Federal Tax Update

I. INDIVIDUAL INCOME TAXATION

P.L. 109-222, the Tax Increase Prevention and Reconciliation Act (TIPRA):

- Extended through 2010 the 15 percent tax rate for individuals on most dividends and long term capital gain.

- Effective 2006 changed the age to 18 until which unearned income

- Extended through 2006 the ability of nonrefundable personal credits to offset alternative minimum tax and increased the exemption amount for 2006 to $62,550 for married couples (one-half this amount for separate returns) and $42,500 for unmarried individuals.

- Accelerated from 2008 to 2006 the indexing of the $80,000 maximum exclusion for income earned abroad ($82,400 in 2006) and effective 2006 set the base housing amount for the additional exclusion at 16 percent of this number and required that the marginal tax bracket of taxpayers receiving either benefit be determined with the exclusions treated as if they were included in income.

P.L. 109-280, the Pension Protection Act of 2006:

- Eliminated, effective August 28, 2006, the charitable deduction for used clothing and household items valued at $500 or less and not in "good condition" and, effective 2007, required cash charitable contributions to be substantiated by a check, bank record or written communication from the charity.

- Increased the deduction limit for qualified conservation easements from 30 percent to 50 percent of adjusted gross income (100 percent for eligible farmers and ranchers) for 2006 and 2007.

Proposed Regulations under Section 263, if finalized, would liberalize the definition of repair to include most restorations of post-acquisition deterioration with materials of no better quality; a taxpayer could elect a Repair Allowance Method (RAM) that lumps all repairs and improvements together and allows a deduction for both to the extent of expenditures of up to 50 percent of the cost of the underlying property divided by the number of years in the MACRS recovery period.

In Murphy v. Internal Revenue Service, 98 AFTR2d 2006-5357, the DC Circuit Court of Appeals reversed the DC Federal District Court and determined that taxing awards for non-physical personal injury under 1996 legislation is unconstitutional inasmuch as the amounts received constitute neither "gains" nor "accessions to wealth."

In Peebles v. Commissioner, TC Summary Opinion 2006-61, a police officer who received $25,000 from his wife's doctor along with an apology for having an affair with the police officer's wife was determined to have taxable income inasmuch as the payment did not arise out of disinterested generosity.

In Ray v. Commissioner, TC Summary Opinion 2006-110, the Tax Court determined that an alimony payment made days before the initial due date of the first payment was nondeductible inasmuch as it was made before the obligation was to commence.

In Johnson v. Commissioner, 97 AFTR2d 2006-676, the Ninth Circuit Court of Appeals agreed with the Tax Court that a lump sum settlement of monthly alimony payments arising from a 1976 divorce was not deductible to the payor where the settlement did not indicate that post-1984 alimony rules were to apply; while current law would make the payment deductible, prior law applicable to modifications of pre-1985 instruments unless stated to the contrary in the modification makes such a payment nondeductible.

In Appoloni v. United States, 97 AFTR2d 2006-2828, the Sixth Circuit Court of Appeals resolved conflicting decisions of two Michigan Federal District Courts, disagreeing with the Eighth Circuit Court of Appeals and a Pennsylvania Federal District Court, and determined that payments to tenured faculty members are wages subject to withholding.

In Vines v. Commissioner, 126 TC No. 15, the Tax Court determined that a taxpayer with short term capital losses of over $26 million was entitled to file a late election to choose "mark-to-market" treatment where the election was due three days after he incurred the losses on liquidation of his brokerage accounts and his tax advisor was unaware of the election; Regulations require that a taxpayer generally be allowed a late election where he acted reasonably and in good faith and relied on a qualified tax professional.

In Revenue Procedure 2006-31, IRS indicated that a revocation of a Section 83(b) election will only be granted where the person filing the election makes a mistake of fact (other than as to the value, the substantial risk of forfeiture or the tax consequences); relief must be requested within 60 days of the date on which the mistake of fact first becomes known.

In Revenue Procedure 2006-32, IRS indicated that losses to personal use residential real property caused by Hurricanes Katrina, Rita or Wilma can be determined by the estimated loss as set forth in insurance records, a binding restoration contract or under a cost index based on the size of the property; a "safe harbor" is also created for determining the loss to personal belongings by multiplying the replacement costs of the property by an applicable percentage.

