Case Summaries
(IDOR is coupling with the provision contained in the federal Health Care Act of 2010 which provides for health care coverage for nonqualified tax dependents through age 26 (up from age 24); Iowa Code Sec. 422.7(29A) provides that the value of health care coverage for a nonqualified dependent is not subject to Iowa income tax and deduction can be claimed on return for value of coverage included on federal return; IDOR's position is that value of health care coverage provided for nonqualified dependent ages 25 and 26 is also not subject to Iowa income tax).
(petitioner, an LLC taxed as a partnership, granted a conservation easement; IRS reduced charitable contribution from approximately $2.2 million to under $500,000 and then to $0; land at issue acquired with intent to subdivide and develop property along river; case involves battle over valuation approaches; court holds that value of contributed easement is $560,000 with contribution limit of 30% of contribution base; charitable contribution is a partnership item as the contribution was made by the partnership).
(plaintiff, partnership CPA firm (established as separate S corporations for each partner in firm with each S corporation paying salary to each shareholder in firm), paid CPA-owner $24,000 in annual salary out of CPA's approximately $200,000 in earnings for 2002 and 2003 from CPA business; $67,044 of distributions reclassified as salary each year resulting in $91,044 of FICA/Medicare wages; salary paid unreasonably low - taxpayer, as shareholder paid less than rookie accountant in firm).
(guidelines issued on the application of I.R.C. Sec. 162(m) (which was added by the Health Care Act to limit to $500,000 of earnings per employee the deduction for remuneration for services provided by persons to some health insurance providers and utilizes aggregation rules across consolidated groups; under a deminimis rule, employer not treated as covered health insurance provider for tax years beginning in 2010 and through 2012 if premiums employer receives are less than 2 percent of employer's gross revenues for that tax year; starting in 2013, employer excepted from provider definition if health coverage insurance received from providing minimum essential coverage are less than 2 percent of employer's gross revenues for the year; definition of "applicable individual" under Sec. 162(m)(6)(F) excludes some independent contractors; as for who is a "covered health insurance provider", premiums received under indemnity reinsurance contract are not "premiums" from providing health insurance coverage).
(sale of two acres of vacant land sold separately from remainder of taxpayer's parcel which contained commercial buildings, not eligible for exclusion from capital gain; while 10-year holding period test satisfied, vacant land (even though part of five-acre parcel taxpayer operated business on) not used in taxpayer's trade or business for requisite 10-year period).
(amounts that doctors in a medical practice paid for insurance policies provided by a risk retention group that the doctors in the practice planned on forming with other doctors in other medical practices are deductible under I.R.C. Sec. 162).
(taxpayer does not qualify for first-time homebuyer credit because no binding purchase contract entered into by May 1, 2010).
(Iowa Propane Gas Association (IPGA) not qualified for sales tax refund on amounts charged for property used for educational purposes via construction contracts; IPGA not a "school, college, or university" as those words are commonly understood, but is a business league organized to promote the propane industry; thus, IPGA does not meet definition of private nonprofit educational institution).
(physical presence in state not required for corporation to establish nexus with state for corporate income tax purposes; LLC at issue was Idaho LLC with all employees located in Idaho, but is registered with IA Sec. of State; LLC is registered agent service that serves process where process server unavailable; IDOR's position contrary to established U.S. Supreme Court precedent set forth in Quill v. North Dakota, 504 U.S. 298 (1992)).
(regs. specify that qualified settlement income received in connection with the Exxon Valdez civil action to be treated as qualified farm income to the extent of interest and punitive damages with compensatory damages potentially eligible to the extent determined under the normal rules of Sec. 1301; definition of fishing business provided; eligible taxpayers include individual sole proprietors engaged in farming or fishing, partner in a partnership engaged in farming or fishing, and shareholders of S corporations engaged in farming or fishing; taxpayer need not be engaged in farming or fishing in any of the base years; lessors of vessels engaged in fishing are eligible to make election if payments received under lease are based on share of catch in accordance with a written lease entered into before lessee begins significant fishing activities resulting in the catch).
