Case Summaries

Kaufman v. Comr., 136 T.C. 294 (2011)

(grant of partial summary judgment to respondent affirmed - 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). 


Bosque v. Comr., T.C. Memo. 2011-79

(petitioners' claimed deduction for rental real estate losses subject to passive activity loss limitations under I.R.C. Sec. 469 for failure to meet 750-hour test; neither petitioner qualified as real estate professional; but, active participation test satisfied and petitioners can offset non-passive income for years at issue by $25,000 each year, subject to phase-out limitation; no deduction allowed for use of business office in home for two separate businesses - can only get one deduction for business use of home; Schedule C deduction for rental of business property denied due to lack of substantiation; Schedule C deduction for amounts paid to paralegals allowed because amounts substantiated; accuracy related penalty involved). 


Jones v. Comr., T.C. Memo. 2011-77

(deduction for gambling losses denied; taxpayer recreational gambler that had $7,000 of gambling winnings during tax year at issue, but kept no diary, log or record of gambling losses; use of bank account records to determine gambling losses insufficient). 


Arizona Christian School Tuition Organization v. Winn, et al., 131 S. Ct. 1436 (U.S. Sup. Ct. 2011)

(Arizona taxpayers lack standing to challenge state law permitting taxpayers to receive tax credits for contributions to non-profit organizations; law provides tax credit for contributions to school tuition organizations (STOs) which use the contributions to provide scholarships to students attending private schools (including religious); plaintiffs lack standing because suit involves a tax credit rather than a government expenditure - credit offsets the cost of contribution; no decision rendered on law's constitutionality; dissent by Kagan (and joined by Ginsburg, Breyer and Sotomayor) claimed that law involved taxpayer funding of religious activity that, at least to the dissent, implicated the Constitution, and that majority's opinion offered "road map" for government to follow in insulating such financing from legal challenge; dissent did not, however, distinguish state law at issue from taxpayer funding of public schools which seemingly would be necessary in light of the Court's opinion inTorcaso v. Watkins, 367 U.S.468 (1961) and subsequent Court opinions).


Idaho Senate Vote (April 2011)

(Idaho Senate votes to not extend state tax subsidies to "renewable energy" projects through 2014; bill (H. 250) would have extended sales and use tax rebate on equipment and machinery used in the production of certain "renewable energy" (primarily wind) projects; state law already requires utilities to purchase power from renewable energy sources at fixed rates).


Government Accounting Office Report, GAO-11-485 (April 2011)

(technical report notes that at least 3,700 contract and grant recipients (about five percent of total) of tax dollars doled out by the American Recovery and Reinvestment Act of 2009 (which had been touted by partisan, Keynesian economists as necessary to stimulate the economy) were estimated to owe more than $750 million in unpaid federal taxes as of 9/30/2009; $750 million amount likely understated because IRS does not retain information on amounts owed by recipients who have not filed returns or understated their taxable income and for which IRS has not assessed tax amounts due; a single engineering firm that received $100,000 had $6 million in delinquent taxes).


Mulcahy, Pauritsch, Salvador & Co. Ltd. v. Comr., T.C. Memo. 2011-74

(payments that professional C corporation made to related entities that were designated as "consulting fees" were not compensation for services of the founders of the C corporation; firm not entitled to deduct such payments in attempt to push tax liability to zero; even if such payments were properly construed as compensation, such amounts were unreasonably high). 


Treasury Inspector General for Tax Administration (TIGTA) Report, Ref. No. 2011-41-035 (Mar. 31, 2011)

(report notes that IRS issued millions of dollars in fraudulent and erroneous homebuyer (first-time and long-term) credits totaling more than $513 million, including some IRS employees). 


Priv. Ltr. Rul. 201125047 (Mar. 31, 2011)

(decedent's spouse eligible to roll over or transfer proceeds of decedent's IRA into an IRA in her own name without including proceeds in gross income; decedent's will left property to trust with residue to estate; residue included IRA; community property law applied entitling spouse to one-half of assets in IRA; under terms of will spouse's community property interest in IRA allocated to marital trust and initially funded sub-trusts; ultimately entire IRA became spouse's property; IRA not treated as inherited by virtue of I.R.C. Sec. 408(d)(3); spouse can rollover or have transferred via trustee-to-trustee transfer, IRA proceeds into IRA established in spouse's name; IRA proceeds not included in spouse's gross income). 


