Case Summaries

Shepherd v. Comr., T.C. Memo. 2012-212

(petitioners, married couple, could not exclude CODI associated with credit card debt; no proof of insolvency or evidence of vale of assets before discharge). 


Foster v. Comr., T.C. Memo. 2012-207

(horsebreeding activity not engaged in with requisite profit intent - losses deductible only to extent of income from activity; but rent payment to S corporation owned by petitioner's sons were deductible).


Gorokhovsky v. Comr., T.C. Memo. 2012-206

(self-generated, handwritten records insufficient to substantiate I.R.C. Sec. 162 deductions; accuracy-related penalty imposed). 


Brennan v. Comr., T.C. Memo. 2012-209

(LLC members had to recognize distributive share of capital gain income from sale of partnership accounts and customer lists in accordance with partnership agreement; partner whose partner status terminated in year before sale still entitled to proceeds in liquidation of partnership interest and he remained partner for tax purposes until interest completely liquidated). 


Kaufman v. Comr., 687 F.3d 21(5th Cir. 2012), vac'g., 136 T.C. 294 (2011)

(Tax Court's partial summary judgment to respondent affirmed on reconsideration- contribution of facade easement did not comply with the enforceability-in-perpetuity requirements of Treas. Reg. Sec. 1.170A-14(g)(6); cash payments to charity that accepted facade easement remained conditional at end of 2003 and are not deductible, but cash payments made in 2004 are deductible; facade easement not protected in perpetuity because donee organization not guaranteed proportionate share of proceeds in event of casualty or condemnation as required by Treas. Reg. Sec. 1.170A-14(g)(6)(ii); accuracy-related penalty applicable for deduction of cash payments in 2003; on appeal, appellate court vacated on basis that interpretation of regulation at issue by IRS and Tax Court was unreasonable and inconsistent with Congressional intent; while lender retained priority to insurance proceeds, petitioner had no power to make lender give up such protections; tax liens could potentially trump donee's right to funds upon extinguishment of easement and, thus, regulation's reference to "entitled" cannot be reasonable construed to give donor an absolute right to any proceeds; court's opinion now calls into question Tax Court opinions in Wall v. Comr., T.C. Memo. 2012-169 and 1982 East, LLC v. Comr., T.C. Memo. 2011-84).


Nebraska Legislation, L. 1113 (effective, Jul. 18, 2012)

(new law lists what an agent acting under a duly executed power of attorney can do on the principal's behalf; specified actions include preparing, signing, and filing tax returns at the federal and state level and taking all other tax actions necessary on behalf of the principal). 


Smith v. Comr., T.C. Summ. Op. 2012-71

(tax deficiency in amount of $2,719 discovered against inventor of backwashing device for use in showers; inventor sought to include additional Schedule C manufacturing losses in amended return, including additional costs for his vehicle, office costs, supplies, and deductible meals; court allowed additional substantiated losses in amount of $2,946; section 179 depreciation expenses not allowed because election untimely; increased cell phone costs not allowed to account for personal use and depreciation for company truck  not substantiated because no basis provided or prior depreciation amount taken).


DKD Enterprises, et al. v. Comr., 685 F.3d 730 (8th Cir. 2012), aff'g., in part and rev'g., in part, T.C. Memo. 2011-29

 (Tax Court held that taxpayer's information technology consulting company (conducted in her home in West Des Moines, Iowa) determined to not be a qualified personal service corporation, and taxpayer's cat breeding activity not conducted as a trade or business resulting in non-deductible expenses; Tax Court made numerous other findings: taxpayer's business cannot deduct under I.R.C. Sec. 162(a) amounts related to cat-breeding activity that were treated as reimbursements to taxpayer and her personal partner as well as amounts paid for taxes and licenses, and such amounts must be included in gross income as constructive dividends; Tax Court determined that taxpayer cannot deduct amounts for home mortgage interest and real estate taxes, and that taxpayer's corporation cannot deduct amounts paid into investment fund maintained for the business; Tax Court disallowed any deduction allowed for premium amounts paid on account of health insurance policy purchased for taxpayer; on appeal, 8th Circuit determined that Tax Court had properly assessed deficiencies and penalties insomuch as cat-breeding activity operational costs were not legitimate trade or business expenses; funds spent by company to operate cat-breeding activity were taxable to taxpayer as constructive dividend and funds spent by business for taxpayer's health insurance not deductible or excludible by taxpayer because arrangement not health insurance plan; but, company can deduct contributions to profit-sharing plan for particular years insomuch as such contributions did not constitute constructive dividends).


