Case Summaries

Morgan v. Comr., T.C. Sum. Op 2011-92

(petitioner deemed to be engaged in trade or business of renovating and selling homes; entitled to substantiated business deductions under I.R.C. Sec. 162; but cannot claim IRS standard business mileage expense deduction on pickup truck because truck also subject to expense method depreciation election under I.R.C. Sec. 179 (court noted that property that is held only for production of income is not eligible for Sec. 179 expensing). 


Byers v. Comr., 420 Fed. Appx. 658 (8th Cir. 2011)

(in subsequent opinion, court holds that Tax Court did not err in determining taxpayer collaterally estopped from challenging finding that he was self-employed truck driver rather than employee of trucking company with result that income subject to self-employment tax; petitioner determined route to take and order of pick-ups; taxpayer not paid pre-determined wage, but percentage of gross and did not accrue vacation or pension benefits; taxpayer never sent a W-2 and did not object to receiving Form 1099; certain truck-lease payments would have been treated as deductible business expenses if IRS had examined return before issuing deficiency; case remanded on this sole issue). 


Abdi v. Comr., T.C. Sum. Op. 2011-89

(petitioner's 11-year old sister satisfied definition of "qualified child" under I.R.C. Sec. 152(c) such that petitioner could claim dependency exemption, EIC and child tax credit on behalf of sister; mother unable to claim petitioner as dependent for tax year at issue under facts of case). 


Blah v. Comr., T.C. Sum. Op. 2011-90

(petitioner cannot claim dependency exemption or EIC for nephew or girlfriend's child because neither of them meet the definition of "qualifying child" under I.R.C. Sec. 152(c) or 152(d); income limitations applied). 


Moore v. Comr., T.C. Memo. 2011-200

(petitioner and wife divorced and divorce decree stated that petitioner was to pay the mortgage on the former marital home and receive the tax deduction for doing so with such payment not being taxable to former spouse; if former spouse sold home, she was to pay off the mortgage balance and be reimbursed by petitioner; she sold home and petitioner and her entered into settlement agreement as a result of court action with result  that petitioner would pay her $20,000 and petitioner's maintenance obligation would terminate; during tax year in issue, petitioner paid former spouse over $21,000 and deducted the amount as alimony; amount not deductible because obligation to continue making payments did not terminate in the event of former wife's death, but just by satisfaction or mortgage or reimbursement to former wife of mortgage payoff amount).


Zenzen v. Comr., T.C. Memo. 2011-167

(petitioner's drag racing activity not entered into with requisite profit intent based on evaluation of all factors; court determined that petitioner engaged in activity because of long-held interest in drag racing and derived substantial personal pleasure from the activity and had no good-faith expectation of making profit; losses not deductible). 


Illinois Dept. of Rev. (Gen. Info. Ltr. IT 11-0014-GIL, Jul. 12, 2011)

(non Illinois residents, for Illinois income tax purposes, may allocate all of any federal deduction for alimony that is paid; the limit on the credit for taxes paid to other states is computed by allocating the alimony deduction paid to other states as if they followed the same allocation principles as Illinois). 


Bogue v. Comr., T.C. Memo. 2011-164

(travel expenses incurred by contractor in traveling between home and work non-deductible commuting expenses; no depreciation allowed for petitioner's vehicle and tools, but other business expenses substantiated and deductible; accuracy-related penalties imposed). 


Briscoe, et ux. v. Comr., T.C. Memo. 2011-165

(petitioner entitled to neither dependency exemption nor child tax credit; child did not satisfy definition of qualifying child contained in I.R.C. Sec. 152; petitioner failed to attach required declaration from child's mother where she agreed not to claim dependency exemption for child). 


Priv. Ltr. Rul. 201142005 (Jul. 11, 2011)

(electricity storage device at location of aerogenerators constitutes qualified property (under I.R.C. Sec. 48(a)(5)) located at a qualified investment credit facility that is eligible for investment credit against cost of facility; credit potentially subject to recapture under I.R.C. Sec. 50(a)(1)(A)). 


Broz v. Comr., 137 T.C. 25 (2011)

(wireless cellular assets (i.e., antenna support structures) are in asset class 48.14 with a recovery period of 15 years in accordance with Rev. Proc. 87-56; cell site equipment (excluding the switch) and leased digital equipment are in asset class 48.12 with a recovery period of 10 years). 