(defines omissions from gross income for purposes of the six-year statute of limitations period for assessing tax attributable to partnership items; regulation takes position that overstatement of basis results in omission of gross income and, as such, extends the statute of limitations for assessing tax or beginning court proceeding for collection of tax without assessment from 3 to 6 years; regulation is contrary to decisions of the Federal Circuit (Salman Ranch), the Ninth Circuit (Bakersfield Energy Partners, L.P.) and the Tax Court (Intermountain of Insurance Service of Vail, LLC, et al. v. Comr); regulation is consistent with Home Concrete & Supply, LLC v. United States, 599 F. Supp.2d 678 (E.D. N.C. 2008) and Brandon Ridge Partners v. United States (M.D. Fla. 2007), and Beard v. Comr., No. 09-3741 (7th Cir. Jan. 26, 2011); regulation entitled to deference even if in conflict with federal court opinions (see, e.g., Swallows Holding, Ltd. v. Comr., 515 F.3d 162 (3d Cir. 2008); regulation applies to all cases with respect to which the period for assessing tax under the applicable provisions has not expired before September 24, 2009).
(court holds, in case of first impression, that amounts paid to minister by church that minister uses to buy a home and maintain it are not included in the minister's gross income even if they are also used on a second home; court noted that statutory words written in the singular "include and apply to several person, parties or things"; IRS did not question why the allowance was paid or its reasonableness).
(on motion for summary judgment, court determines that Section 5000A of Patient Protection and Affordable Care Act is unconstitutional as beyond the power of the Congress under the Commerce Clause; the Section imposes a penalty on persons who fail to obtain and maintain "acceptable" health insurance as determined by federal government; court rejects federal government's argument that Section imposes a tax (which is contrary to the President's argument made while promoting the Act that the Section did not impose a tax) and, as such, is not within the authority of the Congress under the Taxation Clause of the Constitution; provision constitutes a regulatory penalty for inactivity; invalidation of other parts of the bill not required).
(alimony deduction allowed for payments petitioner made to ex-spouse after ex-spouse remarried; payments satisfied I.R.C. Sec. 71(b)(1) because payments were not required to be made under legally enforceable obligation; IRS regulations invalidated).
(in lengthy opinion, court denies summary judgment motion of delivery drivers in most of the 42 separate actions involved in the case; the drivers had claimed that they were employees rather than independent contractors; multi-state class action involved).
(certain farm-related expenses incurred during administration of decedent's estate deductible for inheritance tax purposes because they were incurred to maintain, preserve and repair the farming assets; other expenditures were incurred while operating the farming business and are not deductible by the estate).
(disability payments are includible in income; petitioner was a civil service employee with the Army who retired in 1988 and began receiving disability benefits; amounts not excludible under I.R.C. Sec. 104(a)(4) because civil service retirement system benefits are not paid on account of personal injury or sickness).
(taxpayer eligible for long-term homeowner credit to apply against cost of constructing new home on same location as old home).
(taxpayer was not licensed day-care provider due to belief that she was exempt from licensing requirement; business expense deductions for use of portion of home to provide daycare under I.R.C. Sec. 280A(c)(4)(A) & (B) not allowed).
(petitioner cannot claim bad debt deduction attributable to gross receipts that petitioner's finance company can't collect because petitioner has no involvement with debt after products involved in retail sale giving rise to the debt are sold).
(retiree's former employer distributed $438,752 from 401(k) account, with slightly over $40,000 distributed directly to petitioner and the balance rolled over to a brokerage company which were eventually used to purchase annuities with pre-tax amounts from 401(k); annuity distributions reported to taxpayer on Form 1099, but taxpayer reported only amount of distribution less amount representing "recovery for investment"; court finds that petitioner's investment in annuities was zero, and annuity payments fully taxable).
(taxpayer was claimable as dependent on parents' tax return and, thus, was not eligible to claim first-time homebuyer tax credit attributable to post-11/6/09 purchase of home).
(conservation organization loses exempt status due to acceptance of donations of non-qualified conservation easements, and operating for substantial non-exempt purposes).
(certain farm-related expenses incurred during administration of decedent's estate deductible for inheritance tax purposes because they were incurred to maintain, preserve and repair the farming assets; other expenditures were incurred while operating the farming business and are not deductible by the estate).