Saunders v. Comr., T.C. Memo. 2012-200

(petitioner, construction worker, not entitled to deduct costs of $23,121 of $23,802 of claimed costs associated with traveling to five temporary work sites; evidence failed to establish that any of temporary work sites was outside Cincinnati metro area (petitioner's primary work area), and petitioner failed to prove that his residence was principal place of business or that petitioner maintained office in the home).


Averyt, et al. v. Comr., T.C. Memo. 2012-198

(petitioners, via their LLC, donated permanent conservation easement on approximately 1,700 acres of LLC land to Wetlands America Trust (WAT) (a tax-exempt organization founded in 1985 to expand mission of Ducks Unlimited); deed transferring property specified that "both parties have as a common purpose the conservation and protection in perpetuity of the property as a relatively natural habitat under Code Sec. 170(h)(4)(A)(ii) and regs"; deed also specified that the transfer granted to WAT affirmative rights for the protection of the protected property and was intended to be a "qualified conservation contribution" under I.R.C. Sec. 170(h)(2)(C); deed also recited that LLC freely and unconditionally donated to WAT, and its successors and assigns, the easement over the protected property, which was to run with the land and protect the property in perpetuity; WAT did not send donor acknowledgement letters to LLC members (the LLC passed the donation through to the members), but letters not necessary because deed contained recitations of property's conservation value, specified that there were no other values involved, stated that the gift was unconditional, and stated that the deed was the entire agreement between the parties regarding the conservation easement; deed satisfied I.R.C. Sec. 170(f)(8) substantiation requirement).


Robinson v. Comr., No. 11-3362, 2012 U.S. App. LEXIS 14256 (3d Cir. Jul. 12, 2012)

(petitioners, married couple, not entitled to Sec. 162 business expense deductions for expenses associated with publications purchased as supposedly necessary to husband's work at university; lack of substantiation). 


Priv. Ltr. Rul. 201242003 (Jul. 12, 2012)

(limited partnership and affiliate sought to acquire same property via reverse like-kind exchange; party successful in completing exchange eligible for deferral under Sec. 1031 even though both parties used same exchange accommodation titleholder).


Priv. Ltr. Rul. 201243010 (Jul. 12, 2012)

(extension of time granted to file form 8939 with respect to decedent's estate so as to make income tax basis allocations for assets included in 2010 decedent's estate).


H.R. 6079 (July 11, 2012 House vote)

(on a 244-185 vote, the U.S. House voted to fully repeal the Patient Protection and Affordable Care Act; all Republicans and five Democrats voted for repeal; two representatives (one Democrat and one Republican did not vote).


Blackwood, et ux. v. Comr., T.C. Memo. 2012-190

(petitioner not entitled to exclude income from settlement from wrongful termination case against former employer under I.R.C. Sec. 104(a)(2); while claim based on tort-type rights, type of injuries petitioner suffered from did not qualify as physical injury or sickness as defined in the Code; petitioners injuries merely symptomatic of emotional distress; no substantial of amounts allegedly spent on medical care for emotional distress-related problems). 


Dorrance v. United States of America, No. CV-09-1284-PHX-GMS, 2012 U.S. Dist. LEXIS 94107 (D. Ariz. Jul. 9, 2012)

(on motion for summary judgment, court ruled that "open transaction" rule is inappropriate method for determining tax on sale of stock received in insurance company demutualization; cost of insurance policies must be allocated between stock and insurance policy value; IRS approach of disallowing any basis to be allocated to stock received upon demutualization also improper; trial to be held on issue of how to determine basis allocation between policies and shares of stock). 


Walthall v. Comm’r, T.C. Memo. 2012-65

(tax deficiency caused by disallowed mileage deduction; petitioners claimed mileage deductible due to driving to view potential fixer-upper investment real estate properties; all properties viewed were along daily commute or close to mother’s home; petitioner claimed activity engaged in 361 days out of the year ; petitioner made no documentation of homes or investment opportunities; no actions were taken other than viewing potential homes; petitioners failed to establish evidence of any factors that activity was engaged in for profit; facts appeared to be commuters claiming deduction for personal mileage; deduction disallowed).