IRS News Release on Gift Tax Examinations of I.R.C. Sec. 501(c)(4) Organizations (Jul. 7, 2011)

(IRS announces that it is ceasing investigation into selected I.R.C. Sec. 501(c)(4) organizations and whether contributions to such organizations are subject to gift tax; IRS has lost two cases on the issue - Stern v. United States, 436 F.2d 1327 (5th Cir. 1971) and Carson v. Comr., 641 F.2d 864 (10th Cir. 1981), aff'g., 71 T.C. 252 (1978); federal law prohibits gift tax assessments on "political organizations" as defined by I.R.C. Sec. 527 by virtue of I.R.C. Sec. 2501(c)(4); Senate Finance Committee had begun questioning the IRS tactics as political meddling). 


Treasury Inspector General for Tax Administration (Report of Jul. 7, 2011 on 2009 "Stimulus" Bill provisions)

(report denotes that persons not authorized to work in the U.S. were paid $4.2 billion in refundable additional child tax care credit (ACTC); American Recovery and Reinvestment Act of 2009 increased ACTC eligibility by changing income threshold such that, for 2010 2.3 million filers unauthorized to work in the U.S. claimed ACTCs totaling $4.2 billion).


Twitter Town Hall (Washington, D.C. Jul. 6, 2011)

(President Obama incorrectly states that, “We actually now have the lowest tax rates since the 1950s. Our tax rates are lower now than they were under Ronald Reagan. They’re lower than they were under George Bush — senior or George Bush, junior.”; fact - present 35% rate higher than the 28% rate in effect from 1988-1990 and 31% rate in effect for 1991 and 1992). 


Anderson v. Comr., T.C. Sum. Op. 2011-84

(some medical expenses deductible, but other expenses and charitable contributions not deductible because not substantiated).


Wheeler v. Comr., T.C. Sum. Op. 2011-83

(unmarried couple that lived together and shared housing costs but where house in male’s name did not allow female to deduct mortgage interest; female not equitable owner of home because she had no legal right to rents or profits from home, bore no risk of loss associated with home and had no right to obtain legal title by paying balance of purchase price). 


Faust v. Comr., T.C. Memo. 2011-158

(petitioner, retired minister, established business but failed to conduct it with requisite profit motive; expenses deductible to extent of income; accuracy-related penalty upheld).


Kay v. Comr., T.C. Memo. 2011-159

(day trader that engaged in substantial trading activities and lost over $2 million in 2000, $400,000 in 2001 and $278,000 in 2002 held to be an investor rather than one engaged in trade or business of trading securities; taxpayer engaged in day trading approximately 37 days annually during the tax years in issue and entered into an average of 135 trades; number of days engaged in trades not substantial; taxpayer held a majority of the stocks for over 30 days with few stocks sold on same day as purchased; capital loss treatment applied (had there been gains, gains would have been taxable at capital gain rates). 


Jende, et ux. v. Comr., T.C. Sum. Op. 2011-82

(petitioner’s rental real estate activity subject to passive loss rules; material participation rules not satisfied; petitioner not a real estate professional). 


Estate of Baral v. Comr., 137 T.C. 1 (2011)

(expenses paid to caregivers on behalf of decedent who suffered from dementia were deductible under I.R.C. Sec. 213(d)(1)(C) as long-term care services as defined in I.R.C. Sec. 7702B(c); medical doctor certified need for services). 


Paschall v. Comr., 137 T.C. 8 (2011)

(Roth IRA conversion scheme failed; taxpayer had traditional IRA and established Roth IRA with $2,000 contribution; both IRAs established new corporations with corporation owning the Roth IRA receiving $2,000 Roth contribution; and corporation owning traditional IRA receiving $1.3 million of traditional IRA assets; corporations then merged together with result that Roth IRA owned $1.3 million in assets where they would allegedly be permanently tax-free; scheme set up by Grant Thornton accounting firm in Kansas City to which client paid $120,000 for the scheme; court determined that taxpayer had no business purpose for the transaction, but merely used corporate formations and mergers in attempt to avoid taxes and disguise excess contributions to Roth IRA; penalties imposed; scheme ended up costing taxpayer $425,513 in taxes and approximately $105,000 in penalties). 


Tax Increase Enacted on aviation tickets and fuel (H.R. 2279, signed into law on June 30, 2011)

(enacts an extension of the 4.3 cent/gallon excise tax on commercial airline fuel and 7.5 percent tax on ticket purchases through July 22, 2011).


