Tax Court Finds That the IRS Could Assess Restitution against a Third Party Where His Tax Conviction Crime Was Aiding and Abetting His Father’s Evasion of Income Tax.

In Botrager 151 TC No. 12 (2018), the Tax Court concluded that IRC Sec. 6201(a)(4) authorizes IRS to assess restitution for a tax liability that a person had been ordered to pay, upon conviction of violating IRC Sec. 7201, when his wrongdoing consisted of aiding and abetting the evasion of payment of a third party's tax liability.

Facts. The IRS alleged that from 1998 through 2010, Bontrager had criminally aided and abetted his father in evading payment of the father’s 1994 Federal income tax liability. Bontrager was alleged to have done this by using his company and a related real estate company to help his father conceal assets, income, bank accounts, and business interests. The IRS alleged that Bontrager had, for example, issued corporate checks to his father's female acquaintance, had used corporate funds to purchase a Rolls Royce for his father's use, had allowed his father to charge personal expenditures to a corporate credit card, had titled various assets in the names of his father's nominees, and had used offshore accounts to conceal his father's income and assets.

Several months before his sentencing, on October 4, 2013, Bontrager filed a petition under Chapter 7 of the Bankruptcy Code. In 2014, the bankruptcy court closed the bankruptcy case by issuing an order of discharge. That order noted that certain types of debts are not discharged in a Chapter 7 case, including "[d]ebts for most fines, penalties, forfeitures, or criminal restitution obligations."

Relying on IRC Sec. 6201(a)(4), IRS assessed the $72,710 of restitution that Mr. Botrager had been ordered to pay and recorded this assessment as a liability for his 1994 tax year.

On June 3, 2015, after petitioner did not pay the balance of the liability on notice and demand, the IRS filed a Notice of Federal Tax Lien. Upon notification, petitioner timely requested a Collection Due Process hearing. In his hearing request, Bontrager contended that the restitution was not assessable because it was ordered for failure to pay a tax that title 26 imposed upon his father rather than upon him.

After the collection due process hearing, the settlement officer upheld the filing of the Notice of Federal Tax Lien, and Mr. Bontrager timely petitioned the Tax Court.

The Court’s Analysis:

The District Court's sentencing order stated that petitioner was adjudicated guilty of violating "26 U.S.C. § 7201.” IRC Sec. 7201 criminalizes any willful attempt “in any manner to evade or defeat any tax imposed by this title or the payment thereof.” The elements of a IRC Sec. 7201 offense are:

• willfulness;
• the existence of a tax deficiency; and
• an affirmative act constituting an evasion or attempted evasion of the tax.

The second element is equivalent to a failure to pay tax.

The sentencing order described the nature of petitioner's offense as “aiding and abetting the evasion of payment of income tax,” within the meaning of 18 U.S.C. sec. 2. which alone does not make “aiding and abetting” a distinct crime. Rather, it provides that a person who “aids, abets, counsels, commands, induces or procures” the commission of an offense against the United States “is punishable as a principal.” Restitution orders are therefore, based on the underlying crime, not on the aiding and abetting.

IRC Sec. 6201(a)(4) authorizes the Commissioner to assess and collect the amount of restitution under a sentencing order “for failure to pay any tax imposed under this title.” As Bontrager was convicted of violating IRC Sec. 7201, he was thus found guilty of attempting “to evade or defeat [a] tax imposed by this title or the payment thereof.” Because failure to pay a tax imposed by title 26 was an element of the offense with which Bontrager was charged, and because he was convicted of that offense, IRC Sec. 6201(a)(4) by its terms authorized the IRS to assess and collect the amount of restitution that Botrager was ordered to pay.

Bontrager argued that the tax, the payment of which he was convicted of evading, was not originally imposed upon him by title 26. The Court said that neither IRC Sec. 7201 nor IRC Sec. 6201(a)(4) requires that this be the case. IRC Sec. 7201 criminalizes any willful attempt to evade payment of “any tax imposed by this title.” IRC Sec. 6201(a)(4) authorizes the assessment of restitution “for failure to pay any tax imposed under this title.”

