Tax Law Changes After Recent Court Ruling

Are you still leaning on “limited partner” labels to dodge self-employment tax? The Tax Court’s Soroban Capital Partners decision (May 28, 2025) just blew a hole in that strategy. Three hedge-fund principals, state-law LPs on paper, were re-cast as active partners and hit with SE tax on $140 million. Why it matters: ·      Titles no longer save you; the court applies a functional analysis of what you actually do. ·      Expect the same scrutiny for LLC members calling themselves “investors” and S-corp owners paying token wages. ·      Guaranteed payments, distributive shares, and skimpy W-2s are all fair game when services drive the income. Action items for tax planning: 1.    Audit your role documentation - minutes, org charts, time tracking. 2.    Set market-rate compensation for active owners; treat the excess as return on capital only if it truly is. 3.    Model the downside of an IRS challenge versus the cost of paying in now. The bottom line: Soroban narrows §1402(a)(13) to truly passive investors. If your business thrives on owner labor, assume the IRS is watching, and retool your compensation playbook accordingly. #TaxCourt #SelfEmploymentTax #Soroban #Partnerships #LLC #SCorporation #TaxPlanning #IRS

This High Court judgement (Commissioner of Domestic Taxes vs Dinesh Construction Ltd, E220/2024) is extremely consequential for tax payers on two critical accounts: 1. For those taxpayers grappling with the missing trader headache on matters VAT, the High Court has set aside the Tax Appeals Tribunal's judgement & clarified that the burden of the taxpayer goes beyond raising the invoice. The High Court reiterates that should the Revenue Authority's audit raise doubts, the burden of showing a competent & actual supplier rests with the taxpayer & not the Revenue Authority. The High Court argues that the right to apply Sec17 (on deduction of input tax) of the VAT Act is premised on the existence of a valid supply Essentially, a taxpayer can & will be held liable for the supplier's non-compliance & the due diligence burden effectively lies with you as the taxpayer. I see an unnecessarily huge tax administration burden being transferred to taxpayers here, it will be chaotic. 2. The Court has again thrown out the Tax Appeal Tribunal's position on variances between bank deposits & income declared. KRA's audit revealed unexplained deposits in Dinesh Construction Ltd's bank account to the tune of Kes 157.0M in 2018 & Kes 29.0M in 2019. The Court holds that: "He who asserts must prove & if a taxpayer claims that a deposit to their bank account was loan proceeds, they must produce an accompanying loan agreement. Bank deposits are prima facie income unless otherwise explained"

Tax Court Alert: Big Win for Taxpayers on R&D Credits The Tax Court just handed down two rulings that could have major implications for how the “funded research” rules are applied under Section 41. Spoiler alert: they ruled in favor of the taxpayers. 👏 Here’s what happened: In both cases, the IRS argued that the research was “funded” and therefore ineligible for the R&D tax credit. But the court pushed back, emphasizing something tax pros have known for a while — local contract law matters. A lot. The key takeaway? ➡️ Risk and rights matter more than labels. If your contract doesn’t shift financial risk or grant substantial rights to the payer, the work might not be funded — even if it sounds like it is on paper. This is a big deal for startups and tech companies working under fixed-price contracts or government grants. It means you may still qualify for the credit — even if there’s outside funding involved — as long as you’re assuming the economic risk. It’s a reminder that: ✔️ Contracts need to be reviewed carefully. ✔️ “Funded” doesn’t always mean what the IRS thinks it means. ✔️ The R&D tax credit is still very much in play — even in complex agreements. If you’re unsure how this impacts your claim, now’s the time to review your contracts with a tax pro. 👇 What’s your take on this ruling? Have you faced IRS scrutiny over “funded research”? Let’s talk. #RDTaxCredit #TaxStrategy #IRS #FundedResearch #Section41 #TaxPlanning

Hello Hello A significant tax case was finalized this morning in the High Court: Obie Logistics (Pty) Ltd v. Commissioner of Inland Revenue [NamRA]. In this case, NamRA set off N$1.2 million—a tax refund due to Obie Logistics—against a N$53 million tax liability owed by a separate company, Obie Transport. The justification? Both companies were owned and solely directed by this one guy: Josias Oberholster. NamRA relied on Section 83D of the 2015 Income Tax Act amendments, which allows the authority to recover unpaid taxes from directors. However, there were key legal issues: - The N$53 million tax liability arose in the early 2000s, long before the 2015 amendment was enacted. - Obie Transport is already liquidated, meaning the liability effectively belongs to an entity that no longer exists. The court found that Section 83D cannot be applied retroactively and that NamRA had no legal basis to set off one company’s refund against another company’s liability. As a result, NamRA was ordered to refund the N$1.2 million to Obie Logistics within 60 days. This case raises important questions regarding tax enforcement. While NamRA’s approach may seem logical from a tax collection standpoint, the court has reinforced that setoffs between separate legal entities are not permissible unless explicitly provided for by law. A broader policy concern remains: What mechanisms then exist to prevent individuals from accumulating tax liabilities under one entity, liquidating it, and simply continuing operations under a new company? #TaxLaw #NamRA #TaxSetoffs #CorporateTax #LegalPrecedent