Priv. Ltr. Rul. 201127010 (Mar. 31, 2011)

(disability plan benefits that are paid via statute that treats them as comparable to workers' compensation are excludible from the recipient's income under I.R.C. Sec. 104(a)(1)). 


Marchisio v. Comr., T.C. Sum Op. 2011-39

(taxpayer did not have income from discharge of indebtedness because IRS could not prove that taxpayer had borrowed funds to buy a vehicle). 


Herrington v. Comr., T.C. Memo. 2011-73

(amounts taken from petitioner's business accounts by petitioner's boyfriend entitle petitioner to theft loss deduction for amount taken; boyfriend was abusive to petitioner; no deduction allowed for amounts as reasonable compensation to boyfriend). 


Virginia Historic Tax Credit Fund 2001 LP, et al v. Comr., 639 F.3d 129 (4th Cir. 2011)

(partnership investments used to rehabilitate property designated as "historic" in exchange for state "historic rehabilitation tax credits" held to be disguised sales; state law allows credits of up to 25% of cost to rehabilitate historic property and credits can be distributed among partners in a partnership for credits that are allocated to the partnership; IRS claimed that "partners" were not bona fide but, if they were, transactions were properly characterized as sales; transactions determined to be disguised sales under I.R.C. Sec. 707 and regulations; transfer of "property" involved because credits were "valuable" and had "some of the most essential property rights"; partners faced no risk (were promised refunds if credits weren't delivered; court's decision likely to trigger IRS appeal of decision in Historic Boardwalk Hall LLC v. Comr., 136 T.C. No. 1 (2011)). 


Espinoza v. Comr., T.C. Memo. 2010-53, 636 F.3d 747 (5th Cir. 2011)

(proceeds that petitioner received to settle lawsuit against employer are included in income; amounts not paid for petitioner's physical injury or sickness; no accuracy-related penalty imposed).


Cole v. Comr., 637 F.3d 767 (7th Cir. 2011)

(court affirms Tax Court decision (T.C. Memo. 2010-31) that taxpayer, a business planning and tax attorney, is liable for fraud penalties for fraudulently understating income by failing to report fees for legal and tax preparation services; taxpayer devised scheme to assign income to entities to conceal true nature of earnings subject to income and self employment tax). 


Dagres v. Comr., 136 T.C. 263 (2011)

(taxpayer was engaged in the trade or business of managing venture capital funds; taxpayer's bad debt loss proximately related to taxpayer's trade or business and deductible under I.R.C. Sec. 166(a)). 


Schrimsher v. Comr., T.C. Memo. 2011-71

(taxpayer not entitled to deduction for charitable contribution of facade easement due to lack of substantiation - no contemporaneous written acknowledgment of the easement as required by I.R.C. Sec. 170(f)(8)(B)(iii)). 


Espinoza v. Comr., 636 F.3d 747 (5th Cir. 2011)

(lump-sum settlement entered into with former employer did not involve claim for personal physical injury or sickness and constituted income under I.R.C. Sec. 104; Tax Court decision (T.C. Memo. 2010-53) affirmed). 


Anyika, et ux. v. Comr., T.C. Memo. 2011-69

(taxpayer not a real estate professional as defined by I.R.C. Sec. 469(c)(7)(B); taxpayer's real estate activities were passive; accuracy-related penalties applied). 


Parsley, et ux. v. Comr., T.C. Sum. Op. 2011-35

(court upholds accuracy-related penalty against married couple for under-reporting capital gain from sale of commercial property; income tax basis of the property that was acquired via gift and later via divorce proceedings improperly computed; taxpayers were real estate professionals). 


Priv. Ltr. Rul. 201126012 (Mar. 23, 2011)

(payments made by cooperative to buy grain from members and other patrons are PURPIM; cooperative computes DPAD without regard to any deduction for grain payments to members and other participating patrons). 