The Tax Court further held that Mr. Bontrager's restitution liability was not discharged in the bankruptcy proceeding. The Court rejected his contention that IRS waived the nondischargeability of the restitution obligation by filing a claim as a general unsecured creditor in his chapter 7 case. Contrary to the taxpayer's view, the Court found that nothing in the Bankruptcy Code prevents a creditor of a nondischargeable debt from filing a claim, and the taxpayer provided no legal authority for this proposition. Further, the Court determined that IRS properly filed its claim as a general unsecured creditor. Because IRS had not assessed the restitution obligation at the time of the taxpayer's bankruptcy, let alone filed an NFTL, it was required to file its claim as a general unsecured creditor.

Are You Concerned that if Substantial Gifts Were Made Which Exceed the Pre-TCJA Estate and Gift Tax Exemption That Your Estate would Be Adversely Impacted?

In REG-106706-18 the IRS has issued proposed regulations that provide that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025, as provided for by the Tax Cuts and Jobs Act (TCJA), will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. 

Background

In computing the amount of Federal gift tax to be paid on a gift or the amount of Federal estate tax to be paid at death, the gift and estate tax provisions of the Internal Revenue Code (Code) apply a unified rate schedule to the taxpayer’s cumulative taxable gifts and taxable estate on death to arrive at a net tentative tax. The net tentative tax then is reduced by a credit based on the applicable exclusion amount (AEA), which is the sum of the basic exclusion amount (BEA) within the meaning of section 2010(c)(3) of the Code and, if applicable, the deceased spousal unused exclusion (DSUE) amount within the meaning of section 2010(c)(4). In certain cases, the AEA also includes a restored exclusion amount.

Prior to January 1, 2018, for estates of decedents dying and gifts made beginning in 2011, section 2010(c)(3) provided a BEA of $5 million, indexed for inflation after 2011. The credit is applied first against the gift tax, on a cumulative basis, as taxable gifts are made. To the extent that any credit remains at death, it is applied against the estate tax.

Section 11061 of the TCJA amended section 2010(c)(3) to provide that, for decedents dying and gifts made after December 31, 2017, and before January 1, 2026, the BEA is increased by $5 million to $10 million as adjusted for inflation (increased BEA). On January 1, 2026, the BEA will revert to $5 million. Thus, an individual or the individual’s estate may utilize the increased BEA to shelter from gift and estate taxes an additional $5 million of transfers made during the eight-year period beginning on January 1, 2018, and ending on December 31, 2025 (increased BEA period).

Section 11061 of the TCJA also added section 2001(g)(2) to the Code, which, in addition to the necessary or appropriate regulatory authority granted in section 2010(c)(6) for purposes of section 2010(c), directs the Secretary to prescribe such regulations as may be necessary or appropriate to carry out section 2001 with respect to any difference between the BEA applicable at the time of the decedent’s death and the BEA applicable with respect to any gifts made by the decedent.

Given the cumulative nature of the gift and estate tax computations and the differing manner in which the credit is applied against these two taxes, there are several questions regarding a potential for inconsistent tax treatment or double taxation of transfers resulting from the temporary nature of the increased BEA.

Analysis

·       First, in cases in which a taxpayer exhausted his or her BEA and paid gift tax on a pre-2018 gift, and then either makes an additional gift or dies during the increased BEA period, will the increased BEA be absorbed by the pre-2018 gift on which gift tax was paid so as to deny the taxpayer the full benefit of the increased BEA during the increased BEA period?

§  The IRS’s response is that the gift tax determination appropriately reduces the increased BEA only by the amount of BEA allowable against prior period gifts, thereby ensuring that the increased BEA is not reduced by a prior gift on which gift tax in fact was paid.

·                Second, in cases in which a taxpayer made a gift during the increased BEA period that was fully sheltered from gift tax by the increased BEA but makes a gift or dies after the increased BEA period has ended, will the gift that was exempt from gift tax when made during the increased BEA period have the effect of increasing the gift or estate tax on the later transfer (in effect, subjecting the earlier gift to tax even though it was exempt from gift tax when made)?

§  The IRS responded by ruling the only time that the increased BEA enters into the computation of the estate tax is when the credit on the amount of BEA allowable in the year of the decedent’s death is netted against the tentative estate tax, which in turn already has been reduced by the hypothetical gift tax on the full amount of all post-1976 taxable gifts (whether or not gift tax was paid). Thus, the increased BEA is not reduced by the portion of any prior gift on which gift tax was paid, and the full amount of the increased BEA is available to compute the credit against the estate tax.