Dorrance v. United States of America, 877 F. Supp. 2d 827 (D. Ariz. 2012)

(on motion for summary judgment, court ruled that "open transaction" rule is inappropriate method for determining tax on sale of stock received in insurance company demutualization; cost of insurance policies must be allocated between stock and insurance policy value; IRS approach of disallowing any basis to be allocated to stock received upon demutualization also improper; trial to be held on issue of how to determine basis allocation between policies and shares of stock).


Priv. Ltr. Rul. 201240006 (Jul. 5, 2012)

(taxpayer's residence was destroyed in presidentially declared disaster (involuntarily converted) and taxpayer acquired new residence the following year as replacement residence, but didn't tell IRS that second home was his residence; at time of disaster, basis in destroyed home exceeded its value; taxpayer made improvements to the new home and used some insurance proceeds to make the improvements; taxpayer recognized gain from involuntary conversion due to insurance proceeds exceeding basis in the destroyed home; at time or ruling request, taxpayer had not yet reported gain; IRS said that taxpayer could file original and amended return for year of replacement so as to notify IRS of acquisition of new residence).


Asmark Institute, Inc. v. Comr., No. 11-1553, 2012 U.S. App. LEXIS 13643 (6th Cir. Jul. 3, 2012)

(plaintiff corporation denoted its purpose as agribusiness resource center; predecessor was for-profit consulting business that focused on regulatory compliance; plaintiff claimed that without non-profit status it couldn't partner with trade associations because the couldn't share revenue with for-profit entity; court upheld Tax Court determination that plaintiff not operated exclusively for tax-exempt purposes; plaintiff's operations were commercial rather than charitable and business involved offering fee-based compliance services and plaintiff did not establish that profits would not inure to benefit of private persons or shareholders).


S.B. No. 1466 (Pennsylavia General Assembly, signed into law on Jun. 30, 2012)

(as part of budget bill, provision makes private school scholarships available for students assigned to lowest-performing 15 percent of state's public schools; provision adds $50 million in tax credits for corporations that donate toward scholarships; corporate donations can pay for up to $8,500 in tuition for students to attend private schools ($15,000 for special-education students)).


Davis v. United States, No. 12-60011, 2012 U.S. App. LEXIS 13275 (5th Cir. Jun. 28, 2012)

(estate administrator filed income tax return reporting tax liability of $491,521 on basis that decedent owned fee simple interest in farm; before return filed, decedent’s father sued estate seeking deed reformation on basis that deed contained scrivenor’s error omitting intended reservation of life estate for father; court reformed deed to reserve life estate for father; estate appealed and filed administrative claim for refund of overpaid taxes in amount of $215,323 on basis that value of decedent’s interest in farm overstated due to mistaken belief that decedent owned farm in fee simple; IRS disallowed claim on basis that it was untimely as it was not filed within three years of filing the return or two years from payment of tax; trial court granted government’s motion to dismiss; appellate court affirmed on basis that courts have no ability to equitably toll statutory time limits; court rejected argument that I.R.C. Sec. 6511 three-year time limit started when MS Supreme Court denied certiorari; no violation of due process; estate administrator should have filed protective claim to preserve estate’s interest in refund).


National Federation of Independent Business, et al. v. Sebelius, et al., 132 S. Ct. 2566 (U.S. 2012)

(Court upholds individual "mandate" provision of Patient Protection and Affordable Care Act (PPACA) as a valid exercise of Congress's taxing power; Anti-Injunction Act (AIA) does not bar Court from hearing case because, for purposes of AIA, provision is a penalty and not a tax; but, for constitutional purposes, provision is a tax preconditioned upon not obtaining government-approved health insurance; provision not a valid exercise of Congress's Commerce Clause Power and not valid under the Necessary and Proper Clause; dissent pointed out that the Congress repeatedly referred to provision as a "penalty" and not a tax and is imposed as punishment for not obtaining government-approved health insurance  rather than as enforced revenue contribution to federal government; dissent pointed out that majority had to judicially rewrite the statute to construe provision as both a "penalty" and a "tax"; majority failed to point out that such "tax", while to be enforced by IRS under the Act, IRS has no enforcement authority under Act as it does with respect to legitimate tax provisions). 


