Case Summaries

Priv. Ltr. Rul. 201327010 (Mar. 27, 2013)

(decedent bought life insurance policies naming taxpayer as insured and decedent’s estate as beneficiary; taxpayer paid none of premiums; under decedent’s will, ownership of policies passed to Family Trust with income and principal distributed to taxpayer and decedent’s descendants at trustee’s discretion; remainder payable to others as appointed by will with default takers specified; taxpayer is trustee and protector with power to remove and replace trustees; trust divided into two trusts; IRS concludes that decedent does not have incidents of ownership over insurance policy on decedent’s life where decedent’s powers held in fiduciary capacity and cannot be exercised for decedent’s benefit unless such powers are reacquired). 

Peco Foods, Inc. & Subsidiaries v. Comr., No. 12-12169, 2013 U.S. App. LEXIS 13491 (11 th Cir. Jul. 2, 2013), aff’g., T.C. Memo. 2012-18

(plaintiff bought two poultry processing plants and plaintiff and seller agreed on purchase price allocation and filed Form 8594; taxpayer then hired appraisal company to conduct cost segregation study which identified building components that were manufacturing machinery eligible for shorten depreciation life; plaintiff filed tax returns based on cost segregation study; seller reported gains based on sale of buildings; court agreed with IRS and Tax Court that original allocation schedule is binding on plaintiff; term “real property improvements” not ambiguous; cost segregation study should have been done before the purchase). 

Priv. Ltr. Rul. 201326012 (Mar. 25, 2013)

(taxpayer’s issuance of debentures did not cause taxpayer (S corporation) to have more than a single class of stock under I.R.C. §1361(b)(1)(B)). 

IRS Information Letter 2013-0016 (Jun. 28, 2013)

(S corporations that are members of controlled group are not subject to rule limiting controlled group’s maximum annual I.R.C. §179 amount; such entities are treated as separate entities for purposes of expense method depreciation limit). 

Welle v. Comr., 140 T.C. No. 19 (2013)

(petitioners, married couple, built personal home as general contractor, but used husband's C corporation to pass payments through to sub-contractor; C corporation also kept track of materials and labor utilized in building home; husband oversaw home building, selected sub-contractors and managed building project; petitioners paid C corporation for actual cost of the C corporation services utilized but did not pay customary mark-up of 6-7% that husband typically applied to other customers; IRS took position that failure to pay mark-up constituted constructive dividend to husband who was the sole shareholder of C corporation; court disagreed with IRS position, noting that presence of constructive dividend tied to whether corporation conferred benefit on husband so as to distribute available earnings and profits without any expectation of repayment; question is whether what C corporation earned is being given to shareholder or whether shareholder's capital investment is being returned; court unimpressed with IRS argument because, under I.R.C. Sec. 316(a), there must be a distribution of property to the shareholder that reduces the corporation's current or accumulated earnings and profits - constructive dividend present only when corporate assets diverted to or for shareholder's benefit; no diversion of corporate assets or distribution of earnings and profits occurred; use of corporate assets only incidental). 

Hollingsworth, et al. v. Perry, et al., No. 12-144, 2013 U.S. LEXIS 4919 (U.S. Sup. Ct. Jun. 26, 2013)

(citizens of CA voted to approve constitutional amendment (Proposition 8) defining marriage as the union of a man and a woman; CA governor and attorney general refused to defend the law and citizen group that sponsored Proposition 8 sought enforcement; U.S. Supreme Court determined that citizen group lacked standing to defend such constitutional amendment under Article I, Sec. 2 because of lack of direct stake in outcome of appeal and only interest was to vindicate constitutional validity of generally applicable state law; U.S. Supreme Court did not create right to redefine marriage as anything other than that established by Natural Moral Law from the beginning of time). 