Thomas More Law Center, et al. v. Obama, et al., 651 F.3d 529 (6th Cir. 2011)

(in a 2-1 decision authored by Carter appointee, court upholds against a facial challenge the constitutionality of the minimum coverage provision (i.e., the individual mandate) of the Patient Protection and Affordable Care Act; majority reasoned that provision within the authority of the Congress to enact under the Commerce Clause; court rejects government's position that provision is a tax that can be upheld under the taxing power of the Congress; court notes that nature of challenge by plaintiffs as a pre-enforcement facial challenge favors the government and is not the preferred route for litigation; court notes that opinion does not preclude future as-applied challenges to the mandate provision and that Act may, indeed, be eliminated by the Congress; dissent notes that mandate does not regulate commercial activity, but regulates the status of being uninsured; thus, since no market activity involved, the Congress has no ability under the Commerce Clause to regulate such inaction; dissent also points out that finding the mandate provision Constitutional removes all limits on the authority of the Congress under the Commerce Clause). 


DiDonato, et ux. v. Comr., T.C. Memo. 2011-153

(petitioner properly denied a charitable deduction for donation of conservation easement to county; failed to satisfy substantiation requirement s of I.R.C. Sec. 170(f)(8)).


Grosjean v. Comr., T.C. Sum. Op. 2011-75

(petitioner's payment on former spouse's mortgage not deductible alimony; amount not paid under a divorce or separation instrument and was subject to conditions related to petitioner's sons). 


Ramig, et ux. v. Comr., T.C. Memo. 2011-147

(married couple entitled to deduct legal expenses as ordinary and necessary business expense, but could not deduct expenses attributable to rental property and could not deduct as a bad debt amount of loans they claimed were worthless because there was no bona fide indebtedness; rental property expenses not claimed on correct place on return and didn't raise issue with IRS at administrative level). 


Fein, et ux. v. Comr., T.C. Memo. 2011-142

(business expenses of CPA not substantiated and, therefore, business-related deductions disallowed). 


Comr. v. Simmons, 646 F.3d 6 (D.C. Cir. 2011)

(taxpayer entitled to charitable deduction for grant of facade easement to charitable organization). 


Intermountain Insurance Service of Vail, LLC, et al. v. Comr., 650 F.3d 691 (D.C. Cir. 2011), rev'g., 134 T.C. 211 (2010)

(Treas. Regs. granting 6-year statute of limitations due to IRS position that overstated basis constitutes an omission from gross income upheld).


Failure of Economic Development Revitalization Act of 2011 (June 21, 2011)

(by a 49-51 vote, U.S. Senate fails to get beyond a cloture vote on the Economic Development Revitalization Act of 2011; Act contains repeal of volumetric ethanol excise tax credit; four senators who voted to end the volumetric ethanol excise tax credit, voted against cloture  - Johnson (D-ND), McCaskill (D-MO), Nelson (D-NE) and Klobuchar (D-MN)). 


Gardner, et ux. v. Comr., T.C. Memo. 2011-137

(character of gain on sale of tract of real estate is short-term capital gain in nature; taxpayer bought properties and would build single-family residence on bare lot and then sell the improved property via use of brokers; lots in issue not held primarily for sale to customers in ordinary course of business). 


Senate Vote on Ethanol

(U.S. Senate voted 73-27 on June 16 to repeal volumetric ethanol excise tax credit of $.45/gallon; vote was on amendment to S. 782, the  Economic Development Revitalization Act of 2011). 


Schneider v. Comr., T.C. Summ. Op 2011-72

(taxpayer did not qualify for first-time homebuyer credit on purchase of home from mother's estate; acquisition of home was not a qualified "purchase" insomuch as the purchase was from the executor who was a disqualified related party to the taxpayer (a sibling); while a sibling is not a related party under the statute, the executor of an estate and a beneficiary of that same estate are related persons under I.R.C. Sec. 267(b)(13)). 


Niesen v. Comr., T.C. Sum. Op. 2011-71

(IRA contribution deduction of $5,000 disallowed for 2007 due to lack of wage or self-employment income; fact that IRS had audited 2006 return and didn't challenge IRA deduction in that year under same set of facts not binding on IRS for any subsequent tax year).


Loewenhagen v. Comr., T.C. Sum. Op. 2011-70

(petitioner who was hired by county to manage county park lived out of petitioner’s mobile home on park property, even though not required to live in park as condition of employment;  deductions associated with mobile home not deductible under I.R.C. Sec. 119 because contract for petitioner’s services did not require petitioner to live on premises; fuel expense petitioner incurred to operate park vehicles deductible because strict substantiation requirements inapplicable to “qualified non-personal use vehicles). 


Burks v. United States, No. 3:06-CV-01747-N (N.D. Tex. Jun. 13, 2011)

(summary judgment not granted to taxpayer, a partnership, on issue of whether a final partnership administrative adjustment was timely or not; overstatement of basis case; six-year statute of limitations may have been applied).


