Case Summaries

Under I.R.C. §170(f)(8), a taxpayer claiming a charitable contribution deduction exceeding $250.00 must substantiate that deduction with a contemporaneous written acknowledge from the donee, showing the amount of the contribution, whether any good and services were received in return for the donation and a description and good faith estimate of any goods and services provided by the donee or that the donee provided only intangible religious benefits.  However, I.R.C. §170(f)(8)(D) says that the substantiation rules don’t apply if the donee files a return including the contemporaneous written acknowledgement information that the taxpayer was otherwise supposed to report.  This provision allows taxpayers to “cure” their failure to comply with the contemporaneous written acknowledgement requirement by the donee exempt organization filing an amended Form 990.  However, without any regulations, the IRS has taken the position that the statutory provision does not apply.  Apparently believing that their position was weak and would not be supported judicially, the proposed regulations acknowledge the exception and allow the charitable organization to file a form (yet to be announced) on or before February 28 of the year after the year of the donation that shows the name and address of the donee, the donor’s name and address, the donor’s tax identification number, the amount of cash and a description of any non-cash property donated, whether the donee provided any goods and services for the contribution, and a description and good faith estimate of the value of any goods and services the donee provided or a statement that the goods and services were only intangible religious benefits.  The form must be a timely filed form and cannot be filed at the time the taxpayer is under examination, and a copy of the form must be provided to the donor.  REG-138344-13 (Sept. 16, 2015); Prop. Treas. Reg. §§1.170A-13(f)(18)(i-iii). 

When an internet domain name is acquired from the secondary market (where it is already constructed and where the taxpayer will maintain it) for use in the taxpayer's trade or business, the IRS has stated that the cost of the acquisition is to be amortized over 15 years for non-generic domain names - those specific to a company, and generic domain named - those not tied to a specific company.  The costs are to be capitalized under Treas. Reg. Sec. 1.263(a)-4.  Non-generic domain names are amortizable intangibles under Treas. Reg. Sec. 1.197-2(b)(10) or 1.197-2(b)(6).  Generic domain names are amortizable intangibles under Treas Reg. Sec. 1.197-2(b)(6).  The IRS did not provide guidance on the result if the domain name was purchased from someone not currently using the domain name.  That would also seem to be amortizable over 15 years via the safe harbor of Treas. Reg. Sec. 1.167(a)-3(b).  C.C.A. 201543014 (Sept. 10, 2015).  

In this Field Attorney Advice from the IRS, the taxpayer loaned money against real estate that subsequently declined in value.  The real estate was foreclosed upon and the taxpayer lost money.  The taxpayer determined the loss in value of the remaining loans it held by estimating the date it expected to receive cash from the sale of the note or the sale of the real estate at foreclosure and then discounting that amount by the current appraised value to the present by using the discount rate of interest on the loan.  The IRS determined that a partial bad debt deduction was not allowed because Treas. Reg. Sec. 1.166-3(a)(2) requires the deduction be tied to an amount that is charged off during the year.  Here, the taxpayer had merely increased its reserve account for bad debts, which decreased its balance sheet assets.  It is insufficient to expect that some debts will be repaid at less than what the underlying note lists as the repayment terms.  An amount must actually be charged off.  F.A.A. 20153501F (Apr. 22, 2015).

The plaintiff filed  a Freedom of Information Act (FOIA) request with the IRS to determine whether the Obama White House had sought private taxpayer information from the IRS after the White House had made remarks on the tax status of Koch Industries (a private company).  The IRS refused to release any information, citing Internal Revenue Code Sec. 6103 which bars the IRS from divulging tax return information and divulging requests for taxpayer information.  The plaintiff then sued and the court disagreed with the IRS position, denying IRS' motion to dismiss the case.  The court held that I.R.C. Sec. 6103 does not allow IRS to shield records that might indicate that the White House misused confidential taxpayer information or that White House officials made an improper attempt to access that information.  Cause of Action v. Internal Revenue Service, No. 13-0920, 2015 U.S. Dist. LEXIS 114203 (D. D.C. Aug. 28, 2015).

The petitioners, a married couple, was deemed not be in the real estate sales business with a profit intent for the years at issue based on an analysis of multiple factors.  The court also determined that the petitioners did not substantiate their expenses for their deductions claimed on Schedule C.  Pouemi v. Comr., T.C. Memo. 2015-161.