United States v. Windsor, No. 12-307, 2013 U.S. LEXIS 4921 (U.S. Sup. Ct. Jun. 26, 2013)

(two homosexual women married in Canada at a time when homosexual marriages were legitimate under provincial law; at time of death of first of the two homosexuals, parties lived in NY which recognized such marriages as legal under state law; surviving homosexual claimed marital deduction for estate tax purposes; IRS denied deduction on basis that Defense of Marriage Act (DOMA) (which was passed by overwhelming majorities in both parties in the Congress and in both bodies) did not recognize homosexual marriages for purposes of federal benefits; Obama Administration refused to defend law so law defended by Bipartisan Legal Advisory Group from U.S. House of Representatives; Court held that, for purposes of federal law, portion of DOMA defining marriage in manner consistent with Natural Law as a union between one man and one woman unconstitutional as deprivation of equal liberty guaranteed by Fifth Amendment in absence of specific federal policy; by so holding, Court suggested that the Congress does not have the power to define meaning of words in statutes enacted by the Congress; Court's ruling does not impact portion of DOMA providing that no state is required to give effect to another state's recognition of homosexual marriage; presently 38 states have laws prohibiting homosexual marriage; Court's opinion lays groundwork for all types of consensual adult sexual behaviors to be deemed legal). 

Graev v. Comr., 140 T.C. No. 17 (2013)

(charitable deduction denied for contribution of facade easement on historic property or corresponding cash donation; donation was to qualified charity, but letter existed which assured that cash contribution would be returned and eliminate the easement if IRS subsequently disallowed charitable deduction; letter rendered gift conditional and donation, therefore, no longer deductible because easement not protected in perpetuity as required by I.R.C. Sec. 170(h)(5)(A); possibility of disallowance by IRS not negligible given IRS scrutiny of such donations and claimed deductions).

VIP's Industries Inc. & Subsidiaries v. Comr., T.C. Memo. 2013-157

(petitioner transferred leasehold interest in real estate for fee interest in real estate in purported I.R.C. Sec. 1031 deferred gain exchange transaction; Treas. Reg. Sec. 1.1031(a)-1(c) authorizes exchanges of leasehold interest for fee interest if the leasehold interest is of at least 30 years; petitioner's ground lease entered into in 1993 with original term of 33 years and was not renewable or extendable; petitioner operated motel on property until 2006 then sold leasehold interest to investment firm and parked proceeds with qualified intermediary at time when 21 years remained on ground lease; petitioner held two replacement properties for use in trade or business and reported recognized gain of $2,104,632 (cash and debt relief actually received in transaction) on realized gain of $4,320,618; IRS denied gain deferral on basis that leasehold interest not "like-kind" to fee interests received where less than 30 years remained on interest at time transaction entered into; case decided on past precedent and not on basis of Treas. Reg. at issue, so uncertainty remains as to whether leasehold interests with less 30 years are categorically unqualified for I.R.C. Sec. 1031 treatment per the regulation).

Lamb v. Comr., T.C. Memo. 2013-155

(petitioners, married couple, used husband's construction business to fund personal gambling habits; IRS failed to show that withdrawals from business bank account was taxable income to petitioners as opposed to a nontaxable return of capital or loan repayment; IRS bore burden of proof due to raising deemed distribution argument on post-deficiency basis). 

Thousand Oaks Residential Care Home I, Inc., et al. v. Comr., T.C. Memo. 2013-156

(petitioner prevailed in initial case (T.C. Memo. 2013-10) on issue of reasonableness of compensation, but IRS claims petitioner not entitled to administrative and litigation costs; court agreed with IRS because IRS position was substantially justified; reasonableness of compensation is a question of the facts and circumstances). 

C.C.A. 201334040 (Jun. 19, 2013)

(advice sought on who can sign unfiled returns and Forms 870 and 872 after taxpayer’s death; decedent, non-filer, died intestate with bank account as only asset held by daughter and spouse; IRS determined that daughter could sign unfiled returns in accordance with I.R.C. Sec. 6012(b)(1); daughter should submit Form 56 to document fiduciary relationship as personal representative of mother’s estate and allow daughter to file Forms 870 and 872).