In Notice 2006-59, IRS determined that a leave donor in an employer-sponsored leave bank under a major disaster sharing plan realizes no income for income tax or social security purposes with respect to the deposited leave and, accordingly, cannot claim a charitable contribution.

In Information Release 2006-12, IRS indicated that payments made by television producers for use of a home for less than fifteen days of the year are excludable from income under the law; however, the value of home improvements is includable in income.

In Information Release 2006-22, IRS indicated that fees received by a notary public are not subject to self-employment tax as these constitute functions of a public office.

In Letter Ruling 200613009, IRS allowed a second partial exclusion on disposition of a principal residence within a two year period for a couple who began the adoption process but found they could not adopt a girl unless she could have an unshared bedroom which necessitated a new residence.

In Letter Ruling 200626024, the Internal Revenue Service permitted a second exclusion on disposition of a principal residence within a two year period where the taxpayer sold him home in order to purchase a house that would better accommodate his disabled mother-in-law.

II. BUSINESS TAXATION

P.L. 109-222, the Tax Increase Prevention and Reconciliation Act (TIPRA):

- From 2006 to 2010 allowed taxpayers not eligible for 3-year amortization for the taxpayer's own creative costs to elect to amortize over five years amounts paid or incurred to create or acquire a musical composition or a copyright therefor in lieu of amortization using the income forecast method.

- Allowed for 2007-2010 capital gain treatment at the election of a taxpayer on dispositions of music compositions or their copyrights by the composer or the composer's donee.

- Extended through 2009 the increased expensing deduction and phase out level for small business as well as its application to off-the-shelf computer software.

- Effective for tax years beginning after May 17, 2006, modified the wage limit for purposes of the deduction for domestic production activities to consider only wages properly allocable to domestic production gross receipts.

- Effective May 18, 2006, and before 2010, in the test for active conduct of a trade or business for purpose of the 5-year rule on corporate divisions required that all affiliated corporations be considered.

- Delayed by 16 days in 2010 and 2011 20.5 and 27.5 percent respectively of corporate estimated tax payments due on September 15.

- Effective 2011 created a 3 percent withholding obligation on most payments to persons providing goods or services to the United States, any state or any locality with $100 million or more of such annual expenditures; excluded payments are those for public welfare or assistance based on needs or income, those in which other mandatory or voluntary withholding applies and those for rentals.

P.L. 109-280, the Pension Protection Act of 2006, allowed S corporation shareholders to reduce basis in their stock by only their share of the basis of property donated after 2005 while receiving a charitable deduction for their share of the fair market value of such property.

Final Regulations under Code Section 199. allowing a simplified cost allocation method for determining the domestic manufacturing deduction in the case of taxpayers grossing $100 million or less or with total assets of $10 million or less and the most simplified method for taxpayers grossing $5 million or less and awarding the deduction to the party with the benefits and burdens of ownership, define construction to include land clearing, grading and demolition.

In Westpac Pacific Foods v. Commissioner, 97 AFTR2d 2006-1044, the Ninth Circuit Court of Appeals reversed the Tax Court and determined that cash advances received by an accrual basis retailer from a wholesaler in exchange for a commitment to purchase in volume are not initially includable in income.

In Swallows Holding v. Comptroller, 126 TC No. 6, the Tax Court determined that an IRS regulation interpreting a law of many decades to deny certain deductions to late-filing foreign companies in a manner inconsistent with a body of case law was invalid.

In Indmar Products Company v. United States, 97 AFTR 2d 2006-738, the Sixth Circuit Court of Appeals reversed the Tax Court and found that loans to an adequately capitalized corporation were in fact debt despite the initial lack of documentation and the absence of a fixed maturity date; the Court utilized an 11-prong analysis, finding that eight prongs weighed in favor of debt, one in favor of equity and two had little significance on the facts.

In Castagnetta v. Commissioner, TC Summary Opinion 2006-24, an individual who worked part time as an employee until noon and who spent five days per week at the racetrack was determined to be in the business of gambling, allowing losses to offset winnings on a Schedule C.

In IRS e-News Headliner Volume 163, IRS indicated that an S corporation shareholder cannot deduct health insurance on his own tax return unless the policy is acquired in the name of the corporation even if state law does not allow an S corporation with one shareholder-employee to buy health insurance in the corporate name.

In Internal Revenue Bulletin 2006-24, IRS announced that it did not acquiesce in Erickson Post Acquisition, Inc., TC Memo 2003-218, in which the Tax Court had determined that an advance from an oil company to a gas station operator was a loan and was not income where each annual installment obligation was treated as forgiven if the supply agreement remained in effect.