The decedent made taxable gifts during life, but failed to pay the associated gift tax.  Upon death, the estate did not pay the gift tax either.  The IRS claimed that the donees of the gifts owed the gift tax and interest on the gifts.  The donees argued that the interest on the gift tax was limited to the value of the gift to any particular done under I.R.C. Sec. 6324(b).  The court agreed that the interest on the gift cannot exceed the amount of the gift.  United States v. Marshall, No. 12-20804, 2015 U.S. App. LEXIS14584 (5th Cir. Aug. 19, 2015), aff'g in part and rev'g in part, In re Marshall, 721 F.3d 1032 (9th Cir. 2013) and withdrawing 771 F.3d 854 (5th Cir. 2014).

The petitioner was a sole proprietor landscaper that claimed an interest expense deduction on Schedule C.  IRS denied the deduction and the court agreed.  The petitioner failed to show a business purpose for the loans at issue, and his logs were not credible because they didn't show the purpose of the travel, time spent or amount of expense.  Ocampo v. Comr., T.C. Memo. 2015-150.

In 2003, an LLC bought oil and gas properties from another corporation and asked the corporate executives to manage the wells.  The executives, which included the defendant, founded a limited partnership to manage exploration and production of the properties.  The LLC loaned made a $6 million non-recourse loan to the LP for working capital.  Ultimately, the LP wound up with a 20 percent interest in the sale revenue after the LLC recovered expenses and had a 10 percent return on investment.  the LP partners limited tied their salaries to profits such that if the LLC earned nothing the partners did not have any profit.  The LP arranged for the LLC to sell the properties with the LP's interest being approximately $20 million which it reported as ordinary income.  Two years later, the LP filed an amended return reporting the $20 million as capital gain resulting from the sale of a partnership interest.  Amended K-1s were issued to the partners, including the defendant.  IRS issued refunds, but then later changed its mind and asserted that the income ordinary in nature as compensation for services rendered.  The issue before the court was whether the LP had a profits interest for services, or whether the relationship with the LLC meant that the arrangement was compensation for services provided in arranging the sale of the oil and gas properties (i.e., a commission for sale).  The IRS claimed that a partnership did not exist for tax purposes because the entity agreement disclaimed the existence of a partnership, the LLC contributed the funds and controlled the funds, owned the assets and the LP was not at risk.  The IRS also argued that the LP was a mere contract employee.  The LP claimed that it was a partnership for tax purposes and that it had exchanged the partners time and talent for a profit share.  The court determined that the LP was a partnership for tax purposes based on the objective facts of the parties' relationship and ownership interest in the value of the oil and gas operation.  Thus, because a partnership interest is a capital asset, the resulting income from the sale is capital gain.  The IRS did not argue that the LP partners had actually received a partnership interest for services which would result in ordinary income when the interest was issued.  United States v. Stewart, et al., No. H-10-294, 2015 U.S. Dist. LEXIS 110055 (S.D. Tex. Aug. 20, 2015).         

I.R.C. Secs. 6426(a) and (c) allow a taxpayer that blends biodiesel to claim a $1/gallon credit under I.R.C. Sec. 4081.  Also, I.R.C. Sec. 6426(e) provides for a $.50/gallon credit for a taxpayer that blends alternative fuel.  The credits expired for sales and uses after 2013, but TIPRA of 2014 extended them through 2014.  In this Notice, the IRS specified that taxpayers claiming the credits submit all claims for 2014 biodiesel and alternative fuel credits on a single Form 8849.  To the extent the credits reduce the claimant's fuel tax liability, the credits produce an income tax addback by reducing the excise tax deduction that the taxpayer can claim as part of its cost of goods sold or any other relevant tax income tax deduction.  That addback is to be done on a quarterly basis in accordance with the biodiesel or alternative fuel mixture sold or used during the quarter.  The credits are treated for 2014 as if they had never expired.  IRS Notice 2015-56, IRB 2015-35.

The petitioner, a lawyer who practiced tax law, donated a permanent conservation easement on 80 percent of a 74-acre parcel to a qualified land trust.  The land was subject to a mortgage at the time of the donation and the mortgage was not subordinated until two years after the petitioner received a statutory notice of deficiency from the  IRS.  The petitioner argued that the state (ID) Uniform Conservation Easement Act protected the charitable use of the property, but the Tax Court noted that the Act would have only protected whatever interest remained after the lender was satisfied.  The Tax Court noted that the subordination agreement had to be in place at the time of the grant of the conservation easement.  The Tax Court upheld the imposition of a negligence penalty.  The appellate court affirmed.  The court held that Treas. Reg. Sec. 1.170A-14(g)(2) clearly required the subordination agreement to be in place at the time of the easement grant for the donor to claim a tax deduction for the value of the contributed easement.  The court noted that an easement cannot be deemed to be "in perpetuity" if it is subject to extinguishment at essentially any time by a mortgage holder who was not party to or aware of the agreement between the taxpayer and the donee.  Minnick, et al. v. Comr., No. 13-73234, 2015 U.S. App. LEXIS 14097 (9th Cir. Aug. 12, 2015), affn'g., T.C. Memo. 2012-345.     

