Case Summaries
(taxpayer who provided services to foreign government was common law employee and, as a result, cannot take deduction for contributions to simplified employee pension plan and must pay excise tax on excess pension contributions).
(sale of conservation easement on approximately 580 acres of land to American Farmland Trust in bargain sale transaction and on 520 acres in bargain sale transaction to Ducks Unlimited generated state (CO) conservation credit of $260,000, and taxpayer sold $231,600 of the credit for $178,332; state credits are capital assets and amount received on sale was short-term capital gain; taxpayer cannot tack holding period attributable to land to holding period in credit because credits never part of taxpayer's real property rights; court's opinion based on earlier opinion in Tempel v. Comr., 136 T.C. No. 15 (2011)).
(revocation of PLR 201005014 (Feb. 5, 2010) and substitution of present letter ruling with no retroactive effect; prior letter ruling had concluded that the value of certain items of clothing and accessories that taxpayer provided to employees were excluded from gross income as deminimis fringe benefits under I.R.C. Sec. 132(a)(4)).
(taxpayer formed business entities as a management entity and an operating entity; both entities were S corporations, but management entity was owned by ESOP which allowed for deferral or avoidance of tax on management fees earned by the management entity, while payor entity received operating deduction; IRS challenged management fees due to lack of legitimate business purpose and lack of economic substance; taxpayer conduct sufficient actual business activity to avoid being a sham - provision of personnel services, maintained an investment and bank account, paid employees by check adopted retirement plan followed corporate formalities and filed income and employment tax returns; management fees not deductible to extent not associated with providing employees to operating entity).
(fair market value of the cash value of a life insurance policy is includible in recipient's income; but, cash value remained in issue so summary judgment denied for defendant).
(petitioner had CODI from settlement of outstanding student loan obligation; amount of CODI is amount owed on loan and what petitioner had paid).
(petitioner not entitled to alimony deduction for family support payments; even though payments made in accordance with court order of dissolution of marriage, payments were clearly child support).
(petitioner, who traveled as medical consultant, had tax home in CA rather than GA; petitioner worked in CA for approximately 3 years; travel expenses not deductible; expenses also not substantiated).
(expenses incurred to repair hearing aids can qualify for reimbursement under a flexible spending account if allowed by the terms of the flexible spending account plan).
(petitioner not entitled to exclude Social Security disability benefits from income; while benefits double taxed, there is no statutory relief for petitioners on that basis; in addition, benefits not excludible under I.R.C. Sec. 104 as workers' compensation or accident/health benefits).
(when IRS re-examines audited tax year upon review of claim for refund, such re-examination is not a "second inspection" under I.R.C. Sec. 7605(b) (which prohibits unnecessary exams or investigations).
(livestock sold directly to final consumer subject to sales tax; direct sales are not a non-taxable sale for resale).
(charitable community and wholly-owned corporation may file single Form 990; trust deemed to be single entity under Treas. Reg. Sec. 1.170A-9T(f)(11)(i) and corporation treated as component part of trust under Treas. Reg. Sec. 1.170A-9T(f)(11)(ii)).
(increases annual limit for Endow Iowa Tax Credit to $3.5 million (enhancement of $800,000) and specifies that any particular taxpayer limited to five percent of aggregate amount of tax credits that are authorized).
(Treas. Reg. Sec. 1.6015-5(b)(1) imposing a two-year statute of limitations on equitable innocent spouse claims is invalid; court follows its decision in Lantz).
(government property disallowed business deductions for vehicle, travel, entertainment and janitorial expenses, properly disallowed deduction from rental income of passive losses from dental equipment leasing business and that marketing operation not engaged in for profit; no allocation between business and personal use of vehicles, did not establish year placed in service, failed to show travel and entertainment expenses related to dental convention, failed to substantiate other expenses; farming operation engaged in for profit and loan repayment from son should be excluded from income).
(court upholds defendant's denial of married couple's claimed capital gain deduction from sale of farmland for failure to own the farmland for statutorily-required 10-year period; farmland gifted to husband and his siblings in 1990 and operated in family trust until 1999 when it was distributed equally to all siblings before transfer to LLC; farmland sold in 1999 and husband's share of gain was $74,949 and husband attempted to deduct amount of gain on Iowa return; husband did not "hold" the property for required 10-years under Iowa Code Sec. 422.7(21)(a); at time Iowa Dept. of Revenue regulation did not match how holding period of capital asset measured under Internal Revenue Code and did not allow time asset held by any other person if property has same basis as it had in the other person; 2006 amendment to conform to I.R.C. not merely clarification of intent that federal rules apply - it was a substantive change in the law).