In Letter Ruling 200613027, IRS permitted a rescission of an incorporation of a limited liability company taxed as a partnership where the conversion to corporate status was in contemplation of an Initial Public Offering which did not occur due to a "deterioration in market condition."

In Letter Ruling 200619021, IRS determined that stockholders did not get basis in loans to their controlled S corporation when the funds were originated with a bank loan to their controlled partnership, the partnership would lend to the individuals and the individuals would lend to the corporations; IRS found that the "circular route" was without "actual economic outlay that left the taxpayers poorer in the material sense."

III. RETIREMENT PLANS

P.L. 109-222, the Tax Increase Prevention and Reconciliation Act (TIPRA), effective 2010 allowed taxpayers irrespective of income to convert traditional IRAs to Roth IRAs with an option to report one-half of 2010 income from a conversion in 2011 and one-half in 2012.

Public Law 109-227, the Heroes Earned Retirement Opportunities Act allowed nontaxable combat pay to form the basis for individual and spousal IRA contributions on a retroactive basis allowing 2004 and 2005 contributions to be made until May 28, 2009.

P.L. 109-280, the Pension Protection Act of 2006:

- Made "permanent" retirement and education provisions in the 2001 EGTRRA legislation previously scheduled to "sunset" after 2010.

- Indexed all traditional IRA and Roth IRA income phaseout levels for cost of living in $1,000 increments effective 2007.

- Required the IRS to allow taxpayers to direct tax refunds to their IRAs effective 2007 filings [new Form 8888 will be used].

- Required vesting over three years or "2-20" vesting for all defined contribution plans beginning with 2007 plan years.

- Accelerated the required funding of past service costs for defined benefit plans effective 2008 plan years.

- Allowed "high compensation" years for purpose of the maximum defined benefit to precede creation of the plan effective for 2006 plan years.

- Increased the employer deduction for single-employer defined benefit plans effective 2008 fiscal years to allow full funding of all past service costs plus a "cushion" (150 percent of current liability for 2006 and 2007); the deduction is 140 percent of current liability for multi-employer plans effective 2008.

- Restricted after August 17, 2006, the use of funded nonqualified deferred compensation where the employer or a member of its controlled group is in bankruptcy, has a significantly underfunded defined benefit plan or has a terminated defined benefit plan with insufficient assets.

- Made deductible contributions to PBGC-covered defined benefit plans without affecting the combined limit with defined contribution plans effective 2006 fiscal years; for other plans only contributions in excess of 6 percent of compensation count toward the combined limit.

- Approved combined defined benefit-401(k) plans by an employer with up to 500 employees effective 2010 plan years; the 401(k) plan must meet a minimum match requirement.

- Permitted defined benefit plans to make in-service distributions to plan participants who have reached age 62 effective 2007 plan years.

- Required retirement plans that currently must offer a 50 percent survivor benefit to offer at least a 75 percent survivor benefit effective 2008 plan years.

- Effective August 18,2006, permitted public safety officials to take withdrawals without penalty from a defined benefit plan after age 50 on termination from service.

- Permitted public safety officers to elect to defer retirement income up to $3,000 per year to pay for health including long-term care benefits on a pre-tax basis effective 2007 plan years.

- Waived retroactively with a one-year minimum statute of limitations the 10 percent early withdrawal penalty on withdrawals from an IRA or attributable to elective deferrals in a 401(k) or 403(b) plan for reservists called to active duty after September 11, 2001 and before 2008 for 180 days or more when the withdrawals are made after the call to duty and before the close of the active duty period; withdrawn contributions can be recontributed within two years after the end of the duty period but for at least two years after enactment.

- Clarified that the hardship exception to an early withdrawal penalty under 401(k) and 403(b) plans and the "unforeseeable emergency" exception under 457 and nonqualified deferred compensation plans may be the circumstance of any beneficiary of the participant and not only that of a spouse or dependant.

- Allowed in 2006 and 2007 an exclusion from income on otherwise taxable traditional or Roth IRA withdrawals of up to $100,000 per year donated to a charitable organization by an accountholder over age 70 ?; withdrawals are treated as first arising from taxable amounts.

- Expanded the direct transfer of after-tax contributions from one qualified retirement plan or 403(b) plan to another effective 2007 tax years.