·                The third situation considered is whether the gift tax on a gift made after the increased BEA period is inflated by a theoretical gift tax on a gift made during the increased BEA period that was sheltered from gift tax when made. If so, this would effectively reverse the benefit of the increased BEA available for gifts made during the increased BEA period. This issue arises in the case of donors who both made one or more gifts during the increased BEA period that were sheltered from gift tax by the increased BEA in effect during those years, and made a post-2025 gift. The concern raised is whether the gift tax determination on the post-2025 gift will treat the gifts made during the increased BEA period as gifts not sheltered from gift tax by the credit on the BEA, given that the post-2025 gift tax determination is based on the BEA then in effect, rather than on the increased BEA.

§  The IRS responded by ruling the gift tax from prior periods includes the gift tax attributable to the gifts made during the increased BEA period. In this way, the full amount of the gift tax liability on the increased BEA period gifts is removed from the computation, regardless of whether that liability was sheltered from gift tax by the BEA or was satisfied by a gift tax payment. All that remains is the tentative gift tax on the donor’s current gift. Even if the sum of the credits allowable for prior periods exceeds the credit based on the BEA in the current (post-2025) year, the tax on the current gift cannot exceed the tentative tax on that gift and thus will not be improperly inflated. The gift tax determination anticipates and avoids this situation, but no credit will be available against the tentative tax on the post-2025 gift.

·                The fourth situation considered is whether, for estate tax purposes, a gift made during the increased BEA period that was sheltered from gift tax by the increased BEA inflates a post-2025 estate tax liability. This will be the case if the estate tax computation fails to treat such gifts as sheltered from gift tax, in effect reversing the benefit of the increased BEA available for those gifts. This issue arises in the case of estates of decedents who both made gifts during the increased BEA period that were sheltered from gift tax by the increased BEA in effect during those years, and die after 2025. The concern raised is whether the estate tax computation treats the gifts made during the increased BEA period as post-1976 taxable gifts not sheltered from gift tax by the credit on the BEA, given that the post-2025 estate tax computation is based on the BEA in effect at the decedent’s death rather than the BEA in effect on the date of the gifts. In this case, the statutory requirements for the computation of the estate tax, in effect, retroactively eliminate the benefit of the increased BEA that was available for gifts made during the increased BEA period.

§  The IRS responded by ruling to implement the TCJA changes to the BEA under section 2010(c)(3), the proposed regulations would amend §20.2010-1 to provide that, in the case of decedents dying or gifts made after December 31, 2017, and before January 1, 2026, the increased BEA is $10 million.

The proposed regulations also would amend §20.2010-1 to provide a special rule in cases where the portion of the credit as of the decedent’s date of death that is based on the BEA is less than the sum of the credit amounts attributable to the BEA allowable in computing gift tax payable within the meaning of section 2001(b)(2). In that case, the portion of the credit against the net tentative estate tax that is attributable to the BEA would be based upon the greater of those two credit amounts.

Can the Filing of an Amended Tax Return Result in the Waiver of the Attorney-client Privilege Between Taxpayer and Accountant?

U.S. v. Adams, 122 AFTR 2d ¶2018-5380, (DC MN 10/27/2018)

Under United States v. Kovel, 296 F.2d 918, 921–22, 9 AFTR 2d 366 (2nd Cir. 1961) the attorney-client privilege applies to an individual's communications with an accountant if the communications are “made in confidence for the purpose of obtaining legal advice from the lawyer” The party asserting that a communication is protected by the attorney-client privilege has the burden to establish that it applies. U.S. v. Horvath, 53 AFTR 2d 84-1138, (8th Cir 1984).

In Adams the district court concluded that communications between a taxpayer and his accountant was protected by the attorney-client privilege. However the court concluded that any such privilege could be waived by filing an amended tax returns, and that that even if they were protected, the crime-fraud exception vitiated the privilege.

Under the crime-fraud exception, the attorney-client privilege does not extend to communications made for the purpose of getting advice for the commission of a fraud or a crime. Though the attorney-client privilege protects an individual's consultation with a lawyer with respect to past wrongdoings, the privilege is lost if the communication is made to further a continuing or contemplated criminal fraud or scheme. Similarly, a client who has used his attorney's assistance to perpetrate a crime or fraud cannot assert the work product privilege as to any documents generated in furtherance of his misconduct. See, In re Green Grand Jury Proceedings, 492 F.3d 976 (8^th Cir. 2007); Zolin v. U.S., 63 AFTR 2d 89-1483 (S. Ct. 1989)

Before the crime-fraud exception may be applied, the government must make a threshold showing that legal advice was obtained to further an illegal or fraudulent scheme. It's required to demonstrate "a factual basis adequate to support a good faith belief by a reasonable person… that in camera review of the materials may reveal evidence to establish the claim that the crime-fraud exception applies." In re Green Grand Jury Proceedings,  492 F.3d 976, 979 (8^th Cir. 2007); Zolin v. U.S., 63 AFTR 2d 89-1483, (S Ct 1989).