Iowa Dept. of Rev. Doc. No. 11201011 (Mar. 22, 2011)

(taxpayer owned share of farmland and claimed capital gain deduction when land sold; land held in CRP for 10 years before sale; 701 IA Admin. Code 40.38 specifies that active management of CRP land by seeding, mowing or overseeing such activities constitutes material participation for purposes of IA capital gain deduction; taxpayer entitled to deduction). 


I.L.M. 201120021 (Mar. 18, 2011)

(reimbursements and expense allowances received by employee under "tool plan" irrespective of whether employee actually incurred any expense or reasonably expected to incur expenses are included in employee's gross income; business connection requirement of accountable plan not satisfied). 


Kobell v. Comr., T.C. Memo. 2011-66

(taxpayer not entitled to deduction for IRA contribution; for year at issue taxpayer listed "investor/trader" as occupation and had income from  corporate bond interest, dividends and Social Security benefits; contribution deduction limited to lesser of deductible amount or taxpayer's compensation (earned income) includable in gross income; Social Security is not compensation, and dividends and interest only constitutes compensation if taxpayer dealer in stocks or securities and dividends/interest received in course of trade or business as dealer; taxpayer held bonds that were not for sale to customers and engaged in only three stock transactions, had no customers and no place of business - taxpayer not a dealer). 


Talaske v. Comr., T.C. Sum. Op. 2011-33

(taxpayer received Form 1099-C showing cancellation of credit card debt of $20,291.22, but filed return without reporting such amount as income; IRS issued deficiency notice and taxpayer did not file petition for redetermination and IRS assessed deficiency along with interest; taxpayer did not pay outstanding liability and IRS sent taxpayer "Final Notice of Intent to Levy and Notice of Your Right To A Hearing"; taxpayer filed request for "Collection Due Process or Equivalent Hearing" which was rejected; taxpayer then petitioned Tax Court, but Tax Court noted that, by statute, Court cannot review matter because taxpayer had prior opportunity to dispute underlying liability and failed to do so). 


Alphonso v. Comr., 136 T.C. 247 (2011)

(taxpayer suffered collapse of retaining wall at taxpayer's cooperative housing complex and claimed a casualty loss associated with the collapse of the wall that separated the housing complex from public roads; taxpayer, as shareholder, assessed portion of damage and claimed casualty loss; IRS denied deduction because collapse gradual in nature and did not result from event of sudden, unusual or unexpected nature, and because collapse was on property owned by the cooperative rather than the shareholder; taxpayer did not have sufficient property rights in common areas - no "equitable easement"). 


Priv. Ltr. Rul. 201124008 (Mar. 16, 2011)

(I.R.C. §72(u) limit disallowing deferral of income tax for qualified annuities owned by a trust inapplicable when trust utilized as an agent for a natural person; under facts of ruling, trust bought annuities and remaindermen were annuitants with third person as current beneficiary of trust; distributions made from annuity before death of current beneficiary payable to trust and remaindermen after current beneficiary’s death; current situation did not involve funding of deferred compensation for employees (for which purpose  I.R.C. §72(u) was enacted to disallow deferral); all beneficiaries of trust were natural persons; distribution of annuity contracts to remaindermen not subject to deemed sale provisions of I.R.C. §72(e)(4)(C) because tax deferral would not last beyond life of any individual taxpayer). 


Grapevine Imports, Ltd., et al. v. United States, 636 F.3d 1368 (Fed. Cir. 2011)

(overstatement of basis constitutes an omission from gross income with result that applicable statute of limitations is six years in accordance with I.R.C. Sec. 6501(e); while decision contrary to court's prior decision in Salman Ranch, Ltd. v. United States, 573 F.3d 1362 (Fed. Cir. 2009), regulations issued after 2009 decision are now upheld and their application to preceding tax years not abuse of discretion by Treasury). 


ECC 201115023 (Mar. 11, 2011)

(non-member of LLC can sign on LLC's behalf if such person is an officer or manager or authorized by state law to sign on LLC's behalf). 


Priv. Ltr. Rul. 201124004 (Mar. 11, 2011)

(portion of payment of settlement for violating antitrust laws that is tied to volume of commerce and total gross sales not deductible business expense under I.R.C. Sec. 162(g); balance of payment not subject to deduction limitations of Sec. 162(g)). 