Belk v. Comr., T.C. Memo. 2013-154

(court denies reconsideration of its decision in 140 T.C. No. 1 (2013) in which the court held that petitioner was not entitled to charitable deduction for donation of conservation easement on 185 acres of golf course due to provision in grant allowing substitution of donated property; such power of substitution not consistent with Treas. Reg. Sec. 1.170A-14(b)(2) which requires that use restrictions of easement be perpetual). 

Morehouse v. Comr., 140 T.C. No. 16 (2013)

(petitioner inherited farmland in South Dakota and purchased additional South Dakota tracts from family members and enrolled the land in the CRP; petitioner lived in Texas and hired manager to establish cover crop and maintain weed control as required by CRP contract; petitioner reported CRP payments on Schedule E (no self-employment tax); IRS asserted that CRP income should have been reported on Schedule F (subject to self-employment tax); court determined that petitioner in trade or business of participating in the CRP with profit intent; court skipped over material participation requirement and determined existence of trade or business on either petitioner's personal involvement with CRP contract or via paid manager without noting that imputation of agent's activities is blocked when material participation requirement is routed through I.R.C. Sec. 1402; court cited Sixth Circuit decision in Wuebker as controlling even though taxpayer in that case was a farmer and petitioner here was a mere investor that never farmed). 

McGraw v. Comr., T.C. Memo. 2013-152

(acquaintance of petitioner offered to roll over balance of petitioner's annuity into a better performing annuity; account liquidated and petitioner given cash-out check in amount of $67,440 which was deposited into petitioner's bank account; petitioner then learned that wife pregnant; petitioner didn't substantiate medical expenses on 2009 return and didn't claim any medical expenses on line 1 of Schedule A; pregnancy expenses approximately $6,000 and balance of funds from annuity cash-out spent on baby room; petitioner claims exemption from 10 percent penalty tax because amount used for qualified medical expenses; court disagreed due to no documentation and no proof that expenses unreimbursed or exceeded statutory floor of 7.5 percent; 20 percent accuracy-related penalty imposed). 

Montgomery v. Comr., T.C. Memo. 2013-151

(petitioners, married couple, claimed NOL from LLC that was passed through to them; IRS denied NOL on basis that petitioner did not materially participate in the LLC; court determined that wife satisfied test by participating more than 500 hours during the year and satisfied the facts and circumstances test; petitioners' testimony credible; deductible losses limited by I.R.C. Sec. 1366(d)(1) to petitioners' adjusted basis of interest at end of LLC's tax year; 5 percent additional tax penalty applicable).

Tarrant Regional Water District v. Herrmann, et al., 133 S. Ct. 2120 (U.S. Sup. Ct.. 2013)

(Red River Interstate Water Compact allocates water in Red River which divides Oklahoma and Texas which gives signatory states (AR, LA, OK, TX) "equal rights" to excess water in a sub-basin of river with no state entitled to more than 25 percent of excess water no matter where located; TX argued it was entitled to withdraw water from any part of the river including a tributary to take up to 25 percent, including sub-basin within OK and that Compact preempted OK state water law; court disagreed with TX position; TX cannot take water located in OK without OK's permission; OK state law which regulated out-of-state water users not pre-empted by Compact). 

Malonzo v. Comr., T.C. Sum. Op. 2013-47

(petitioner purchased home and used it as principal residence before moving away renting home out; as rental, petitioner earned rental income and claimed depreciation; after rental activity ceased, petitioner stopped paying mortgage on home at time when mortgage exceeded petitioner’s basis in home; lender brought foreclosure action and issued petitioner Form 1099-A; IRS asserted $737 tax deficiency; petitioner claimed ordinary loss of over $100,000 and IRS claimed capital gain; foreclosure constituted sale or exchange under Treas. Reg. Sec. 1.1001-2(a)(1); depreciation claimed added to basis for purposes of gain calculation; ordinary loss not available upon abandonment of property subject to recourse or non-recourse mortgage). 