(withdrawals from petitioner's I.R.C. Sec. 401(k) taken as a result of financial problems to pay off debt associated with Hurricane Katrina could not be reported and them claimed as a corresponding Schedule A deduction as "unreimbursed employee expenses"; income from petitioner's corporation subject to self-employment tax because it was never separate from the taxpayer (no tax i.d. number obtained); unsubstantiated deductions disallowed; accuracy-related penalty imposed).
(Reno, NV, tax preparation business acquired airplane to use on business trips to meet clients; expenses associated with plane and lease agreement with petitioner's father for use of father's property which was used for both personal and business reasons resulting in many denied deductions; expense reimbursement program did not result in deductions passing through from S corporation and petitioner had constructive dividends from rent payments).
(press release admits that "tens of thousands" of jobs in the wind energy industry would be lost if the Congress does not renew the industry's tax subsidy (investment tax credit for wind energy); release makes no mention of academic study showing that for each job created by the industry, more jobs are lost elsewhere in the economy).
(payments made by cooperative to farmer members and other members constitute Per Unit Retains Paid in Money; co-op's DPAD to be computed without taking into account any deduction for the payments).
(Iowa Code Sec. 441.21(1)(d) requiring all property subject to taxation to be valued at actual value and equalization of actual value in one assessing jurisdiction to that of another on adjoining properties within five percent unless adequate reasons present for greater differential, inapplicable to agricultural property; ag property to be valued on basis of productivity and net-earning capacity; 36 percent variation in value of adjacent tracts at issue).
(defendant disqualified 1.34 acres of plaintiff's farm from classification as farm use for tax purposes; 1.34 acres was summit of a mountain containing telecommunication devices and road, but cattle grazing also occurred; based on applicable regulation, subject tract not used for farming purposes).
(couple's motion denied that would have compelled competing business to produce its own tax returns; company satisfied burden of showing that information contained in requested returns was available in financial statements that were provided to couple).
(petitioner not entitled to charitable contribution deduction for gifts of paintings to Los Angeles Urban League, Catholic Big Brothers and Sisters, various universities and churches (that petitioner attended "because he was discussing a possible divorce" and for which he made payments each time attended); petitioner claimed to have maintained a journal of his charitable contributions; no written substantiation from donees; no deduction allowed; accuracy-related penalty applied).
(taxpayer not entitled to claim deductions from llama operation because not engaged in with requisite profit intent; no separate business account maintained, not members of any llama registry during years at issue, only 3 hours daily spent in business, no llamas sold for several years, no attempt to increase breeding quality, taxpayers lied about conversations with llama expert, no reasonable expectation that assets would appreciate in value, no experience in livestock operations, significant losses incurred for many years, no income, substantial income from other sources present, elements of personal pleasure present).
(provides further guidance on the scope and application of the I.R.C. Sec. 45R credit contained in the Health Care Act; among other things, Notice says that the definition of “family members” for purposes of § 45R does not specifically refer to spouses; but IRS now takes the position that spouses of certain business owners are not to be taken into account as employees by operation of the ownership attribution rules in the Code; specifically IRS says that the following individuals are not to be taken into account as "employees" for purposes of § 45R: (1) the employee-spouse of a shareholder owning more than two percent of the stock of an S corporation; (2) the employee-spouse of an owner of more than five percent of a business; (3) the employee-spouse of a partner owning more than a five percent interest in a partnership; and (4) the employee-spouse of a sole proprietor).
(plaintiff paid taxes on takeout bonus payments paid by state of Florida in relation to Hurricane Andrew in 1992; takeout bonuses were non-shareholder capital contributions under state law that were excludible from gross income; plaintiff entitled to tax refund).
(taxpayer was mortgage banker that purchased and re-sold foreclosed properties (classic fix and flip transactions with expenses for two of the three years at issue reported on Form 4797) resulting in substantial gain that taxpayer claimed was either capital gain or royalty income; income determined to be ordinary in nature, and taxpayer engaged in trade or business such that income on sales subject to self-employment tax).
(plaintiff paid taxes on takeout bonus payments paid by state of Florida in relation to Hurricane Andrew in 1992; takeout bonuses were non-shareholder capital contributions under state law that were excludible from gross income; plaintiff entitled to tax refund).