- Allowed distributions from qualified retirement plans, 403 (b) plans or 457 plans after 2007 to be rolled over into Roth IRAs subject to the traditional IRA to Roth IRA income limitation in 2008-09 only.

- Permitted direct transfers of distributions of a decedent's interest in a qualified retirement plan, 403(b) plan or 457 plan to a nonspouse beneficiary's Individual Retirement Account effective 2007 subject to the same minimum distribution rules applicable to inherited IRAs.

- Effective 2007 plan years, required quarterly benefit statements for self-directed profit-snaring plans rather than annual statements.

- Created simplified reporting effective 2007 plan years for retirement plans with fewer than 25 employees and raised the asset minimum for one-participant plans to file reports to $250,000.

- Made proceeds of life insurance in excess of basis on contracts issued after August 17, 2006, income to a business unless the insured was an employee within 12 months of death, proceeds are paid to the insured's beneficiary to buy back an equity interest or the insured is a "highly compensated employee" (generally a greater than 5 percent owner, a director or anyone else in the top 35 percent of employees ranked by pay).

Public Law 109-284 amended existing law prohibiting states from taxing retirement income of nonresidents based on source state at the time the income was earned to include a prohibition on taxing such income paid to a nonresident retired partner retroactively to 1996; the law also clarified that cost of living adjustments do not cause taxation for violation of the requirement that periodic payments be substantially equal.

In Gee v. Commissioner, 127 TC No. 1, the Tax Court determined that the penalty for early withdrawal on amounts rolled over from a deceased spouse's IRA is determined based on the age and circumstances of the surviving spouse in that it loses the character of a decedent account by the rollover.

In Rideaux v. Commissioner, TC Summary Opinion 2006-74, the Tax Court found that an individual whose job required him to engage in heavy work was disabled for purpose of avoidance of penalty on an early distribution from a qualified retirement plan although the employer did not check the appropriate box on the information return and the physician refused to characterize his disability as "indefinite."

In Revenue Procedure 2006-27, IRS overhauled its voluntary correction program for retirement plans and created a new Employee Plans Compliance Resolution System (EPCRS).

IV. ESTATE AND GIFT TAXATION

In Chawla v. Transamerica Accidental Life Insurance Company, 440 F.3d 639, the Fourth Circuit Court of Appeals vacated the holding of a Virginia Federal District Court that an irrevocable life insurance trust cannot have an "insurable interest" in a policy; the Court determined that there was no need for the lower court to determine an issue best left for the legislature inasmuch as the lower court decision here could be sustained on other grounds (fraudulent insurance application).

In Estate of Rosen v. Commissioner, TC Memo 2006-115, the Tax Court determined that the property of a limited partnership consisting of cash and marketable securities was fully included in a decedent's estate when she was not competent to manage her affairs at the time of formation of a family limited partnership, the sole purpose of the partnership was saving estate taxes and all investment assets were contributed to the partnership.

In Temple v. United States, 97 AFTR2d 2006-1649, a Texas Federal District Court reviewing the valuation of millions of dollars of gifts in limited liability entities, allowed as much as a 60 percent discounts for a gift of a majority interest in a real estate partnership and discounts of approximately 28 percent for interests in partnerships holding publicly traded stock; the Court declined to give a discount for built-in gains because of the availability of a Section 754 election to an incoming partner.

In Huber v. Commissioner, TC Memo 2006-96, stock transactions among family members in a corporation with approximately 250 shareholders based on a price including a 50 percent discount for lack of marketability were determined to involve no element of gift when similar transactions occurred among distantly related individuals and fiduciaries who had an obligation to get the best possible price.

In Estate of Amlie v. Commissioner, TC Memo 2006-76, the Tax Court determined that a buy-sell agreement fixed the estate tax value of closely held stock where the business arrangement was bona fide and not a testamentary device, the terms were arm's length, applied during life as well as death and contained a fixed and determinable price.

In Revenue Ruling 2006-26, IRS explained how to achieve a marital deduction for an IRA or defined contribution retirement plan bequeathed to a QTIP trust.

In Revenue Procedure 2006-34, IRS updated guidance on non-exclusive factors to be considered in whether an interest in real property qualifies as an interest in a closely held business permitting deferral of estate taxes; the factors include expended time, active participation in leasing activities, extent of services provided by the landlord and the extent to which the decedent personally made or arranged for them, the extent to which the decedent handled tenant requests and complaints and whether an office was maintained for the regular conduct of business and whether regular hours were maintained.