Pandemic still echoes in tax law cases. You may ask, "Are you serious? It’s been 5 years since Covid. There are still pending cases in tax laws?" I would sadly say, "Yes! Almost 5 years since Covid-19, and yet it still impacts current tax law, as seen through the Rajeev Bansal case." 𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱 The government introduced the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) to extend limitation periods during COVID, effective until June 30, 2021. Then, the Finance Act, 2021 became effective from April 1, 2021, introducing: → Section 148A for reassessment procedure. → Shortened limitation period: 3 years, with 6 years only for cases exceeding ₹50 lakhs. → New approval requirements from authorities under Section 151. This created an overlap between TOLA and the Finance Act, 2021 for notices issued between April 1 and June 30, 2021. Building on the precedent set in the Ashish Agarwal case, where the Supreme Court held that all notices of that period were deemed to be show-cause notices under Section 148A(b), additional questions regarding procedural compliance under the new regime arose. This led to the Rajeev Bansal case. 𝗞𝗲𝘆 𝗜𝘀𝘀𝘂𝗲𝘀 → Whether TOLA's extension applied to reassessment notices issued after April 1, 2021. → Whether reassessment notices issued after June 30, 2021, were time-barred and lacked prior approval from specified authorities under the new regime. 𝗝𝘂𝗱𝗴𝗲𝗺𝗲𝗻𝘁 The Supreme Court categorized 3 timelines: → Pre-COVID period: Notices with a limitation period ending any time before March 20, 2020, would be time-barred. → COVID exclusion period: Limitation period ending between March 20, 2020, and March 31, 2021, would be extended till June 30, 2021. → Show-cause period: Limitation period between April 1, 2021, and June 30, 2021, would be dealt with as per procedures under the new regime. Thus, TOLA's extension applied to notices after April 1, 2021, if their limitation period ended within the COVID extension period. Notices issued after June 30, 2021, required prior approval from the appropriate authorities as specified under the new regime. This case balanced the interests of both the Revenue and taxpayers while reinforcing procedural safeguards designed to protect taxpayers' rights during reassessment proceedings. Cases like these remind me why I love the law: it’s not about enforcing the rules only but ensuring fairness. 𝗖𝗶𝘁𝗮𝘁𝗶𝗼𝗻: Union of India vs. Rajeev Bansal, 2024 INSC 754

🚨 Big news in tax law! The U.S. Tax Court’s ruling in Raju J. Mukhi v. Commissioner (Nov. 18, 2024) challenges IRS penalty collection powers. Here’s a quick breakdown of the case and why it matters: Case Overview: Raju Mukhi faced $120,000 in penalties for not filing Forms 5471 (2002–2013) under IRC § 6038(b)(1). The IRS pursued collection via lien and levy, but Mukhi argued the IRS lacked authority to assess these penalties. Court’s Stance: Initially siding with Mukhi (April 2024), the Tax Court relied on Farhy v. Commissioner (2023), ruling that § 6038(b)(1) penalties can’t be assessed administratively and require federal court action. Despite the D.C. Circuit’s reversal of Farhy (2024), the Tax Court reaffirmed its position, halting IRS collection efforts. Direct Collection vs. Court Action: Direct Collection: Allows the IRS to assess penalties and seize assets quickly, placing the burden on taxpayers to challenge in Tax Court—costly and time-intensive. Federal Court Action: Requires the IRS to sue in district court, proving penalty validity before collection. This delays enforcement and gives taxpayers stronger protections. Why It Matters: The ruling limits IRS power, emphasizing statutory precision. It protects taxpayers like Mukhi from immediate financial strain but sets up a potential circuit split, as an appeal may go to the Eighth Circuit. This could head to the Supreme Court! 💡 Takeaway: This case highlights the balance between IRS efficiency and taxpayer rights. Tax professionals, keep an eye on this-appeals could reshape penalty enforcement! #TaxLaw #IRSPenalties #TaxCourt

Supreme Court Strengthens Protections in Tax Law Arrests. In a landmark ruling, the Supreme Court of India has extended crucial criminal law safeguards to individuals accused under the GST and Customs Acts. A three-judge bench in Radhika Agarwal V Union of India, ruled that the protection under the Code of Criminal Procedure (now replaced by BNSS) apply to arrests under tax laws. Key Takeaways from the Judgment: 🔹 "Reasons to believe" Principle: Arrests cannot be made arbitrarily, and the authorities must justify coercive actions. 🔹 Protection against threats & coercion: Any misconduct by enforcement officers will lead to departmental action. 🔹Anticipatory bail under GST & Customs Acts: Individuals can seek pre-arrest bail without an FIR. 🔹Customs officers are not the Police: They cannot have the same powers as law enforcement or make arrests without following proper legal procedures. 🔹Same safeguards as PMLA cases: Tax authorities must justify arrests and cannot detain individuals arbitrarily. The court referenced the Arvind Kejriwal case and applied the principle that arrests under the PMLA must be made only if there are “reasons to believe”. This ruling follows a batch of 279 petitions challenging the penal provisions of these laws, arguing that tax authorities had been granted excessive powers that could lead to misuse. This decision will likely influence how tax laws are enforced going forward, possibly even leading to legislative changes. ------------------------------------- Stay informed on the latest tax law updates here- https://lnkd.in/gn2ayKJu #legalwiki #legalupdates #taxlaw