Notwithstanding, to make the ultimate showing that the crime-fraud exception applies, and that the purportedly privileged documents should be disclosed, a higher level of proof is required. In re Gen. Motors Corp., 153 F.3d 714 (8^th Cir. 1998) The Supreme Court in Zolin expressly declined to specify the quantum of proof required to establish the crime-fraud exception, but noted that the standard is higher than the threshold showing required for in camera review.

The taxpayer, Edward Adams, invoked the attorney-client privilege over numerous communications between himself and accountants at Murry LLC, who were retained by his tax counsel under a so-called "Kovel arrangement."

The government raised three challenges to the assertion of privilege with regard to the communication with the accountants:

·      that the protections provided under Kovel were not applicable to these individual communications;

·      that any such protection was waived by the taxpayer's subsequent filing of amended tax returns; and

·      that the crime-fraud exception invalidated any claim of privilege.

In addition to the communications with his accountants, the government sought, and Mr. Adams asserted privilege with regard to, communications that he had with his law and business partner and their paralegal, and with lawyers that represented several companies (including the Apollo corporation, noted below).

The district court conducted an in camera review of the various Murry LLC communications.

The district court rejected the government's argument that the protections of Kovel did not apply to the Murry LLC communications. The court found that the declaration and supplemental declaration by Mr. Adams' attorney sufficiently demonstrated that the attorney-client privilege extended to the documents at issue. In these declarations, the attorney thoroughly explained how communications with Murry LLC and the information Mr. Adams provided to the accountants assisted in his provision of legal advice to his client regarding tax-related matters. The court found that this was sufficient to invoke the attorney-client privilege. The court also stated that its in camera review of the communications did not contradict the attorney's explanation.

The Amended Tax returns. The district court also concluded that Mr. Adams' subsequent filing of amended tax returns for 2008, 2009, and 2010 did not result in a waiver of the privilege as to the Murry LLC communications submitted for in camera review. The district noted that in Cote, the Eighth Circuit stated that

"[n]otwithstanding our recognition that the attorney-client privilege attached to the information contained in the accountant's workpapers under the circumstances existing here, we find that by filing the amended returns the taxpayers communicated, at least in part, the substance of that information to the government, and they must now disclose the detail underlying the reported data."

Notably the Cote court distinguished between "workpapers [that] contain detail of unpublished expressions which are not part of the data revealed on the tax returns," and other workpapers to which the rule of waiver would apply. Mr. Adam's attorney explained in his supplemental declaration that, in responding to a subpoena from the government, he provided copies of files that contain data and information that that was included on the amended returns for 2008-2010. However, the attorney did not disclose information communicated by Mr. Adams in connection with requests for legal advice. The district court found that the explanation of Mr. Adam's attorney distinguished this case from Cote, where the accountant "testified that the information on his workpapers was later transcribed onto the amended returns which were filed by the taxpayers with the government," thereby waiving the privilege.

The district court said that it could not conclude on the record before it (including its in camera review) that Mr. Adams was claiming privilege over the underlying details for the data that was ultimately transmitted to IRS when he filed the amended returns. Instead, the record suggested that the information conveyed to the accountants at Murry LLC comprised the type of unpublished expressions that were not later revealed on the amended tax returns.

As to the government's contention with regard to the crime-fraud exception, the district court found that while the government met the initial threshold requirement, it failed to make the ultimate showing that the crime-fraud exception applied.

Conclusion. While amended tax returns have the potential to unravel the Koval privilege, if communications are maintained properly the waiver of the attorney-client can be maintained.

Can you audit my online Tax Accounting Class-online starting August 27th?

 

As I mentioned a few days ago we are starting the online Tax Accounting class August 27th.

 

Someone asked –“can I audit the class?”

Here is the rules:

 

Cost for outsiders non-FDU alum to audit is charge for 1 credit-$1334; For an FDU alumni the cost of 1/2 credit-$667.

 

Generally, we want them to have an MST and the MST can be from any school, or a JD or MBA.