The petitioner operated a medical marijuana dispensary in West Hollywood, CA.  Federal Drug Enforcement Agency agents raided the dispensary and seized $600,000 worth of marijuana.  The petitioner, for the year at issue, reported $1,700,000 of gross sales and $1,429,614 in cost of goods sold.  The petitioner is entitled to deduct the cost of goods sold, but cannot deduct any other operating costs.  The petitioner claimed to have included the $600,000 amount in both gross sales and cost of goods sold.  However, the petitioner could not substantiate any of the income or deduction items and was not entitled to reduce his reported sales amount by the $600,000 he included in cost of goods sold.  In addition, the petitioner could not claim an I.R.C. Sec. 165 loss for the seized marijuana because I.R.C. Sec. 280A bars a deduction for any amount incurred in connection with trafficking in a controlled substance.  The court upheld the imposition of an accuracy-related penalty.  Beck v. Comr., T.C. Memo. 2015-149.

The petitioner, a schoolteacher, also owned and managed various real estate rental properties on which he lost money in 2005-2007.  The petitioner claimed the losses were fully deductible because he satisfied the tests to be a real estate professional contained in I.R.C. Sec. 469(c)(7)(B) - more than fifty percent of his personal services for the years in question were spent in real property trades or business and he spent more than 750 hours each year in rental activities.  While the petitioner's logs showed that he satisfied both tests, the court found the logs to not be credible.  The petitioner did not include any "off-site" time as his teacher hours, and exaggerated his time on rental activities, including work for certain days on rental activities exceeding 24 hours.  Escalante v. Comr., T.C. Sum. Op. 2015-47.

The taxpayer paid the state (WA) excise tax on marijuana and questioned how to account for it for tax purposes.  The IRS noted that marijuana is a Schedule I controlled substance, but that the last sentence of I.R.C. Sec. 164(a) allows state-level taxes that are incurred in a trade or business or in an income-producing activity and that are connected with the acquisition or disposition of property to be capitalized.  As such, the state excise tax on marijuana could treat the payment for the tax as a reduction in the amount realized on the sale of property instead of as either a part of the inventoriable cost of the property or a deduction from gross income.  C.C.A. 201531016 (Jun. 9, 2015).

The petitioners, homosexual domestic partners, had $2.7 million in mortgage debt attributable to two homes that they jointly owned.  More than $2 million of the mortgage debt was associated with an 8,554 square foot home in Beverly Hills that they purchased for $3.2 million in 2002.  One petitioner claimed $194,599 in mortgage interest deduction for the two years at issue which IRS limited to $79,701, and limited the other petitioner to a deduction of $66,558 out of the $162,597 he had paid during the two years.  The IRS approach was to take the mortgage interest debt limit of $1.1 million contained in I.R.C. Sec. 163()(3) and apportion it between the two unmarried owners (based on the average outstanding mortgage balance).  The Tax Court agreed with the IRS, holding that the I.R.C. §163(h)(3) limitations on mortgage interest deductibility are to be applied on a per-mortgage basis rather than on per-individual basis.  As a result, unmarried co-owners, collectively, are limited to an interest deduction of $1.1 million ($1million of acquisition indebtedness and $100,000 of home equity indebtedness).  This is the same result that would apply to married taxpayers that co-own a residence.  On appeal, however, the appellate court reversed.  The court determined that the limitations are to be applied on a per-taxpayer basis (for a total of $2.2 million of mortgage debt).  A dissenting judge pointed out the absurdity of the majority opinion and noted that IRS was reasonable in limiting unmarried taxpayers to deducting the same amount as married taxpayers that file jointly.  Voss v. Comr., No. 12-73257, 2015 U.S. App. LEXIS 13827 (9th Cir. Aug. 7, 2015), rev'g., and remanding sub. nom., Sophy v. Comr., 138 T.C. 204 (2002).