Priv. Ltr. Rul. 201125008 (Mar. 11, 2011)

(taxpayer's activity of producing and selling cellulosic fuel, gasoline that the taxpayer purchased, processed diesel fuel and processed fuel oils constituted qualified biofuel production for purposes of the credit under I.R.C. Sec. 40(b)(6)). 


U.S. Senate Finance Committee (introduction of S. 520, Mar. 10, 2011)

(legislation introduced to repeal the volumetric ethanol excise tax credit; bill would save taxpayer's $6 billion annually by eliminating the $.45/gallon "blenders tax credit" utilized by blenders of ethanol; sponsors of bill called the credit "bad economic policy, bad energy policy, and bad environmental policy"; sponsors note the impact of ethanol production on the rise in food prices; sponsors note that ethanol-blended fuel is less efficient than gasoline, has increased price of corn and can cause engine damage in vehicles).


Robison, et ux. v. Comr., T.C. Memo. 2011-59

(disability retirement payments received in form of retirement annuity from U.S. Office of Personnel Management attributable to injuries sustained while serving in U.S. Armed Forces not excludible under I.R.C. Sec. 104(a)(4); payments not designed to compensate for military-related injuries, but cause of disability irrelevant when determining eligibility for payments). 


IRS Info. 2011-0029 (Mar. 10, 2011)

(IRS states that it cannot waive the requirement that a taxpayer own and use as a principal residence for five consecutive years in an eight-year period that ends on the date a new home is purchased for purposes of eligibility for the $6,500 long-term homeowner credit).


Pang, et ux. v. Comr., T.C. Memo. 2011-55

(payments made in settlement of wrongful death case not deductible as casualty loss; amount paid not attributable to physical damage or destruction to taxpayer's property and, thus, does not meet statutory definition of I.R.C. Sec. 165). 


Bailey v. Comr., T.C. Sum. Op. 2011-22

(married couple could not deduct rental real estate losses attributable to two rental properties due to the passive loss rules; husband was emergency room physician and wife operated rental properties that the couple jointly owned and in which wife operated an "Inn" in one of them for 260 hours during year at issue; other dwelling rented out on longer term basis that had mildew problem which resulted in lawsuit and lots of legal fees and, ultimately, a settlement; wife did not qualify as a real estate professional; each real estate activity treated as separate activity for purposes of 750 hour test, and time spent on an activity with average rental period of seven days or less not counted for purposes of 750 hour test regardless of whether taxpayer materially participating;  court follows rationale of Bailey v. Comr., T.C. Memo. 2001-296 (unrelated case)). 


IRS Appeals Technical Guidance (Mar. 2, 2011)

(IRS announces that it will not apply I.R.C. Sec. 118 to non-corporate entities (Sec. 118 specifies that capital contributions are not included in corporate gross income)).


Bengtson, et ux. v. Comr., T.C. Memo. 2011-50

(no long-term capital loss deduction for stock due to lack of record-keeping that would substantiate ownership, basis in stock and date stock became worthless; because petitioners tried to determine proper tax treatment earnestly, no accuracy-related penalty imposed). 


Kuntz III, et ux. v. Comr., T.C. Memo. 2011-52

(majority f amounts paid to caregiver not a deductible business expense, other amounts can be deducted as medical expense; facts involve married couple where wife has Alzheimer's disease and husband is self-employed contractor; husband hired caregiver for wife and deducted payments as a business expense; small percentage of payments deductible as business expense because wife performed clerical work for business, but majority of payments deductible as medical expense on Schedule A).


Knoedler v. Comr., T.C. Memo. T.C. Sum. Op. 2011-18

(taxpayer's payments to former wife deemed child support rather than deductible alimony; state court decision to allocate family support payment equally as child support and spousal support not binding on IRS; payment agreement contains contingency related to a child - child's high school graduation reduces taxpayer's obligation from $2,000 per month to $1,000 per month per child in college). 