C.C.A. 201246031 (Jun. 28, 2012)

(taxpayer's travel reimbursement arrangement under which meals and incidental expenses were paid to non-travelers and day-travelers were not per diem allowances in accordance with Rev Proc 2008-59 or Rev Proc 2009-47; amounts did not constitute deductible travel expenses under Code Sec. 162 ; meal and incidental expenses paid to overnight travelers could be per diem allowances if satisfy I.R.C. Sec. 162 requirements and are per diem allowances in consistent with requirements set forth in Rev. Procs.).


Patel v. Comr., 138 T.C. No. 23 (2012)

(petitioners, married couple, purchased house with intent to tear it down and construct new on on same property; instead of tearing house down, petitioners donated house to local fire department for fire training exercise in course of which house would be burned down and; petitioners were party that obtained demolition permit and completed all necessary requirements, including execution of documnents giving fire department right to conduct training exercises and burn the house down; house burned down; petitioners reported charitable contribution of $339,504; court upheld IRS denial of charitable deduction in total ($92,865); petitioners did not donate ownership interest in house to charity, but only right to conduct training exercises (license); Sec. 170 (f)(3) denies charitable decution for donation and use property regardless of value; donation was of only a partial interest, and donation of partial interest not deductible; accuracy-related penalty not imposed).


Quinn v. Comr., T.C. Memo. 2012-178

(petitioner, tax compliance officer for IRS, denied charitable, medical and dental expense deductions due to lack of substantiation, and dependency exemptions due to failure of sons to meet age requirements).


Carmickle v. Comr., T.C. Summary Op. 2012-60 (2012)

(petitioner owned apartment building and a home; during tax year at issue, petitioner sold apartment building for $90,000 gain and excluded it from tax return under I.R.C. §121; exclusion denied due to lack of evidence that petitioner lived in apartment building; petitioner used address of home as mailing address, parked vehicles at home and claimed $20,000 home office deduction for space in home; 20 percent accuracy-related penalty applied; on separate issue, court upheld IRS determination of no deduction for rent not paid by tenants due to lack of substantiation).


T.D. 9596 (Jun. 22, 2012)

(IRS publishes temporary and proposed regulations on "tanning tax" included in health care law; disregarded entities (qualified S corp. subsidiaries and single-owner entities that are disregarded as entities separate from their owners) to be treated as separate entities; for amounts paid on or after Jul. 1, 2012, tanning tax (excise tax) to be filed under name and employer I.D. (EIN) of entity instead of disregarded entity's owner; for amounts paid before Jul. 1, 2012, IRS to treat payments made by disregarded entity as having been made or taken by the entity owner). 


Dalton v. Comr., 682 F.3d 149 (1st Cir. 2012)

(in reversing Tax Court, court held that IRS did not abuse discretion in rejecting petitioners' offer-in-compromise (OIC); petitioners, married couple, transferred property to family member for $1 as part of long-term care planning and had unpaid tax obligation of $400,000; petitioners offered to settle for $10,000 and IRS refused offer; Tax Court determined that petitioners did not own property and ordered IRS to settle matter by accepting offer; on appeal, court held that Tax Court used improper standard of review; court's role in collection due process matters limited to confirming that IRS did not abuse discretion and made reasonable factual and legal determinations; court determined that IRS acted reasonably in concluding that petitioners' owned property at issue and that equity in property mattered in IRS determination to reject compromise offer).


Wall v. Comr., T.C. Memo. 2012-169

(petitioner donated permanent easement to qualified charity on house in historic district in Evanston, IL, to protect architectural aspects of the hosue (facade easement); house subject to mortgage at time of donation and appraisal value easement at $400,000 and petitioner claimed deduction attributable to easement of $129,448; deduction disallowed due to easement not being protected in perpetuity because holder of mortgage had preferential claim to all future insurance and condemnation proceeds up to amounts of outstanding balances of mortgage at that time; Treas. Reg. Sec. 170A-14(g)(6) not satisfied). 