T.D. 9621 (Jun. 10, 2013)

(final regulations on “tanning” tax imposed on pale people via I.R.C. 5000B; final regulations adopt temporary regulations; tax applies to prepaid monthly membership and enrollment fees even if tanning services not utilized; tanning services received at qualified physical fitness facility (QPFF) exempt; QPFF is business that doesn’t charge separately for indoor tanning services, offer them to general public or offer different membership fee rates based on access to indoor tanning services; bundled service formula adopted by final regulations; tax inapplicable to tanning service where no fee charged or redemption of “bonus points,” but tax applicable to promotions that entitled customer to “free” tan with purchase of set number of tans; tax inapplicable to purchase of gift certificates, gift cards or similar items, but tax imposed when card, etc., redeemed to purchase indoor tan).

Rev. Rul. 2013-14

(Mexican Land Trusts utilized by U.S. citizens to hold ownership interests in residential real estate in parts of Mexico are not "trusts" for purposes of Treas. Reg. Sec. 301.7701-4(a); thus, there is no need to file Form 3520 and penalties for failure to file are not applicable;  follows Priv. Ltr. Rul. 201245003 (Jul. 30, 2012)).

Sophy v. Comr., 138 T.C. 204 (2012)

(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; unmarried co-owners collectively limited to interest deduction of $1.1 million ($1million of acquisition indebtedness and $100,000 of home equity indebtedness).

Brooks v. Comr., T.C. Memo. 2013-141

(petitioner moved into mother-in-law’s home and spent $34,000 to improve residence in exchange for half of home sale proceeds via oral agreement; petitioner lived in home for two years after mother-in-law died; seven years later mother-in-law’s family attempted to sell home; petitioner sued mother-in-law’s estate incurring $2,000 of legal fees; petitioner settled suit for $17,000; petitioner claimed capital loss carryovers of $3,000 for 2005-2007 which IRS denied due to petitioner’s failure to establish ownership of home (or enforceable property interest) or that petitioner made the improvements with intent to make profit; court ruled for petitioner on basis that her testimony concerning agreement was credible and agreement gave petitioner enforceable interest in home sufficient to satisfy I.R.C. Sec. 165 and was entitled to loss deduction; petitioner’s basis was $34,000 plus $2,000 less $17,000 resulting in basis of $19,000; capital loss carryover deduction of $3,000 allowed for each year in issue). 

Hofinga, et al. v. Comr., T.C. Sum. Op 2013-43

(petitioners were engaged in various rental activities and made election to treat all of the rental activities as a single activity; petitioner satisfied 50 percent test, but could not meet the 750-hour test; passive loss test not satisfied). 

Bogue v. Comr., No. 12-1508, 2013 U.S. App. LEXIS 11078 (3d Cir. Jun. 3, 2013), afff'g., T.C. Memo. 2011-164)

(travel expenses incurred by contractor in traveling between home and work non-deductible commuting expenses; bank and various supply stores not regular work locations for petitioner; no depreciation allowed for petitioner's vehicle and tools, but other business expenses substantiated and deductible; tax protestor arguments concerning unconstitutionality of income tax rejected; accuracy-related penalties imposed).

Mountanos v. Comr., T.C. Memo. 2013-138

(petitioner conveyed conservation easement on 882 acres of undeveloped land to land conservancy; at time easement granted, land under long-term contract limiting use and development; petitioner claimed $4,691,500 charitable deduction as value of easement, but could only take $1,343,704 of deduction in tax year due to ceiling imposed by I.R.C. Sec. 170(b)(1)(B); unused portion carried over to 2006, 2007 and 2008; IRS challenged carryover amount; petitioner claimed highest and best use of property was as residential development and vineyard and IRS claimed there was no reduction in FMV of property due to easement; court agreed with IRS - petitioner failed to establish that FMV after easement was less that FMV of property before easement grant; petitioner also failed to establish that either residential development or vineyard use was property's highest and best use before easement imposed; petitioner failed to show that vineyard use a legally permissible use or economically feasible due to restricted access to property and lack of water; 40 percent gross valuation misstatement penalty imposed for underpayments for years at issue - no reasonable cause exception). 