Cavoto v. Hayes, 634 F.3d 921 (7th Cir. 2011), aff'g., No. 08 C 6957, 2009 U.S. Dist. LEXIS 96868 (N.D. Ill. Oct. 19, 2009)

(ex-mother-in law defendant's filing of Form 1099-C with her tax return reporting debt forgiveness income of ex-son-in-law not actionable fraud; even though defendant not "applicable entity" under I.R.C. Sec. 6050P that is required to make such filing, such filing not actionable under I.R.C. 7434 if filing is truthful and accurate - it wasn't per se fraudulent).


Gibson & Associates, Inc. v. Comr., 136 T.C. 195 (2011)

(engineering and heavy construction company that builds or rehabilitates streets, bridges, airport runways, etc. that have suffered from various casualties and claimed that its gross receipts were domestic production gross receipts (DPGR) eligible to be included in computing deduction under I.R.C. Sec. 199 resulting in a deduction of $63,435; court holds that such amounts are DPGR to extent firm erected or substantially renovated real property by materially increasing its value, substantially prolonging its life or adapting the property to a new or different use and was not a repair).


Hamper v. Comr., T.C. Sum. Op. 2011-17

(petitioner, TV news reporter, deducted costs for wardrobe expenses including costs for lounge wear, robe, lingerie, cotton bikini and cotton thong; court disallowed deduction for such costs because they were nondeductible personal expenses as were costs for drycleaning such clothing items; deductions also disallowed for contact lenses, makeup and grooming expenses including cost of Softsoap morning mist pump soap; court disallowed deduction for manicures, grooming, teeth whitening and skin care as inherently personal expenses; expenses for gym membership to maintain good health likewise nondeductible as unrelated to business; professional association fees and dues deductible; expenditures for subscriptions to cable television, magazines (including Cosmopolitan and Glamour) not deductible; deduction for cell phone and vehicle expenses disallowed due to lack of credible evidence that would show compliance with substantiation requirement; deduction for business gifts disallowed; expenses for meals and entertainment disallowed; accuracy-related penalties imposed). 


DeNaples, et al. v Comr., T.C. Memo. 2011-46

(taxpayers cannot exclude interest received on amount awarded for taking of property via eminent domain; of $40,900,000 award, $24,638,555 attributable to principal and $16,261,445 to interest). 


I.L.M. 201123001 (Feb. 24, 2011)

(in accordance with Rev. Proc. 87-56, taxpayer's property determined to be 15-year MACRS property as service station).


I.R.S. Notice 2011-14 (Feb 23, 2011)

(disbursements to homeowners under state forgivable loan program constitute payments to homeowners rather than disbursements of proceeds; thus, such payments can be excluded under exclusion for welfare payments and payments not subject to information reporting requirements). 


Blanchette v. Comr., T.C. Sum. Op. 2011-15

(petitioners not engaged in activity of selling science fiction memorabilia with requisite profit intent - deductions limited by I.R.C. Sec. 183). 


Campbell v. Comr., T.C. Memo. 2011-42

(petitioners did not conduct Amway distributorship with requisite profit intent based on analysis of all nine factors, thus deductions from activity limited by I.R.C. Sec. 183; substantiation of some business expenses insufficient; petitioners not entitled to claimed Schedule E rental expense deductions due to lack of evidence to substantiate the deductions; additional penalty for failure to timely file applied). 


Crandall v. Comr., T.C. Sum. Op. 2011-14

(petitioners' real estate transaction did not qualify for tax-deferred status under I.R.C. Sec. 1031; petitioners owned undeveloped Arizona parcel that was held for investment and sold the property with the intent to execute a Sec. 1031 exchange for California property; property was sold with petitioners receiving $10,000 and $66,000 placed in escrow account with instructions from petitioners to hold $61,743.25 to be held in escrow account; escrow agreements made no reference to Sec. 1031 and did not limit petitioners' right to receive, pledge, borrow or obtain benefits of account funds; while properties involved were like-kind, transactions involved a sale and reinvestment of proceeds in California property; petitioners constructively received proceeds of sale of Arizona property; escrow accounts were not qualified escrow accounts and transaction did not qualify for I.R.C. Sec. 1031). 


Priv. Ltr. Rul. 201120011 (Feb. 15, 2011)

(payments made by farmers' cooperative to members and others qualify under I.R.C. Sec. 1382(b)(3) as PURPIMs; cooperative's DPAD computed without deduction for grain payments). 


Pages