 

For online version- CPAs without MST (since it has no effect on those taking if for credit for an FDU MST) with some years of experience.

 

Here is a link to my introductory video-take a look!  https://www.dropbox.com/s/7vty9ie9cgy24qt/Course%20Introduction.mp4?dl=0

 

If you would like to enroll contact me (brunettii@fdu.edu) and/or Ron West (west@fdu.edu)

Federal Tax Accounting -online @ Fairleigh Dickinson University

Once again I am offering my federal tax accounting course online at FAIRLEIGH DICKINSON UNIVERSITY starting August 27, 2018. I will be using my book, “Federal Tax Accounting“(CCH 2017).

 

The course is divided into four modules. In the first module we will study “the entities tax year.” In the second module we will study “changes of accounting methods.”  In the third module we will study “tax accounting methods.”  In the fourth module we will study “inventory and uniform capitalization.”

 

The course is designed to not only explore the principles of Federal Tax Accounting as well as learn to analyze and solve tax accounting problems. The course is activities-based, functional incrementally and cumulatively. The outcomes will be determined based on case studies, analysis of solving tax problems, and preparation of IRS forms such as 3115’s and 1128‘s, etc.

 

Each module will have a capstone project where, in some cases, there will be a group activity, and in some an individual activity.

 

Each week you will have specific assignments, access to online video lectures (over 50), a weekly WebEx meeting, and access to numerous cases, rulings, revenue procedures, etc.

The topics include:

•      The Entity’s Tax Year;
  •         Methods of Accounting;
  •         The Cash Receipts and Disbursements Method;
  •         The Accrual Method;
  •         Change in Accounting Method;
  •         Inventories;
  •         Uniform Capitalization Rules;
  •         Instalment Sales; and
  •         Long-Term Contracts.

I invite you to sign up for the course through the FAIRLEIGH DICKINSON UNIVERSITY MST website. You may contact Ron West at: West@fdu.edu or contact me at” brunetti@fdu.edu.

The IRS Recently Clarified Its Position on Willfulness in FBAR Penalty Cases and It Is Not Taxpayer-Friendly

“This article was originally posted on Scarinci Hollenbeck’s website – (http://scarincihollenbeck.com/law-firm-insights/tax/taxes/irs-fbar-penalty-case/) by Jeffrey R. Pittard 

 

Pursuant to 31 U.S.C. 5314(a) and 31 C.F.R. 1010.350, a United States person is required to annually report financial accounts in which it has a financial interest or signature authority over to the Internal Revenue Service on a Report of Foreign Bank and Financial Accounts Form (FBAR). If a taxpayer fails to timely submit its FBAR, 31 U.S.C. 5321(a)(5) allows the government to impose penalties on the taxpayer up to the greater of $100,000 or half the value of the account balance at the time of the violation when the failure to file is considered “willful”.


The IRS has recently released internal documentation in which it outlines its views on the standard for “willfulness” in assessing FBAR penalties against taxpayers. It also sets forth its belief in the burden of proof required to establish that a taxpayer acted willfully.


According to the IRS, willfulness is more than just ignoring a known obligation. The IRS has determined that for FBAR violation purposes, the term “willful” includes not only a knowing failure to file, but also when the taxpayer is “reckless” or “willfully blind” in its failure to file.
Courts have held that recklessness exists when a taxpayer “(1) ought to have known know that (2) there was a grave risk [in not complying with the law] and if (3) he was in a position to find out for certain very easily.” United States v. Vespe, 868 F.2d 1328, 1335 (3d Cir. 1989).


Willful blindness exists when a taxpayer makes “a conscious effort to avoid learning about reporting requirements.” United States v. Williams, 489 Fed.Appx. 655, 659-660 (4^th Cir. 2012). The Internal Revenue Manual also indicates that “willful blindness may be present when a person admits knowledge of, and fails to answer questions concerning, his interest in or signature or other authority over financial accounts at foreign banks on Schedule B of his Federal income tax return.” I.R.M. 4.26.16.6.5.1.


Thus, the IRS could attempt to assess a willfulness penalty even if you were not aware of your FBAR filing obligation. Although the IRS initially believed in the internal guidance that the IRS would need to prove willfulness under the clear and convincing standard, case law has indicated that a lower burden – merely a preponderance of the evidence – is all that is required to assess an FBAR penalty against a taxpayer. Thus, the IRS needs only to prove that you were more likely than not willful in failing to file your FBAR.