Jones v. Comr., No. 10-1985 (4th Cir. Jun. 13, 2011)

(court holds that I.R.C. Sec. 6015(f) is ambiguous with respect to statute of limitations and upholds Treas. Reg. Sec. 1.6015-5(b)(1) as reasonable in establishing 2-year statute of limitations for innocent spouse claims; case remanded to Tax Court). 


Priv. Ltr. Ruls. 201138029 and 201138002 (Jun. 9, 2011)

(farmers' cooperative made payments to members for grain sales qualified as PURPIMS; cooperative's DPAD (I.R.C. Sec. 199) to be computed without regard to any deduction for such payments).


Ward, et ux. v. Comr., T.C. Sum. Op. 2011-67

(petitioner not entitled to deduction attributable to business use of vehicle due to lack of substantiation; accuracy-related penalty imposed; mileage log inadequate and showed that business use less than 50 percent).


Kansas Dept. of Revenue (Rev. Rul. No. 19-2011-01, Jun. 8, 2011)

(reverses previous ruling to specify that gross receipts from participation in guided and non-guided hunting are not subject to state retailers' sales tax or any other type of sales tax; effective July 1, 2011).


Britton, et al. v. Comr., No. 09-1994, 2010 U.S. App. LEXIS 19925 (1st Cir. Aug. 24, 2010), aff'g., Medical Practice Solutions, LLC v. Comr., 132 T.C. 125 (2009), cert. den., 131 S. Ct. 2974 (U.S. 2011)

(sole member of limited liability company liable for company's unpaid employment taxes; check-the box regulations upheld; opinion follows other circuit court opinions on the issue).


Todd II, et ux. v. Comr., T.C. Memo. 2011-123

(loan taken out against wife's life insurance policy funded by neurosurgeon husband's wholly-owned corporation for "unexpected housing costs" not bona fide; no contemporaneous memorialization of indebtedness at time of distribution, terms of promissory note not heeded, market rate of interest not charged, quarterly payments not made as not required, no attempt to collect amounts due upon default; loan was taxable distribution).


Mali v. Comr., T.C. Memo. 2011-121

(self-employed graphic designer not entitled to many expense deductions for lack of substantiation). 


Rodriguez, et al. v. Comr., T.C. Memo. 2011-122

(parents of handicapped minor child sold home to child through child's guardian who used child's funds to satisfy mortgage on home; guardian transferred title of home to himself as child's guardian and claimed first-time homebuyer tax credit; credit disallowed because child deemed, under step-transaction doctrine, to have purchased home from related persons under Sec. 36(c)(5); no analysis of Sec. 36(c)(3) which does not bar purchases for fair market value from related persons). 


Van Dusen v. Comr., 136 T.C. 515 (2011)

(petitioner that provided foster care for wild cats on behalf of charity entitled to reimbursement of expenses that were largely paid out-of-pocket that were exclusively related to feline foster care; other expenses not deductible because commingled with personal expenses; substantiation requirements not satisfied, thus expenses over $250 not deductible). 


Suhadolnik v. United States, No. 10-3021, 2011 U.S. Dist. LEXIS 58738 (C.D. Ill. Jun. 2, 2011)

(CEO remains liable for corporate payroll taxes that company did not remit; responsibility to remit payroll taxes cannot be delegated to employees). 


Iowa Dept. of Rev. Policy Ltr. (No. 11300032, Jun. 2, 2011)

(US cellular phone replacement program which requires participating subscribers to exchange a damaged phone for a replacement phone does not trigger sales tax when replacement phone provided to an Iowa subscriber; parts and labor furnished in addition to that covered by warranty subject to tax only when party must pay additional charges). 


Salman Ranch, Ltd. v. Comr., 647 F.3d 929 (10th Cir 2011)

(in reversing U.S. Tax Court, court upholds IRS regulation applying six-year statute of limitations to overstated basis cases).


I.R.S. Notice 2011-40, 2011-22 I.R.B. 806

(under calculation required by I.R.C. SEc. 45(b)(2), credit for renewable electricity production for calendar year 2011 under I.R.C. Sec. 45(a) is $.022/KwH on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy, and solar energy, and $.011/KwH per kilowatt hour on the sale of electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, trash combustion facilities, qualified hydropower facilities, marine and hydrokinetic energy facilities). 


Priv. Ltr. Rul. 201136018 (May 25, 2011)

(wind farm located in a U.S. possession in which all beneficial owners, either directly or indirectly, are U.S. citizens or domestic corporations, where membership interests sold to investors, is property described in I.R.C. Sec. 168(g)(4)(G) and will not be treated as property that is used predominantly outside the U.S. for ADS purposes). 


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