Elick v. Comr., T.C. Memo. 2013-139

(petitioner, pediatric dentist, learned of supposed tax benefits of ESOP - retirement plan that would be funded by stock in petitioner's corporation); for unexplained reasons, petitioner form corporation in addition to existing medical corporation and paid it a management fee to operate petitioner's dental practice; new corporation never provided any management services and fee decided by petitioner and fee not based on hours or value of services; deduction for management fees disallowed and accuracy related penalties upheld; petitioner's claimed losses from companies subject to passive loss rules). 

Jones v. Comr., T.C. Memo. 2013-132

(petitioner worked on commission basis for employer and was also entitled to percentage of revenue generated by a sales associate he recruited; for tax year in issue, he had $50,984 in non-employee compensation and claimed expenses of $45,011.62; IRS disallowed much of the claimed expense deductions due to lack of substantiation and credit card finance charge because it wasn't related to petitioner's business). 

IRS Info. Letter 2013-0022 (May 29, 2013)

(taxpayer wishes to make election under I.R.C. §469(c)(7) and Treas. Reg. §1.469-9(g)(3) to treat all interests in rental real estates as single rental real estate activity; Filing Form 3115 not valid way of making election; election must be made by attaching statement with taxpayer’s original return for the tax year).

HistoricBoardwalk Hall, LLC, et al. v. Comr., 186 L. Ed. 2d 192 (U.S. 2013), cert. den., 694 F.3d 425 (3d Cir. 2012), rev'g., 136 T.C. 1 (2011)

(case involves federal historic rehabilitation tax credit (HRTC) as continued in the Tax Reform Act of 1986 that is available to owners of building; plaintiff owned building in question and Pitney Bowes Corporation was partner of plaintiff (C corporations are not subject to at-risk and passive activity loss rules); IRS took position that plaintiff merely vehicle to transfer HRTC to Pitney Bowes and that all HRTCs should be reallocated to New Jersey Sports and Exposition Authority; Tax Court ruled for plaintiff and allocated HRTCs to Pitney Bowes; on appeal, court reversed because Pitney Bowes did not have "meaningful stake" in plaintiff's success or failure and, as such, was not a bona fide partner in plaintiff).

Reiff v. Comr., T.C. Sum. Op. 2013-40

(petitioner attempted to deduct expenses attributable to his business, but spreadsheet for various expenses lacked description of business purpose and had errors in mileage calculations; petitioner's testimony suggested he converted personal trips into business trip; substantiation requirements of I.R.C. Sec. 274(d) not satisfied). 

Priv. Ltr. Rul. 201321019 (no date given)

(S corporation entered into loan agreement with unrelated third party lender in return for promissory notes; S corporation defaulted and S corporation sued partners for failure to make payments and received judgment; in following year, court reduced amount of judgment; parties enter into settlement; issue was controlling date for when discharge of S corporation debt occurred; IRS concluded that entry of court's order was "identifiable date" fixing creditor's loss with certainty and controlled date of debt discharge; when settlement agreement contingent on certain events, those events must be satisfied; payment date didn't fix creditor's loss with certainty; court order dismissed with prejudice all "claims, cross-claims or counterclaims brought or that could have been brought herein"). 