The petitioner is a C-corp. California farming operation utilizing the cash method of accounting (and the accrual method of keeping books for purposes of lenders with the result that inventory exists for each year at issue) that deducts the cost of various fieldpacking materials (clamshells, cardboard trays and cartons, etc.) that it uses to pack raspberries, strawberries and similar fruits and vegetables.  The IRS claimed that the petitioner could not deduct the cost of the fieldpacking materials until they were actually used, rather then when the petitioner purchased them.  Both parties agreed that the petitioner was not a "farming syndicate" as defined by I.R.C. Sec. 464 which would bar the use of the cash method of accounting, and prevent the deduction for "seed, feed or fertilizer, or other similar farm supplies" in a year before they are consumed.  However, IRS argued that Treas. Reg. 1.162-3 allowed a deduction only for those fieldpacking materials only to the extent they were used or consumed during the tax year.  The court disagreed with the IRS position.  The court noted that the fieldpacking materials are not "similar" to seed, feed or fertilizer because they aren't necessary to grow agricultural crops.  The court noted that I.R.C. Sec. 464 was aimed at tax shelters, not the type of taxpayer involved in the case, and that the fieldpacking materials are not "on hand" and are subject to cash accounting rules.  Thus, the cost of the materials were deductible when purchased.  The court held that Treas. Reg. Sec. 1.162-3 does not require a cash method taxpayer to defer deductions until they are used or consumed, if the cost of such items is deducted in a prior tax year.  The court did note that a limit on deductibility could apply if the materials were not used or consumed within one year.  Agro-Jal Farming Enterprises, Inc., et al. v. Comr., 145 T.C. No. 5 (2015).

The taxpayer sold S corporation stock to an ESOP and remained involved in the S corporation business after the sale.  The taxpayer also paid for non-business expenses from the corporate account which were recorded in a ledger account.  The corporation, on behalf of the petitioner, made significant charitable contributions and IRS denied a charitable deduction because the taxpayer fully paid the ledger account balances with personal funds and was the party that bore the economic burden of the contributions.  In the latter half of the year in which the contributions were made, the taxpayer used corporate funds to pay off the ledger account balances previously incurred.  The Tax Court determined that the S corporation actually bore the economic burden of the contributions.  However, the court determined that the taxpayer did not prove the portion of contributions made in the latter half of the tax year were made with personal funds and did not establish with sufficient evidence that ledger account balances were bona fide debt of petitioner; as a result, the associated deductions were denied.  However, the taxpayer was allowed a charitable deduction for the amounts he had actually repaid the corporation.  He was not allowed to deduct the contributions where his repayments were immediately paid for by a new corporate advance.  On appeal, the appellate court affirmed.   Zavadil v. Comr., No. 14-1053, 2015 U.S. App. LEXIS 12262 (8th Cir. Jul. 16, 2015), aff'g., T.C. Memo. 2013-222).