Scheidelman v. Comr., 682 F.3d 189 (2d Cir. 2012), rev'g., Scheidelman, et al. v. Comr., T.C. Memo. 2010-151

(charitable deduction of $59,959 upheld on appeal for donation of historic facade conservation easement on taxpayer's townhouse in historic district; appraiser sufficiently explained how he arrived at valuation numbers before and after easement restriction; irrelevant that IRS believes method employed was "sloppy" or haphazardly applied because pertinent regulation requires only that appraiser identify valuation method that was used and does not required that such method be reliabale; appraiser sufficiently supplied bases for valuation and approach used nearly identical to that approved in Simmons v. Comr., T.C. Memo. 2009-208; appraisal provided IRS with sufficient information to evaluate claimed deduction; petitioner submitted two Form 8283s which combined provided all of the required information and substantially complies with requirement of information required to be submitted; charitable deduction upheld for cash donation to organization arranging donation of easement (which was required as a condition of facade easement donation) - no benefit to taxpayer other than facilitation of facade easement).


Repetto v. Comr., T.C. Memo. 2012-168

(court permitted IRS to recharacterize transaction involving taxpayer that formed two C corporations in which taxpayer's Roth IRAs held 98 percent ownership interest as being subject to I.R.C. Sec. 4973 excise tax on excess contributions; services agreement and payments to corporations simply transferred value to Roth IRAs).


Prop. Treas. Reg. Sec. 1.1366-2 and 1.1366-5 (Jun. 11, 2012)

(S corporation shareholder can increase basis through bona fide indebtedness; general federal tax principles to be used to determine bona fideness rather than "actual economic outlay" test; "circular loans" can be bona fide, based on facts and circumstances; guarantees do not constitute bona fide indebtedness unless shareholder actually makes payment; no basis increase for contribution of unsecured demand promissory note; effective upon publishing of regulations). 


In re Trebilcock, No. 11DORFC042-44 (IA Dept. of Inspections and Appeals, Jun. 11, 2012)

(taxpayers invested in biodiesel plant and lost $400,000 when plant failed after only one month of operation; taxpayers claimed state (IA) investment tax credits; IA Dept. of Economic Development approved investment tax credit of $5.2 million via enterprise zone agreement with plant and county; agreement plainly stated that benefits not received if plant failed to comply with contract terms, including job creation and payment of wages; partnership owned plant and passed tax credits through to taxpayer who claimed credits on state return in two tax years after plant failed; IDOR sought repayment of credits from individuals ($42,000); IDOR entitled to seek repayment from individual taxpayers that received value of tax credit; (point of consideration for those interested in investing in such "renewable" technology - Congressional Research Service Report on biodiesel industry (No. 7-5700, R41631, Feb. 11, 2011)(report notes that biodiesel production would not exist if not for tax subsidies from U.S taxpayers; report notes that industry is inefficient and remains dependent on tax incentives and renewable fuels standard mandates)).


Rothman v. Comr., T.C. Memo. 2012-163

(petitioners, married couple, contributed permanent conservation easement in historic preservation facade on NYC townhouse that is designated as certified historic structure; appraiser estimated pre-easement value of property at $2.6 million and that easement reduced value by $290,000; IRS disallowed charitable contribution deduction for petitioner's failure to establish easement's value on basis that appraisal not qualified appraisal for lacking a valuation method; market data approach used to determine "before" value, but appraiser could not "properly estimate" resulting loss in value due to lack of data for comparable properties; court upheld IRS disallowance on basis that appraisal did not include specific basis for value under Treas. Reg. Sec. 1.170A-13; petitioners already barred from altering property under NYC law without approval from Landmarks Preservation Commission). 


IRS Notice 2012-42, I.R.B. 2012-26

(inflation adjustment factor for the I.R.C. Sec. 45Q carbon dioxide sequestration credit for 2012 is 1.0438; credit is $20.88/metric ton of qualified CO2 under I.R.C. Sec. 45Q(a)(1) and $10.44/metric ton of qualified CO2 under I.R.C. Sec. 45Q(a)(2); credit applicable to amount of qualified CO2 captured at qualified facility and disposed into secure geological storage).


Medicare tax increase (IRS comments on Jun. 7, 2012)

(forthcoming (beginning in 2013) .9% Medicare tax increase as a result of Health Care Act (unless Act ruled unconstitutional) is in addition to Medicare rate of 1.45% on wages employees receive; tax only applicable to employee portion of Medicare tax and employer portion remains at 1.45%; additional line to be added to 2013 Form 941; no revision to Form W-2 and all employee Medicare tax withholding to continue to be reported in Box 6 of Form W-2). 