Callahan v. Comr., T.C. Memo. 2013-131

(petitioners, married couple, had debt cancellation that they claimed was capital gain in nature; wife owned two homes that were both mortgaged and both fell into foreclosure; wife got caught up in home equity theft swindle promoted by lawyer and sells both homes to lawyers agents who get new mortgages processed to pay off the defaulted mortgages; short-term lease also obtained with option allowing wife to buy-back properties; state court voided sale but left new mortgage in place; wife paid off new mortgage; IRS not party to state action and not in privity with wife, lawyers or creditors, so not bound by state court action; wife admits to existence of capital gain when mortgage paid-off, but IRS claims additional amount owed on basis that wife had income on each sale to lawyers at full purchase pice; Tax Court disagreed with IRS position noting that wife received only cash to prepay rent on lease, real estate taxes and cancellation of personal liability on mortgage that was in default; Tax Court determines that gain recognized on discharge of debt is ordinary in nature, not capital; none of debt was qualified principal residence debt, but some could be home equity debt entitling wife to interest deduction up to $100,000 limit). 

PPL Corporation & Subsidiaries v. Comr., 133 S. Ct. 1897 (U.S. Sup. Ct. 2013), rev'g., 665 F.3d 60 (3d Cir. 2011)

(U.S. Supreme Court grants certiorari in case to resolve split between U.S. Circuit Courts of Appeal on issue of whether U.K. windfall profits tax paid by plaintiff’s U.K. subsidiary is creditable under I.R.C. §901; Third Circuit held that it was not and Fifth Circuit held that it was; court reversed Third Circuit decision; British utility partly owned by plaintiff U.S. company was privatized between 1984 and 1996 which caused profits and share prices to soar; British Labour party (liberal progressives) imposed windfall profit tax of 23 percent on difference between profit-making value and price at which government sold company; plaintiff claimed credit on 1997 return for "income, war profits, or excess profits taxes" paid to another country pursuant to I.R.C. Sec. 901(b); Tax Court upheld credit and Third Circuit reversed; Court reversed Third Circuit on basis that tax was tax on "excess profits" of privatized utilities; Court noted that U.K. artificially calculated value and tax was nothing more than a tax on profit above a threshold).

Wright v. Comr., T.C. Memo. 2013-129

(no charitable deduction for non-cash contributions due to lack of substantiation; deduction allowed for tax return preparation fees but limited to 2 percent of AGI floor; no deduction for legal expenses allowed that related to landlord/tenant dispute (personal in nature); no casualty loss deduction for water damage because of failure to show that insurance claim had been resolved during year at issue and no substantiation of unreimbursed loss, and petitioner failed to show what items were compensated by insurance and/or the FMV of any property at time of casualty). 

CCA 201324017 (May 20, 2013)

(property contained in a revocable trust is subject to a federal tax lien because the property in the trust is treated as the property of the settlor under I.R.C. Sec. 676).

C.C.A. 201333010 (May 16, 2013) and C.C.A. 201333011 (May 17, 2013)

(Chief Counsel's Office points out an inaccurate paragraph in IRS Pub. 225 with respect to livestock sold on account of weather-related conditions; IRS points out that taxpayer can replace livestock with "other property...used for farming" under I.R.C. Sec. 1033(f), if replacing the livestock with "property similar or related in use" is not feasible due to weather-related conditions or environmental contamination; IRS notes that livestock cannot be replaced with "other property...used for farming" because of market conditions). 

C.C.M. 20132701F (May 16, 2013)

(DPAD resulting from reclassification of amounts previously classified as grain purchases as PURPIMs is a deduction incurred in connection with the conduct of patronage business and is inherently patronage-based; thus, such amount can only be used to reduce patronage-sourced income, not non-patronage–sourced income). 

Hargreaves v. Comr., T.C. Sum. Op. 2013-37

(petitioners, married couple, claimed mortgage deduction for interest paid that had been added to negative amortization loan; loan allowed petitioners ability to pay lower interest rate than stated rate based on adjustable index; difference between interest paid and accrued was bank's margin; petitioners claimed gross interest paid as reported on Form 1098 as deduction; interest shortage also reported which was amount charged to account but not paid; gross amount was $59,554 and shortage was $33,288, with net interest paid of $26,266; court allowed deduction of $26,266 because petitioners on cash basis and had not yet paid full amount claimed; no accuracy-related penalty imposed).  