In Letter Ruling 200612001, IRS stated that it had no authority to change a previously made QTIP election to include additional property which as a result of a faulty disclaimer came back to the spouse; the law permits IRS to grant an extension of time for making the QTIP election but not to add additional assets.

In Letter Ruling 200615025, IRS recognized reformation of an irrevocable life insurance trust under state law to avoid inclusion of the life insurance in a decedent's estate.

V. PROCEDURE

P.L. 109-222, the Tax Increase Prevention and Reconciliation Act (TIPRA), required for Offers in Compromise submitted after July 15, 2006, payment of 20 percent of the offered amount with the application (compliance with the proposed terms in the case of Offers with more than five installments) provided IRS may exempt Offers from low-income taxpayers and those based on doubt as to liability from the prepayment; Offers will be treated as accepted if not acted upon within two years and user fees will not be required where partial payment is submitted.

P.L. 109-280, the Pension Protection Act of 2006:

- Reduced the thresholds for application of the substantial and gross valuation penalties for returns filed after August 17, 2006.

- Created a civil penalty on valuations making a substantial or gross valuation misstatement for returns or submissions filed after August 17, 2006.

- Provided automatic revocation of tax-exempt status effective for 2007 returns if an organization fails to file its tax return for the third consecutive year subject to an ability to seek retroactive reinstatement upon reasonable cause.

- Required certain tax-exempt organizations with gross receipts less than $25,000 to file an annual notice with the IRS containing basic contact and financial information; there is no penalty other than potential loss of exempt status.

- Required that all collection due process appeals be handled by the Tax Court effective for determinations after October 15, 2006.

Final Regulations under Code Section 6041, addressing the requirement of an information return on all payments to attorneys, carve out payments to settlement attorneys for sales, exchanges or refinances of real estate as well as payments to bankruptcy trustees.

Proposed Regulations under Title 31 would increase user fees for installment agreement with the IRS effective 2007 from $43 to $105 (from $24 to $45 for a reinstatement).

In Manko v. Commissioner, 126 TC No. 9, the Tax Court determined that IRS may not engage in collection activity without having issued a Notice of Deficiency even if the taxpayer has entered into a closing agreement covering the items in issue.

In NT, Inc. v. Commissioner, 126 TC No. 8, the Tax Court determined that a petition must be dismissed when a corporation loses its good standing and no longer has a legal entitlement under state law to maintain a lawsuit; the Tax Court had previously issued a similar decision in the case of a petition filed when a corporation was not in good standing.

In Billings v. Commissioner, 127 TC No. 2, a divided Tax Court reversed itself as the result of a 2001 law change and determined that it lacks jurisdiction to review an IRS denial of innocent spouse status under the equitable relief provision in the absence of a Notice of Deficiency; IRS concurred with the decision in Chief Counsel Notice 2006-20.

In Crawford v. United States, 97 AFTR2d 2006-1875, a Nevada Federal District Court determined that IRS abused its discretion in not considering at a CDP hearing a taxpayer's proposal that IRS attempt to collect jointly owed tax from the former spouse who had agreed to pay the liability in the divorce decree.

In Boyd v. Commissioner, 97 AFTR2d 2006-2926, the First Circuit Court of Appeals agreed with the Tax Court that IRS may offset a taxpayer's outstanding tax liability from overpayments for other periods without having to comply with formal requirements of notice and hearing applicable to tax levies.

In United States v. Sanders, 98 AFTR2d 2006-5339, a Montana Federal District Court, weighing the equities, permitted IRS foreclosure on a residence (apparently a principal residence) and a bar on the same lot, balancing equities in favor of the IRS.

In People Place Auto Hand Car Wash, LLC v. Commissioner, 126 TC No. 19, the Tax Court determined that the automatic stay provisions of the Bankruptcy Code do not apply to prevent IRS collection activities against a limited liability company wholly owned by the bankrupt husband and wife.

In In re Uzialko, 97 AFTR2d 2006-1994 and in In re Shope, 98 AFTR2d 2006-6029, Pennsylvania and Ohio Bankruptcy Courts agreed with the IRS that it need not consider Offers in Compromise from taxpayers who are in bankruptcy; the Courts are in disagreement on this issue.