Prop. Treas. Reg. Sec. 1.1366-2 and 1.1366-5 (Jun. 11, 2012)(S corporation shareholder can increase basis through bona fide indebtedness; general federal tax principles to be used to determine bona fideness rather than "actual economic outlay" test; "circular loans" can be bona fide, based on facts and circumstances; guarantees do not constitute bona fide indebtedness unless shareholder actually makes payment; no basis increase for contribution of unsecured demand promissory note; effective upon publishing of regulations). 


Maguire v. Comr., T.C. Memo. 2012-160

(petitioners wholly owned two S corporations, a car dealership and a finance company; dealership losing money and financing company making money; petitioners' basis in dealership insufficient for losses to be claimed (S corp. losses limited to stock basis plus debt basis); distributions taken in form of receivables from finance company by owners and then amounts contributed to dealership and dealership losses deducted; IRS claimed transaction either didn't take place or lacked economic substance; court disagreed on basis that distributions and contributions had real consequences because contribution of receivables to dealership made dealership solvent and exposed more of its assets to general creditors; simultaneously, petitioners' basis in finance company reduced by like amount and reduced petitioners' ability to receive tax-free distributions; while petitioners could have formed S corporation holding company to combine basis in multiple S corporations (with a QSUB election), petitioners took actual distributions rather than loans). 


Bauer v. Comr., T.C. Memo. 2012-156

(petitioner is truck driver that hauls personal effects for individuals and hirs day laborers and others at pick-up point and destination to help load and unload that are paid in cash; petitioner kept logbook and did not provide 1099s or W-2s since no one hired ever received more than $600; burden of proof not shifted to IRS because logbook not credible due to mathematical errors and other inconsistencies; petitioner admits that logbook is inaccurate and deductions denied due to lack of substantiation; penalties not applied because petitioner made good-faith effort for purposes of I.R.C. Sec. 6662(a)).


C.C.A. 201238026 (Jun. 4, 2012)

(S corporation filed fraudulent return and taxpayer/shareholder not involved in the preparation or filing of S corporation return and did not know of the fraud; IRS cannot assess taxpayer/shareholder for corrected share of S corporation income more than three years after return due date; situation not like spousal situation (where fraud of one spouse filing joint return does not toll three-year statute of limitations with respect to other spouse - spouses are jointly and severally liable) and no tax evasion involved with respect to taxpayer/shareholder).


Twin Rivers Farm, Inc. v. Comr., T.C. Memo. 2012-184

(equestrian business owners sought redetermination that two individuals performing services at their farm were independent contractors rather than employees; court held individuals were employees as all facts pointed to an employment relationship; business owners allowed individuals to use “valuable equipment” and care for horses, which court found unlikely would occur if a right to control individuals’ work did not exist even if not exercised during the time period; individuals had no investment in rendering of services because all equipment provided by business; individuals were paid weekly salary regardless of hours or productivity, so there was no opportunity for individuals to profit from their work; no evidence of owners’ ability to discharge individuals; work done was part of owners’ principal business of raising and selling horses and keeping horses and facilities presentable necessary component; and individuals steadily employed through years and lived on-site; court held owners must also pay penalty for failure to report employment taxes and make tax deposits because no evidence presented that owners could not provide either when due).


IRS Notice 2012-40, 2012-25

(IRS relaxes provision contained in Patient Protection and Affordable Care Act  that sets $2,500 annual limit on flexible spending account maximum contributions employees can make to their FSAs set to take effect with respect to contributions made after 2012; IRS stated that participants in non-calendar-year plans may make unlimited contributions to their FSAs during first year that law's mandatory $2,500 contribution ceiling is in effect - in other words, $2,500 limit will not apply for plan years beginning before 2013; IRS accepting comments on the rule set forth in the proposed regulations with respect to health FSAs until Aug. 17, 2012). 


Mohamed v. Comr., T.C. Memo. 2012-152

(petitioner owned several properties and donated the properties to a charitable remainder trust; petitioner prepared own tax return and failed to include qualified appraisal from independent appraiser (petitioner was qualified appraiser) for properties; IRS disallowed charitable deduction; while IRS conceded that value of properties was higher than what petitioner claimed, entire deduction disallowed for failure to follow applicable regulations requiring appraisal; court upheld IRS complete disallowance of charitable deduction). 