Heinbockel v. Comr., T.C. Memo. 2013-125

(petitioners, married couple, engaged in plane chartering, grape farming, and money lending; IRS challenged approximately $156,000 in claimed deductions for three years at issue plus interest and penalties; court disallowed cost of failed effort to establish zinfandel vineyard, deductions for private airplane venture and deductions for wife's claimed business expenses associated with spa visit limousine wine-tasting tour and pleasure trips; petitioner failed to maintain contemporaneous logs and trips primarily personal in nature; parties given until August to submit respective assessments of tax due). 

Ung v. Comr., T.C. Memo. 2013-126

(petitioner received a pre-age 59 and 1/2 distribution from IRA and claimed that the distribution amount was not subject to the 10 percent early withdrawal penalty because the funds were used to acquire a home by a first-time homebuyer; petitioner claimed that funds were used towards downpayment, but only petitioner's brother listed as owner on deed and purchase agreement; petitioner did not execute any separate agreement with brother with respect to her purported ownership interest in house; petitioner did pay warranty fee bills for plumbing repairs and receipts for contractor payments, but such payments not qualified acquisition costs as defined by I.R.C. Sec. 72(t)(8)(C) without any proof of ownership; second IRA distribution also subject to early withdrawal penalty). 

Priv. Ltr. Rul. 201332001 (May 10, 2013)

(taxpayer proposed that joint and survivor life insurance policy on married couple would be purchased by newly created irrevocable trust (second trust) from previously existing trust; both trusts were grantor trusts and on death of surviving spouse assets of initial trust to be distributed outright to couple's children; after creation of initial trust, one child diagnosed with disability impacting ability to manage property; taxpayer proposed to create second trust with children as beneficiaries, but that disabled child's property held in special needs trust; second trust t0 buy policy from initial trust at value as determined by interpolated terminal reserve plus last gross premium payment before sale date; IRS determined that proposed purchase would not constitute transfer for value with the result that no portion of insurance proceeds ordinary income to beneficiaries; both trusts grantor trusts, and husband treated as owner of second trust; thus computation of gain or loss with respect to second trust same as with first trust and transaction within exception to transfer for value rule under I.R.C. Sec. 101(a)(2)(B) to extent policy insures husband's life; to extent policy insures wife's life, that portion of policy transferred to husband as partner of insured under I.R.C. Sec. 101(a)(2)(B) under partnership theory). 

IRS Press Conference (May 10, 2013)

(In advance of TIGTA report, Administration, via Treasury Department executives in staged Q&A at ABA Taxation Section Meeting, admits that certain conservative groups and Christian organizations were targeted and profiled over three-year period when application for I.R.C. Sec. 501(c)(4) status made and "tea party" or "patriot" appeared in application or group was conservative Christian religious organization; at least 300 groups targeted; IRS also illegally sought list of donors to approximately 75 of those groups; head of IRS tax-exempt organization office responsible for such targeting and profiling also member of Humane Society of United States (HSUS), an anti-agriculture animal liberation organization that has 501(c)(4) status but spends the vast majority of its annual budget on political lobbying activity; IRS refused congressional request to investigate HSUS political activity).

Peek v. Comr., 140 T.C. No. 12 (2013)

(petitioner acquired C corporation through an IRA followed by loan guarantees to the corporation; court held that such loan violated I.R.C. Sec. 4975(c)(1)(B) which prohibits loan guaranties by petitioner either directly to the IRA or indirectly to the IRA through of an entity owned by the IRA; prohibited transaction rule violated and IRA terminated; accuracy-related penalty upheld). 