In Izzo v. United States, 97 AFTR2d 2006-1817, a Michigan Federal District Court reversed a Bankruptcy Court decision allowing discharge of tax liability following IRS preparation of "substitute returns"; while the Court declined to follow other courts which have taken a blanket approach in denying discharge, the Court simply determined that the taxpayer made no "honest and reasonable attempt to satisfy the requirements of the tax law."

In Blom v. United States, 97 AFTR2d 2006-2777, a Pennsylvania Federal District Court, while observing that a remittance must be specifically labeled as a "deposit" rather than as a "payment" after the mailing of a notice of deficiency, indicated that the position of the Third Circuit Court of Appeals is that the characterization of a remittance prior to a notice of deficiency depends on facts and circumstances and is resolved by looking at the timing of the remittance, the intent of the taxpayer and the treatment of the remittance by IRS; the Court noted here that the taxpayer executor did not consult with a tax professional and had the motivation of limiting penalties due to untimeliness and accordingly the first two factors indicated a deposit notwithstanding the treatment by the IRS as a payment; the effect was to avoid the three-year statute of limitations on "payments".

In Wachovia Bank v. United States, 98 AFTR2d 2006-5303, the Eleventh Circuit Court of Appeals reversed a Federal District Court and determined that the statute of limitations on tax refunds for amounts paid with returns that did not need to be filed was three years rather than a general six-year period.

In McGowan v. Commissioner, 98 AFTR2d 2006-5081, the Eleventh Circuit Court of Appeals reversed the Tax Court and determined that an unlimited statute of limitations does not necessarily apply where the taxpayer previously was convicted of willfully making and subscribing false individual income tax returns and willfully aiding and assisting in the preparation of false corporate income tax returns; the issue in Tax Court which would keep open the statute of limitations for an unlimited period is different language as to whether the individual "had the intent to evade when he underreported his taxes."

In Lanco Inns v. Internal Revenue Service, 98 AFTR2d 2006-5238, a NY Federal District Court refused to abate penalties for untimely deposits and late payments where a hotel general manager embezzled funds, applying reasoning that the embezzler's actions were subject to supervision and that the corporation had lax internal controls; the Court distinguished its ruling from a case when the criminal conduct was committed by corporate officers and board members because supervision over these people was not possible.

In Revenue Ruling 2006-42, IRS indicated that the only two defenses to a levy are the lack of possession/obligation and a prior judicial attachment or execution and required a bank to pay over funds on deposit despite its own lien for amounts borrowed by the depositor and then file an administrative request for refund within nine months.

In Notice 2006-56, IRS gave individuals whose principal residence or business entities whose principal place of busi ness was located in the core of Hurricane Katrina disaster area, or whose records or tax practitioner was located there, until October 16, 2006, to file extended 2004 or 2005 income tax returns; in Information Release 2006-135, IRS set the same extended deadline for business returns.

In Information Release 2006-137, the Internal Revenue Service created a safe harbor under which individual taxpayers can receive a telephone excise tax refund for amounts paid from March 1, 2003, through July 31, 2006, ranging from $30 for a person filing a return with one exemption to $60 for a person filing with four or more exemptions; a new form 1040EZ-T is created for individuals who do not need to file a regular return.

In Announcement 2006-63, the Internal Revenue Service set forth guidelines for what its private collection agencies can and cannot do, generally limiting their activity to getting payment in a lump sum or in installments of no more than 60 months (specific IRS approval is required for any agreement in excess of 36 months); appeals from denials of installment agreements go back to the Internal Revenue Service.

In Fact Sheet 2006-22, IRS indicated that payments made pursuant to an Offer in Compromise are nonrefundable if the Offer is not accepted but may be allocated by the taxpayer; the Fact Sheet indicated that IRS will not require the upfront payment(s) in the case of a low income taxpayer with income below HHS poverty levels and, when calculating the 24-month time frame in which IRS must act or an Offer is assumed approved, IRS will disregard any time periods during the pendency of a judicial proceeding.

In Internal Legal Memorandum 200607019, IRS reversed an earlier position and determined that a six-year statute of limitation applies to recovery by a partnership or S corporation which makes a "required payment" under Section 7519 inasmuch as the payment is a deposit and not a tax.

In Internal Legal Memorandum 200614006, IRS indicated that it may levy on assets of a Spendthrift Trust and sue its trustee for conversion if the trustee knowingly distributes funds subject to a federal tax lien notwithstanding contrary rights of a beneficiary under state law.