D'Errico v. Comr., T.C. Memo. 2012-149

(petitioner created C corporation to provide management services to S corporations that petitioner owned; S corporations sold and C corporation purchased airplane and Chevy Tahoe and petitioner claimed expense deductions for plane and vehicle along with supplies and meals; deductions disallowed because petitioner failed to establish usage in taxpayer's business; petitioner derived personal benefit from plane and vehicle and received constructive dividend via rent payments made by corporation).


Rospond v. Comr., T.C. Sum. Op. 2012-47

(petitioners purchased residence via family LLC owned by themselves and their children and claimed FTHBTC; IRS denied credit and court agreed on basis that LLC not an individual; court unwillingly to pierce corporate veil in absence of fraud; multi-member LLC not disregarded entity under tax law, but single-member LLC is by default). 


Trugman v. Comr., 138 T.C. 390 (2012)

(petitioners held various rental properties in Wyoming S corporation and properly filed Form 1120 for S corporation for many years prior to tax year at issue; petitioners resided in rental properties; petitioners purchased home in Nevada with $7,500 of their own money and $319,500 from S corporation; title to home taken in name of S corporation, but petitioners claimed first-time homebuyer tax credit (FTHBTC) on their Form 1040; IRS denied credit (after petitioners had been told by IRS that they could claim the credit even though S corporation owned home) on basis that S corporation not an individual and I.R.C. Sec. 36 only applies to individuals; court upholds IRS position on basis that corporations taxed under entirely different section of Code than individuals).


Stewart v. Comr., T.C. Sum. Op. 2012-46

(petitioner defaulted on credit card; debt charged off on 9/12/96 and collection agency subsequently acquired account which was later acquired by another collection agency on 12/28/07; automated attempts to collected continued until 2008 even though statute of limitations for collection had expired on 2/15/01; collection agency issued Form 1099-C for 2008 tax year for $8,570.71, but petitioner's tax return did not report CODI; court determined that debt discharged in 1999, the year it became clear that debt would not be repaid - 36-month nonpayment period; issuance of Form 1099-C not determinative of discharged debt). 


Bronstein v. Comr., 138 T.C. 383 (2012)

(petitioner and father-in-law purchased principal residence for petitioner and spouse; spouse lived in home with petitioner, but was not included on title and did not sign note or mortgage on residence - mortgage was $1.35 million; petitioner files as MFS and deducted the interest on the full $1.1 million allowed by I.R.C. Sec. 168(h) (entire debt, including interest, paid off in 2007) ; court holds that petitioner's deduction limited to interest paid on $500,000 of home acquisition indebtedness and $50,000 of home equity indebtedness; 20 percent accuracy-related penalty imposed).


Durden v. Comr., T.C. Memo. 2012-140

(petitioners' charitable contribution deduction denied due to failure to strictly comply with substantiation requirements of I.R.C. Sec. 170(f)(8)(A); petitioners contributed $22,517 to their church and statement provided by church acknowledged donated amount, but did not state whether petitioners had received any goods or services in return; upon notice by IRS of problem with church's acknowledgement, petitioners received corrected acknowledgement from church stating that petitioners had not received any goods or services; Tax Court held that first acknowledgement failed due to lack of required statement, and that second acknowledgement failed because it was not received by petitioners before they filed their tax return for year at issue and was, therefore, not contemporaneous as required by Treas. Reg. Sec. 1.170A-13(f)(2)).


Mulcahy, Pauritsch, Salvador & Co., Ltd., v. Comr., 680 F.3d 867 (7th Cir. 2012)

(accounting firm founded by three accountants that owned over 80 percent of firm and attempted to organize as C corporation, but organization never accomplished; for tax years 2001-2003, firm paid over $850,000 in "consulting fees" to three entities that founding shareholders owned, and "consulting entities" paid founders for consulting services rendered to firm's clients (in addition to annual salaries totaling $323,076); fees classified as "salary expenses" which reduced taxable income; firm had revenues of $5-7 million annually but only $11,279 taxable income in 2001 and loss of $53,271 in 2002 and no taxable income in 2003; amounts reclassified as dividends that were not deductible salary expenses; substantial understatement of corporate tax liability resulted ($300,000 annually); accuracy-related penalty imposed; court commented that it was "puzzling" why firm not reorganized as pass-through, and stated, "That an accounting firm should screw up its taxes is the most remarkable feature of the case.").


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