(IRS notes that for determining whether various pieces of equipment in an electric substation on a wind farm are eligible for the payments for specified energy property in lieu of tax credits program under Sec. 1603 of ARRA, the key is whether the equipment used is an integral part of the activity of generating electricity from wind and whether the equipment constitutes power conditioning equipment, or parts relating to the functioning of those items; IRS noted that most of the items listed in the request for guidance is essential to the manufacturing process because it is necessary to deliver generated electricity; but IRS notes that a surge arrestor is not qualified property).
(petitioner, heavy-equipment operator, was member of union with served as employment agency and would get dispatched to jobs using his own transportation; for year in issue, petitioner made repairs to rental property he owned and received unemployment compensation and settled debt with GMAC for less than what was owed; court upholds IRS determination that repair expenses had to be added to basis in property, unemployment compensation includible in income as was cancelled debt).
(irrigation well pump qualifies as trade fixture that is subject to personal property tax rather than a fixture that is taxed as real property under Neb. Rev. Stat. Sec. 77-105; pump comparable to other tangible personal property defined in statute that is used directly in "commercial, manufacturing, or processing activities conducted on real property").
(summary judgment case where taxpayer claims entitlement to refund because defendant improperly denied business expenses and depreciation deductions and incorrectly required plaintiff to recognize gain on transaction designed to qualify as like-kind exchange involving aircraft; plaintiff claimed business expense deductions allowed because personal business activities and business activities of corporate entities are intertwined sufficiently to be viewed as a "unified business enterprise; taxpayer was significant owner of Hard Rock Cafe restaurant chain and used aircraft that were owned in various S corporations; IRS disallowed business expense deductions related to aircraft because S corporations not operated for profit; court applied "unified business enterprise theory" such that losses generated by S corporations (or other pass-through entities) can be aggregated with taxpayer's other activities conducted either individually or through commonly controlled entities to determine if overall profit motive present for purposes of I.R.C. Sec. 183; court's analysis specific to S corporations and other pass-through entities (with such transactions typically arising where taxpayer owns property that is leased to related business operation), and likely not applicable to C corporations; categorization of aircraft transaction as like-kind exchange dependent on substantiation of business expenses, so no ruling on validity of like-kind exchange treatment; taxpayer's motion for summary judgment granted in part and denied in part; defendant's motion for summary judgment denied).
(reformation of trust by court would not disqualify trust's tax status under I.R.C. Sec. 664 if trust distributes all amounts to beneficiary from prior years within 120 days of receipt of private letter ruling; reformation was not self-dealing under I.R.C. Sec. 4941; trust was created with intent to provide lifetime annual income to beneficiary by virtue of a CRUT, but scrivenor used wrong form and created net income with makeup charitable remainder unitrust (NIMCRUT); petition filed to reform trust to a CRUT).
(IRS regulatory position that overstated basis of items on tax return are subject to six-year statute of limitations to the extent the omission from gross income exceeds 25 percent of amount reported on return invalidated; court follows prior opinion in Intermountain Insurance Service of Vail LLC, et al. v. Comr., 134 T.C. No. 11 (2010) which invalidated Treas. Reg. Sec. 301.6501(e)-1T; modified regulatory language still rejected on basis that definition of omission from gross income not limited to context of trade or business; 2011 U.S. Supreme Court opinion in Mayo Foundation for Medical Education and Research v. United States applying Chevrondeference to treasury regulations immaterial; three-year statute of limitations of I.R.C. Sec. 6501(a) applicable; IRS final partnership administrative adjustment untimely).
(taxpayer, commission seller, reported income of $3,307 and claimed business deductions of $17,000; shoebox of receipts provided to tax preparer and court noted it was unclear whether preparer made any attempt to distinguish deductible from non-deductible expenses; largest expense was for taxpayer's car; mileage log kept, but nothing more than odometer reading recorded in log with no information of where taxpayer drove, purpose of trip or business relationship to persons visited; log included 27 miles driven in daily work commute; taxpayer conceded that some personal trips included and presented no evidence of appointment books, calendars or maps of sales territories to corroborate log; deduction for mileage expenses denied in full for failure to satisfy substantiation requirements of I.R.C. Sec. 274(d) and court not permitted to estimate business mileage because I.R.C. Sec. 274(d) supersedes Cohan rule).