The taxpayer is a tax-exempt voluntary employees' beneficiary association (VEBA) insurance trust that did not have to file a federal income tax return unless it had unrelated business income.  The taxpayer obtained a membership in a mutual insurance company that later demutualized.  As a result of the demutualization, in 2004 the taxpayer received approximately $1.5 million in cash that IRS characterized as long-term capital gain with no income tax basis in accordance with Rev. Rul. 71-233.  For 2004, the taxpayer filed a Form 990T reporting the income as UBIT and paid the associated tax.  Two additional demutualization proceeds were reported similarly in 2006 and 2008. Later Fisher v. United States, 82 Fed. Cl. 780 (2008) was decided rejecting the IRS position on amounts received in demutualization.  The taxpayer filed an amended return for 2006 and 2008 based on the Fisher case.  The IRS disallowed the refund claims, but later approved the refunds based on the affirmance of the Fisher case on appeal (333 Fed. Appx. 572 (Fed. Cir. 2009).  However, the IRS Appeals Office determined that the refund claim was not timely filed with respect to the 2004 refund and the plaintiff sued for a refund on Mar. 28, 2013.  The trial court noted that the taxpayer's 2004 return was filed on Oct. 15, 2004, and that a refund claim had to be filed within three years in accordance with I.R.C. §6511.  The taxpayer argued that I.R.C. Sec. 6511 was inapplicable because the taxpayer was a non-profit entity who was not required to file a return.  The trial court noted that numerous other courts have rejected the same argument.  On the issue of whether the mitigation provisions of I.R.C. §§1311-1314 provided equitable relief from the statute of limitations, the court noted that IRS had made a final determination which established a basis (by referring to the Fisher case) which meant that, but for the statute of limitations, the taxpayer would have been entitled to a refund.  In addition, the trial court noted that IRS had taken an inconsistent position between its position taken in the final determination and the IRS's position that demutualization payments are taxable (due to the taxpayer's lack of basis in the payments).  Thus, the taxpayer satisfied the mitigation provisions of I.R.C. §§1311-1314 (the taxpayer satisfied its burden of proof that (1) IRS made a determination that barred it from correcting its erroneous filing; (2) the determination concerned a specific adjustment; and (3) the IRS had adopted a position in the final determination and maintained a position inconsistent with the erroneous inclusion or recognition of taxable gain.  The trial court granted the taxpayer's motion for summary judgment and IRS is required to make a return for the plaintiff.  However, on further review, the appellate court reversed.  The court noted that a timely refund claim was a jurisdictional prerequisite to a tax refund lawsuit, with the only exception being the mitigation provisions.  On those provisions, the court focused on I.R.C. Sec. 1312(7) which regards a determination that "determines the basis of property, and in respect of any transaction on which such basis depends, or in respect of any transaction which was erroneously treated as affecting such basis.  The appellate court determined that the denial of the 2004 claim was due to timeliness and was not a determination that "determined the basis of property."  The court held that IRS had not taken an inconsistent position and had not actively changed its longstanding position that mutual policyholders' proprietary interests have a zero basis when an insurance company demutualizes.  Instead, the court determined that the IRS had merely acquiesced in the 2009 decision of the Federal Circuit.  Thus, the taxpayer couldn't use the mitigation provisions the reopen a closed tax year based on a favorable change in or reinterpretation of the law.  Illinois Lumber and Materials Dealers Association Health Insurance Trust v. United States,  No. 14-2537, 2015 U.S. App. LEXIS 12675 (8th Cir. Jul. 23, 2015), rev'g., No. 13-CV-715 (SRN/JJK), 2014 U.S. Dist. LEXIS 59716 (D. MInn. Apr. 30, 2014).      

The petitioner was before the IRS appeals office arguing that the appeals officer should have considered the petitioner's health and/or age or give the petitioner additional time to file a delinquent tax return when the appeals officer denied the petitioner the ability to satisfy his unpaid tax liability via an installment agreement.  The court agreed with the IRS because the petitioner did not submit the return that the IRS requested, nor the necessary financial information or any type of evidence of health or age claims within a reasonable time.  As such, the IRS did not abuse its discretion in denying the petitioner an installment agreement.  Hartmann v. Comr., T.C. Memo. 2015-129.

The plaintiff, an S corporation coal mining company, overpaid excise taxes on coal sales which triggered refunds, plus interest for tax years 1990 through 1996.  The refund payments were made in 2009, but the plaintiff claimed that more interest should have been applied - to the tune of $6 million.  The plaintiff claimed that it was due the statutory rate of interest applicable to a non-corporate taxpayer - the federal short-term rate plus three percentage points.  The IRS claimed that the corporate rate applied - the federal short-term rate plus two percentage points.  However, a reduced rate of interest applies to overpayment refunds exceeding $10,000.  In that event, the interest rate is the federal short-term rate plus .5 percentage points.  The court agreed with the IRS that I.R.C. Sec. 6621(a)(1) treats an S corporation as a "corporation" for purposes of determining the applicable interest rate.  The court refused to follow a U.S. Tax Court decision that reached the opposite conclusion, and refused to give much weight to an Internal Revenue Manual provision that somewhat supported the plaintiff's argument.  The court did note, however that I.R.C. Sec. 6621(c) treats S and C corporations differently for purposes of determining underpayment interest.  Eaglehawk Carbon, Inc., et al. v. United States, No. 13-1021T, 2015 U.S. Claims LEXIS 862 (Fed. Cl. Jul. 16, 2015). 

The petitioner divorced her husband.  Later the ex-couple agreed to modify their divorce settlement whereby the petitioner transferred property to her ex-husband in satisfaction of the petitioner's alimony obligation.  The petitioner claimed a deductible loss on the transfer.  The IRS disallowed the loss and the court agreed.  The loss wasn't deductible because the transfer was incident to a divorce, and the transfer was not deductible as alimony because it was not in the form of cash or its equivalent.  Mehriary v. Comr., T.C. Memo. 2015-126.