(computation of gain on sale of timber tied to how taxpayer has treated the timber for tax purposes during period of ownership; upon acquisition of land with timber on it, taxpayer should allocate basis between land and timber).
(U.S. Senate voted on two separate amendments to S. 510 (Food Safety Modernization Act) that would have repealed the 1099 reporting provision (effective in 2012) contained in Patient Protection and Affordable Care Act (Health Care Bill); each amendment requires two-thirds approval and Amendment No. 4713 received only 44 "yes" votes (Sen. Grassley voted "yes" and Senator Harkin voted "no"; Amendment No. 4702 received only 61 votes (Sen. Grassley voted "yes" and Senator Harkin voted "no").
(plaintiff was president of religious colony rooted in 16th century Germany (Hutterite tradition) that was an I.R.C. Sec. 501(d) corporation engaged in the business of farming that farmed about 30,000 acres; no members (who were all viewed as part of an extended family) were employees for tax purposes; thus, meal and medical expenses non-deductible; corporation retained control over members and means and manner for farm work and retained right to discharge members for not doing their jobs, even though members not paid a wage).
(sales and use tax applicable to purchases of radioactive iodine capsule by plaintiff (private vet clinic) that are used in its practice is constitutional; even though tax not imposed on purchased by public university, such exemption is rationally related to legitimate state purpose of promoting research and education).
(farmers' cooperative received a PLR concluding that payments co-op made for purchases of products from members were PURPIMs for purposes of computing co-op's DPAD; co-op not allowed to file claim for refund due to such reclassification; refund tax year distinguishable from payments at issue in PLR; no intent at time payments made to treat them as PURPIMs and they were treated as closed transactions; reclassification not possible because members' tax years now closed, so issuance of amended 1099 PATRs too late).
(Tax Court decision (132 T.C. No. 9 (2009) affirmed; taxpayer, a corporation involved in the ag industry who manufactured plastic bags, had tax deficiency and penalties of approximately $4.5 million based on losses claimed from two swap contracts that caused economic loss of just over $100,000; transaction lacked economic substance; case involves Jenken’s and Gilchrist tax shelter).
(petitioner (nurse who was also a real estate broker) can deduct most of the payments made to a loan processor as wages paid; other business deductions not substantiated and deductions denied; accuracy-related penalty imposed).
(complicated set of leases between taxpayers (married couple) and their agricultural freight trucking business lacked economic substance with result that taxpayers could not deduct as business expenses what really amounted to personal expenses; court allowed one entity's deduction of medical and dental expenses paid on taxpayers' behalf as employees; accuracy-related penalties imposed).
(losses by casino's premium customers via use of "marker" signifying extension of credit that has been pre-negotiated causes casino to realize the discounted amount of the marker in income; "marker" is promissory note for face amount of "marker" via which casino agrees to accept less than face amount of marker if customer loses).
(attorney that represented himself in court and prevailed on tax claim not entitled to award of attorney fees because he represented himself).
(vehicle, as well as farm machinery and equipment dealers can use safe harbor set forth in this Rev. Proc. in computing I.R.C. Sec. 263A adjustments; dealers may make two elections to exclude most storage and handling costs from their inventory computation, and such costs can be deducted when incurred instead of when inventory sold; applicable to retail dealers with over $10 million in gross receipts).
(petitioners had no gambling winnings and, therefore, could not deduct gambling losses of $40,488; "Turbo Tax Tim Geithner" defense not allowed - taxpayers had prepared return utilizing H&R Block's "Taxcut" software which allowed deduction without gambling winnings; taxpayers did not consult Code and simply relied on the fact that "Taxcut" had been approved by IRS; no reasonable cause shown for the underpayment).
(IRS reminder to persons who weatherize their homes for winter that there are two possible home energy tax credits available for the 2010 tax year - the non-business energy property credit (30 percent credit of amounts spent on energy-saving improvements capped at $1,500 for the combined 2009 and 2010 tax years) and the residential energy efficient property credit (also a 30 percent credit); IRS notes that not all Energy Star products qualify for the tax credits; note – on the energy credits, sometimes installation costs can be counted in computing the amount of the available credit and sometimes they cannot).