(taxpayer's receipt of disability payments from U.S. Office of Personnel Management are includible in income; taxpayer worked for U.S. Dept. of Veterans Affairs as claim examiner during which time taxpayer put on disability; while on disability taxpayer attempted to get job back and had applied for over 1,200 jobs since retiring from VA; taxpayer conceded amounts not excludible under I.R.C. Sec. 104; 10 percent early withdrawal penalty applies to taxpayer's withdrawal from IRA - disabled for SS or employment purposes not necessarily "disabled" within meaning of I.R.C. Sec. 72(t); no doctor's certification or other evidence substantiating nature or severity of taxpayer's condition or whether it could be remedied).
(disposable "to go" containers sold to restaurants are subject to IA sales and use tax; containers are distributed by restaurants after customer's meal and cost of containers factored into overall price of meals; point of sale is when supplier sells containers to restaurants, so no resale involved).
(case involves tax years 1964-1971; petitioner deceased spouse who suffered spousal abuse during the years at issue entitled to innocent spouse relief for all years except 1966 and 1971 - no joint return filed those years).
(court has jurisdiction to hear cases involving decisions by IRS to ignore taxpayers' hearing requests; IRS cannot ignore such request without providing rationale).
(police officer became permanently disabled as a result of an on-the-job injury and received pension distributions; amounts received not taxable disability benefits after taxpayer turned 50).
(for 2011, credit under I.R.C. Sec. 45(a) (renewable electricity production credit) is 2.17 cents per KwH and 1.08 cents per KwH for sale of electricity produced in open-loop biomass facilities, small irrigation power facilities, landfill gas facilities, etc; credit for refined coal production under Sec. 45(e)(8)(A) is $6.33/ton on sale of such coal).
(taxpayer's method of allocating costs of condensing unit for solar energy system acceptable; certain system components qualified as solar electric property for purposes of the residential energy-efficient property credit under I.R.C. Sec. 25D).
(petitioner not entitled to EITC or additional child tax credit; no qualifying children and income above applicable phase-out level).
(business expenses denied because business activity had not yet begun - not yet functioning as a going concern).
(expenses associated with petitioners' operation of adult caregiver business in home deductible; portion of home used exclusively for business; some deductions disallowed because not associated with business; accuracy-related penalty applied).
(case involves charitable deduction for non-cash contributions; some deductions were substantiated but court held that petitioner could not prove transfer of title to charity associated with a property (copies of original deeds not provided) nor could petitioner get deduction for costs associated with relocating house to property).
(Iowa nonresident sold stock in Iowa-based family S-corporation to create ESOP; IDOR views creation of ESOP as resulting in stock attaining independent business situs because stock used as integral part of business activity occurring in Iowa via creation of ESOP; capital gain earned by nonresident considered Iowa source income; no indication given as to where outer limit of such standard is located; current regulations do not require such standard).
(extension of interim guidance on deductibility under I.R.C. §67 of costs paid to investment advisor by non-grantor trust or estate; extension is until IRS publishes final regulations on the issue (i.e., extension is for tax years beginning before date that final regulations are issued); initially, IRS provided in Notice 2008-32 that taxpayers do not have to determine the part of a bundled fiduciary fee that is subject to the 2 percent floor for any tax year beginning before 1/1/08 and later guidance specified a later cut-off date; regulations are necessary in light of U.S. Supreme Court decision in Knight v. Comr., 552 U.S. 181 (2008)).
(proposed regulations concerning exclusion from gross income under I.R.C. Sec. 108 for CODI of grantor trust or disregarded entity; insolvency exception and bankruptcy exception available only to extent that owner is insolvent or under bankruptcy court's jurisdiction).
(charitable deduction for donation of "qualified conservation contribution" of $6,570,000 disallowed for LLC that donated lot and townhouse constructed in 1894 in New York City to qualified organization for failure to meet perpetuity requirement of I.R.C. Sec. 170(h)(5)(A); lender agreement with respect to subject property clearly stated that lender retained a "prior claim" to all condemnation and insurance proceeds" in preference to donee until mortgage satisfied and discharged - thus, until mortgage repaid, possibility existed that lender could deprive donee of value that was required to be dedicated to conservation purpose - non-compliance with perpetuity requirements of Treas. Reg. Sec. 1.170A-14(g)(6)(ii)).
(taxpayer (attorney married to spouse who has an LLM in taxation) borrowed against life insurance policy, let policy lapse and insurance company applied cash value of policy to policy indebtedness; taxpayers did not report any gain or loss attributable to the policy; life insurance company sent taxpayer Form 1099-R showing a distribution of $37,365.06 with taxable amount of $29,093.30; accuracy-related penalty imposed).