IRS implies that payments made inn 2017 for 2018 real property taxes will not result in a property tax deduction for 2017

In Information Letter 2018-0009 the IRS has implied that actions taken in Dec. 2017 by  the New Jersey Department of Community Affairs, which ordered NJ municipalities to accept payments for 2018 property taxes in calendar year 2017, will not result in those payments generating 2017 federal income tax deductions.

One of the provisions of the Tax Cuts and Jobs Act (TCJA) limited post-2017 annual deductions for real property and other state and local taxes to a maximum of $10,000. Another TCJA provision increased the standard deduction for 2017 and thereafter. As a result of these two changes, many taxpayers will not get a full benefit for their 2018-and-later payments of nonbusiness real property taxes.

 Code Sec. 164(b)(6) , as amended by TCJA, provides that a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, cannot claim an itemized deduction in 2017 for that prepaid income tax.

In December, 2017, IRS announced that a prepayment of real property taxes is deductible in the year of prepayment, e.g., 2017, only if the property tax is assessed in the year of prepayment. (IR 2017-120) State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed. In the pronouncement the IRS provided the following illustrations:

Illustration. Assume County A assesses property tax on Jul. 1, 2017 for the period Jul. 1, 2017 - Jun. 30, 2018. On Jul. 31, 2017, County A sends notices to residents notifying them of the assessment and billing of the property tax in two installments, with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017 and may claim a deduction for this prepayment on the taxpayer's 2017 return.

Illustration. County B also assesses and bills its residents for property taxes on Jul. 1, 2017, for the period Jul. 1, 2017 - Jun. 30, 2018. County B intends to make the usual assessment in Jul. 2018 for the period Jul. 1, 2018 - Jun. 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until Jul. 1, 2018.

On December 27, 2017 then New Jersey Governor Chris Christie issued Executive Order 237 essentially requiring municipalities to accept payments for 2018 property taxes in calendar year 2017, and to credit payments postmarked on or before Dec. 31, 2017, as received in calendar year 2017 (NJ Order). The state agency charged with implementing the NJ Order, the New Jersey Department of Community Affairs, issued a similar requirement in Local Finance Notice 2017-28. The NJ Order cites existing New Jersey law that permit taxes to be received and credited prior to the dates otherwise fixed for payment. That law is N.J. Rev. Stat. §§ 54:4-66(e) and 54:4-66.1(f), which provide that taxes may be received and credited as payments at any time, even prior to the dates herein before fixed for payment, from the property owners, their agents, or lien holders.

In February, 2018, New Jersey Attorney General Gurbir Grewal wrote IRS, arguing that New Jersey taxpayers who paid 2018 property taxes on or before Dec. 31, 2017 should be eligible for deductions in 2017 and asking IRS to confirm that analysis. Pointing to the NJ Order and the Local Finance Notice, he said that "State statutes, executive orders, and agency notices are clear that residents may satisfy property tax assessments in advance and payments must be credited at that time. I see no basis for the IRS to refuse to do the same." He also noted, "...while the TCJA did establish that income tax prepayments should be credited in 2018, that law did not impose the same rule on property tax prepayments. And so, relying on the text of the law, thousands of New Jersey taxpayers rushed to pay their taxes in order to qualify for the SALT [state and local tax] deduction."

In a letter to the New Jersey attorney general, IRS has implied that it disagrees with his position. The IRS noted that, before the passage of the TCJA, IRS has consistently taken the position during examinations that the deduction for state and local real property taxes is allowable as long as the tax is both paid and imposed (or assessed) in the tax year. The IRS said that, on the rare occasions this position has been challenged, courts have upheld IRS's interpretation. See Estate of Hoffman, 87 AFTR 2d 2001-2119 (4^th Cir. 2001 where the Court of Appeals for the Fourth Circuit upheld a Tax Court decision disallowing the deduction for a prepayment of property taxes because the tax had not yet been assessed.

In the letter the IRS said that the TCJA did not change Code Sec. 164 relating to property tax prepayment. As such, IRS's longstanding position remains the same and is reflected in IR 2017-120. Thus, if a state or local taxing jurisdiction imposed tax on real property by the end of 2017, the amounts paid in 2017 are deductible on a taxpayer's 2017 tax return. If the tax was not imposed by a state or local taxing jurisdiction by the end of 2017, the requirements for the deduction under Code Sec. 164 are not satisfied in that year, and the deduction is therefore not allowable in 2017.