adjustments under section 482 in the price for any property or services”.  See sec.  6662(e)(3)(A).  Therefore, there was no net section 482 transfer price adjustment.” 153 T. C. 6, at pp. 11-12.

No 482 adjustments, no penalties.

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