(payments taxpayer received for caring for parents not excludible under I.R.C. Sec. 131(b)(1) as a "qualified foster care payment;" parents not placed in taxpayer's home by "agency of a State or a political subdivision thereof;" taxpayer did not show that he operated a "foster family home" under state (WA) law; taxpayer showed entitlement to additional deduction for unreimbursed employee business expenses).
(equitable innocent spouse relief available to spouse who knew about husband's inability to pay).
(taxpayer's receipt of $51,000 in payments during tax year which were not reported were not a non-taxable draw against future profits; partnership return filed reflected that amount as guaranteed payment; court held that payments were a draw against future earnings of the partnership because payment was not paid from profits and were not based on taxpayer's performance of duties; while payment intended as draw, but it resulted in liquidation of taxpayer's partnership interest and is fully taxable because taxpayer had no basis in partnership interest; amount taxable as capital gain, but not subject to self-employment tax).
(deductions disallowed for business expenses of handyman due to lack of substantiation; Schedule C income of approximately $1,000 with expenses of over $19,000).
(because taxpayer's Social Security benefits were reduced by amount of workers' compensation benefits that taxpayer received, such offset amount is treated as a Social Security benefit that is taxable under I.R.C. Sec. 86(d)(3)).
(petitioner not entitled to deduct losses associated with rental properties because such losses subject to passive activity limitations of I.R.C. Sec. 469; no election made to treat multiple rental interests as a single rental activity, so requirements of I.R.C. Sec. 469(c)(7)(B) had to be satisfied with respect to each activity; taxpayer failed to corroborate his assertions that more than one-half of personal services he performed in trades or businesses for the years at issue were performed in real property trades or businesses, and did not satisfy 750-hour requirement; taxpayer did not qualify as a real estate professional; accuracy-related penalty imposed).
(taxpayers engaged in farming activity (cattle operation) with actual and honest profit objective - claimed losses not limited by I.R.C. Sec. 183; taxpayers cleared land for use as pasture (hay cultivation) which bore "economic relationship" with later cattle operation; taxpayers sold hay until property fully ready for cattle grazing; advice of experienced farmed utilized in preparing cattle operation; no recreational aspect to activity present; taxpayers' activity added value to the property; no lengthy period of time with history of losses present; certain other factors, but not enough, favored the government).
(petitioner not entitled to deduct losses associated with rental properties because such losses subject to passive activity limitations of I.R.C. Sec. 469; no election made to treat multiple rental interests as a single rental activity, so requirements of I.R.C. Sec. 469(c)(7)(B) had to be satisfied with respect to each activity; taxpayer failed to corroborate his assertions that more than one-half of personal services he performed in trades or businesses for the years at issue were performed in real property trades or businesses, and did not satisfy 750-hour requirement; taxpayer did not qualify as a real estate professional; accuracy-related penalty imposed).
(taxpayers, married couple, donated qualified conservation easement to qualified organization and received state income tax credits in return; pursuant to state law, taxpayers later gave away $10,000 in credits and sold $110,000 credits (net return of $82,500 computed with basis in credits of $4,897); based on I.R.C. Sec. 1221, court held that credits are capital in nature, noting that taxpayers not eligible for refund on sale of credits; credits never part of taxpayers' property rights and were short-term capital assets; I.R.C. Sec. 170 does not allow basis allocation in proportion to credit value, so taxpayers had no income tax basis in credits).
(conservation easement donation case involving plaintiff, a partnership that acquired undeveloped rural land and granted a conservation easement over portion of property; partnership, as taxpayer, claimed charitable deduction tied to land's value as if it were developed for condominium usage; IRS moved to exclude plaintiff's experts' report as unreliable and irrelevant under Fed. R. Evid. 702 and court held that the standards of reliability and relevance apply in non-jury trials - including the Tax Court - and are subject to discretion of trial court Judge; plaintiff's experts did not apply correct legal standard by not using the before-and-after valuation method, did not value contiguous parcels that the plaintiff owned, and assumed development that was not feasible on the property due to multiple zoning restrictions, wetland rules, population decline in the area and lack of land with development potential; court's opinion of major significance where property valuation based on appraisal at issue - appraisals being used and testimony from appraisers that are offered into evidence must withstand judicial scrutiny under Fed. R. Evid. 702 and as developed by U.S. Supreme Court in Daubert v. Merrell Dow Pharmaceutical, Inc., 509 U.S. 579 (1993)).