United States v. Dean, et al., No. SACV 11-01977 JVS(JPRx), 2013 U.S. Dist. LEXIS 65357 (C.D. Cal. May 7, 2013)

(defendant, shareholder of S corporation engaged in production process for assembling of gift baskets for food and wine items for sale, claimed flow-through domestic production activities deduction (DPAD); defendant claimed that designing gift basket was complicated, multi-step process involving selection of sizes and colors, materials, ensuring quality control and reviewing packaging; actual production of baskets were outsourced; food items in baskets were either purchased as individually wrapped packages or, if not, are repackaged by contract-hire co-packer; defendant has workers function assembly-line style to produce the baskets into “gift towers”; no DPAD claimed on S corporation’s original (2005) return, but DPAD claimed on 2009 amended return in amount of $275,982, and defendant claimed 75 percent of S corporation’s DPAD on own return; refund paid by IRS and IRS later sued to recover refunds; IRS claimed that S corporation only packaged and repackaged items in baskets and gift towers and was not entitled to DPAD; defendant claimed that S corporation engaged in manufacturing and production of gift baskets and towers; court determined that activity involved qualified manufacturing or production in accordance with Treas. Reg. §1.199-3(e)(2); new product created with different demand). 

Bohannon v. Comr., T.C. Memo. 2013-122

(petitioner owned various businesses that provided tax return preparation services and leased cars and household items; petitioner also owned farmland that was sharecropped by local farmer on which petitioner also attempted to raise catfish in pond; due to medical condition, petitioner unable to keep up with various businesses and petitioner's wife took over financial and business duties, but made numerous errors; professional tax preparer prepared returns based on faulty information supplied by petitioner's wife; upon audit, IRS determined substantial underpayment of tax for numerous years and asserted fraud penalties; court determined that petitioner reasonably relied on wife to keep accurate books and did not willfully attempt to conceal income and fraudulent intent not present; IRS not entitled to extended statute of limitations under I.R.C. Sec. 6501(c)(1) when fraud involved; determinations and adjustments for tax years at issue time-barred). 

Priv. Ltr. Rul. 201318003 (Jan. 22, 2013)

(taxpayer owned improved real estate containing I.R.C. Sec. 1250 property that had been depreciated; taxpayer wanted to donate property to charity and claim charitable deduction; issue was whether contribution to be reduced by 20 percent of accumulated depreciation on the property under I.R.C. Sec. 291(a)(1); IRS determined that 20 percent reduction inapplicable if property contributed to charity; basis of property in hands of donee same as taxpayer's basis at time of gift). 

Priv. Ltr. Rul. 201330046 (May 1, 2013)

(taxpayer sought waiver of 60 day timeframe for IRA rollover due to medical issue; taxpayer received distribution from decedent husband's IRA, but failed to rollover within 60 day time frame, due to mental state and medical condition following death of husband; taxpayer established the facts of husband's lengthy illness and her disabling disease through documentation from doctor; distribution paperwork filed for what taxpayer thought was two life insurance policies; while preparing returns for that year, error noted that one policy was an IRA; once identified rollover was deposited; waiver of 60-day timeframe granted). 

C.C.A. 201321021 (May 1, 2013)

(IRS points out that IRS has authority to accept amended returns required by Sec. 4.02 of Rev. Proc. 2011-34 to make late election to treat all interests in rental real estate as a single rental real estate activity by attaching statement required by Treas. Reg. Sec. 1.469-9(g)(3) to the amended return for the most recent tax year). 

Priv. Ltr. Rul. 201327009 (May 1, 2013)

(QSST purchased stock from third party in exchange for note:  QSST made payments on note, including interest; interest passes through to beneficiary and is deductible as investment interest expense on beneficiary’s return in accordance with Notice 89-35 and 88-37).

Vlach v. Comr., T.C. Memo. 2013-116

(petitioner had alternative medicine practice and established trusts purportedly in furtherance of medical practice and asset protection; petitioner's corporation made payments to trusts and claimed deductions for such payments; deductions denied on basis that trusts where shams; trusts lacked independent trustee, taxpayer's relationship to trust property not materially changed after property transferred to trusts, no economic interest in trusts passed to other beneficiaries (except for minor instance), no meaningful restrictions imposed on petitioner, and trusts paid petitioner's personal expenses; trusts disregarded as shams for tax purposes).