The petitioner withdrew funds from his IRA before reaching age 59.5 to pay delinquent mortgage payment so as to avoid a mortgage foreclosure on his home.  The exception from the 10 percent penalty under Treas. Reg. Sec. 1.401(k)-1(d)(3)(iii)(B)(4) for withdrawals so the funds can be used to prevent eviction from the taxpayer's principal residence due to foreclosure did not apply.  The exception has no application, the court held, to financial hardship.  Kott v. Comr., T.C. Sum. Op. No. 2015-42.

The petitioner, an ex-NFL player, co-founded a non-profit business in 1997 to train at-risk persons to be automotive technicians.  Upon the death of the co-founder, the petitioner handled fundraising until he resigned in 2010.  The petitioner received a base salary and a business credit card for payment of business expenses.  However, the petitioner also charged personal expenses on the card.  The non-profit treated the personal expense charges as advances for future wages or business expenses.  Beginning in 2005, the non-profit started withholding money from the petitioner's salary for purposes of paying back the advances.  The petitioner resigned in 2010 at the time that the balance due on the credit card was $83,000.  The non-profit issued a Form 1099 to the petitioner for 2010 for the $83,000.  The petitioner did not include the $83,000 in income and IRS, upon audit, assessed additional taxes and penalties for 2010 based on the $83,000 being an advance and not a loan.  The court agreed that the $83,000 was taxable as an advance, but that it was taxable in the years received.  Those years were 2003 through 2006.  However, the only year in issue was 2010, so the case was dismissed.  If the tax years 2003-2006 were closed due to the statute of limitations, the IRS is barred from assessing any additional tax for those years (unless, of course, fraud (no SOL) or substantial understatement of tax is involved (six year SOL) - which also requires fraud to be present).  Starke v. Comr., T.C. Sum. Op. 2015-40. 

A foundation was established to develop and support an alumni association, with most of its income derived from sales at a weekly art and craft bazaar that includes a farmers' market and refreshment booths held at a parking lot on campus every weekend throughout the year.  The university allowed the foundation to use the parking lot, and associated rest rooms and utilities without cost for two of the three years under examination.  Vendors at the bazaar had to pay an application fee and then a monthly fee for space at the bazaar.  The IRS, on examination asserted unrelated business income tax and rejected the foundation's view that the bazaar advanced the recruiting of students as mere speculation.  The IRS also rejected the foundation's claim that the bazaar lessened the burdens of government, citing Rev. Rul. 85-2 primarily because the bazaar is not required by the associated community college district.  Nor did the bazaar, as claimed by the foundation, relieve the distress of the elderly because they were the primary attendees at the bazaar.  The IRS rejected this claim primarily based on Rev. Rul. 77-246 and its factual distinctions.  The foundation made a fall-back claim that it was exempt from UBIT on the basis that its bazaar income was rent from real estate under I.R.C. Sec 512(b)(3).  The IRS rejected this view because the vendor fees were paid to have the opportunity to sell merchandise rather than to use real property.  Tech. Adv. Memo. 201544025 (Jul. 10, 2015).  

The taxpayer at issue in this advice from the National IRS office invested in a real estate transaction via a multi-member LLC taxed as a partnership.  The transaction was financed and the creditors ultimately foreclosed.  The foreclosure triggered income to the taxpayer that the taxpayer treated as cancelled debt income potentially excludible from income under the insolvency exception of I.R.C. Sec. 108(a)(1)(B) because, as the taxpayer claimed, the debt was recourse and the I.R.C. Sec. 752 rules applied due to the borrower being the LLC.  On audit, the examining agent claimed that the debt was nonrecourse resulting in the income triggered on foreclosure being nonexcludible.  On review by the National Office, the IRS did not make a determination as to the classification of the debt because that issue needed to be developed further, particularly because the debt did not impose an unconditional personal liability on the LLC.  The National Office stated that the debt could be recourse because of the existence of guarantees and pledges, however.  In addition, the National Office concluded that the regulations under I.R.C. Sec. 752 have no application in determining the classification of debt to a partnership.  The National Office pointed out that it is improper to determine the status of debt at the partnership level for I.R.C. Sec. 1001 purposes based on whether the partners personally guarantee the debt.  Taxpayers cannot rely on footnote 35 of Great Plains Gasification Associates v. Comr., T.C. Memo. 2006-276.   In this situation, if the debt is nonrecourse, the entire amount of the debt is realized income eligible for long-term capital gain treatment, but cannot be excluded from income.  CCM 201525010 (Mar. 6, 2015).