Undervaluation can be costly The recent U.S. Supreme Court case, U.S. v. Woods, overturned legal precedent and signaled that accuracy-related penalties can be imposed in more instances. This broad interpretation exposes clients and practitioners to substantial penalties. In this article, three recent cases are summarized on how, when, and why accuracy-related penalties are applied.
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Payments an accounting firm characterized as consulting fees were really disguised dividends and should have been taxed as corporate income, the Seventh Circuit held on Thursday. The payments reduced the firm’s income to zero, and the court applied the “independent investor” test to recharacterize them as dividends paid to the firm’s owners. Alistair M. Nevius at the Journal of Accountancy, in the article Accounting firm payments to owners flunk independent investor test, reports: The Seventh Circuit held that an accounting and consulting firm organized as a C corporation could not deduct payments to related entities because they were dividends, not…