Case Summaries

No FTHBC For A Home Not Owned.

The petitioner, in early 2007, entered into an agreement with a homeowner to lease the home.  The agreement also contained an option for the petitioner to acquire the home upon meeting certain conditions before the option expired on January 31, 2008.  The petitioner paid for the option and an additional amount per month to be applied against the purchase price if the option was exercised.  The petitioner did not exercise the option due to the inability to get financing.  The third party filed bankruptcy in late 2008, and the petitioner filed a complaint in the bankruptcy estate claiming that the third party had tried to defraud her concerning the option contract.  The petitioner's complaint was dismissed.  The petitioner claimed the FTHBC of $7,500 on her 2008 return which the IRS rejected.  The court upheld the IRS position, noting that the petitioner did not produce any settlement statement, closing statement, purchase agreement or any other document to substantiate that she had purchased or acquired an interest in the home.  Because the petitioner did not execute the option, she did not have any equitable in the house either.  Pittman v. Comr., T.C. Memo. 2015-44. 


No Deduction For Unreimbursed Business Expenses of Homeless Trucker.

The petitioner was a truck driver that spent 358 days on the road in 2009.  The company he worked for did not require him to return to base and told him where to go for his next trip after completing the current trip.  The petitioner used his mother's address to get his driver's license, but only stayed at her house rent-free while on jury duty and kept his personal effects in a storage locker.  The petitioner claimed over $27,000 as a deduction for unreimbursed employee business expenses, including over $19,000 for travel expenses while away from "home." The petitioner also claimed over $7,000 for truck stop "electrification" expenses (electricity provided by the truckstop so that the petitioner's truck didn't have to have its engine idle).  The court upheld the IRS denial of the per diem expenses and hotel expenses on the basis that the expenses were not incurred while away from home because the petitioner did not have a tax home.  To qualify as a tax home, the court noted that the petitioner needed to have incurred expenses associated with maintaining the home while away from it.  However the court allowed the deduction of expenses associated with truck stop electrification expenses.  Those expenses were deemed to be the functional equivalent of fuel expenses and were deductible subject to the two percent floor on itemized deductions.  The court, contrary to its own prior opinion in a different case, did not impose the negligence penalty because the petitioner had read IRS publications to determine how to handle the expenses and thus acted in good faith.  The court did uphold the substantial understatement of tax penalty.  Howard v. Comr., T.C. Memo. 2015-38. 


IRA Not Treated As Inherited.

The decedent had 10 IRAs at the time of death with his estate designated as the beneficiary of each one.  The decedent's will specified that the decedent's tangible personal property would pass to the taxpayer and that the residue of the estate (such as the IRAs) would pass to a trust which, after payment of debts and taxes, would pass the remaining property to a POA trust.  The IRAs ultimately passed to the POA trust.  The POA trust gave the taxpayer the income annually and, upon written demand, the principal of the trust assets according to an ascertainable standard along with the right to withdraw trust principal upon written demand to the trustee.  The taxpayer did make such written demand and sought to transfer the remaining IRA proceeds to IRAs established in the taxpayer's name.  The IRS determined that such transfer would not qualify as an inherited IRA.  The taxpayer was deemed to have received the proceeds from the trust and not from the decedent.  The taxpayer was not the sole trustee of the POA trust.  U.I.L. 201511036 (Dec. 18, 2014).


Retained Right To Change Property Boundary Blows Conservation Easement Deduction

The petitioner donated a perpetual conservation easement on 22 acres to qualified charity - the North American Land Trust.  The easement grant, however, allowed the petitioner to make "minor alterations to the boundary of the Conservation Area" if certain requirements were met within the first five years of the grant.  The petitioner claimed a charitable deduction for the contribution and the IRS denied the deduction.  The court agreed with the IRS because the easement was not a "qualified real property interest" as defined by I.R.C. Sec. 170(h)(2)(C) because the petitioner could change the property subject to the easement.  The court noted that I.R.C. Sec. 170(h)(2)(C) specifies that a "qualified real property interest" is one that involves an identifiable, specific piece of real property.  The retained right to change the property boundaries violated that requirement.  Balsam Mountain Investments, LLC, et al. v. Comr., T.C. Memo. 2015-43.


Refundable Credits Are Taxable Income.

The petitioners, a married couple, received targeted economic development payments from the state of New York which the state terms "credits" and treats them as refunds for "overpayments" of NY state tax.  While one credit was limited to the amount of past real property tax actually paid, the other two credits at issue were not limited to past tax paid.  The credits first reduced a taxpayer's NY income tax liability with any excess being carried forward or partially refunded.  The petitioners claimed that the credits they received shouldn't be taxable income because they were "overpayments" of past NY income tax and, as such, were the functional equivalent of withheld taxes, and because they didn't claim deductions for NY income tax.  The IRS took the position that the credits were taxable income as cash subsidies, but the petitioners also maintained that the IRS was bound by the NY definition of the credits of the credits as "overpayments."  The petitioners also argued that the credits were not taxable income because they were welfare.  The court agreed with the IRS position.  The court first noted that if the petitioners' definitional argument were to be upheld, then states could undermine federal tax law by redefining terms.  On the "welfare" argument, the court noted that receipt of the credits were not conditioned on the petitioners showing need.  Thus, the credits were not excludible under the "general welfare" exception.  The court also noted that the credits were income to the petitioners irrespective of whether the credits were refunded or were carried forward.  Maines v. Comr., 144 T.C. No. 8 .


Another Blown Charitable Deduction Case.

The petitioner claimed a charitable deduction of $31,037 on her 2008 return ($15,340 for cash contributions and $15,697 in noncash contributions) and a $10,357 charitable deduction on her 2009 return ($6,490 in cash contributions and $3,867 in noncash contributions). However, the petitioner merely attached Form 8283 to her 2008 and 2009 returns showing several contributions of property for each year with each contribution valued over $250 and further attempted to substantiate the contributions with donation receipts that lacked either the date of contribution or a property description, or both.  The receipts neither reconciled with Form 8283 nor provide anything more than vague descriptions of the donated items.  Accordingly, the court upheld the IRS' denial of the charitable deductions in any greater amount than IRS had allowed.  Jalloh v. Comr., T.C. Sum. Op. 2015-18.


Sale of Farmland By Trust Does Not Trigger GST or Gift Tax.

A taxpayer created an irrevocable trust created a trust for himself, his spouse and his lineal descendants.  He later died, followed by his spouse.  A second taxpayer created a trust for himself and later amended it to have income paid equally to his children for life.  The second taxpayer later amended the trust to release his right to revoke.  A subsequent court order divided the second taxpayer's trust into two irrevocable equal trust for the benefit of the taxpayer's spouse and her descendants and one for the benefit of his son and his descendants.  The beneficiaries of one of the divided trusts and the taxpayer's trust were the same.  These trusts owned farmland, but the tracts owned by each trust was acquired at different times and some of the tracts were landlocked.  The trustees of the trusts want to sell the property in a coordinated sale to a limited partnership owned by a lineal descendant of each taxpayer.  The IRS determined that the sale would not trigger GSTT and would not be a taxable gift.  Priv. Ltr. Rul. 20151021 (Oct. 16, 2014).   


IRS Says Again That Farmer Market is Not A Charity.

Just like it said in Priv. Ltr. Rul. 200818028 (Feb. 8, 2008) (see our article at https://www.calt.iastate.edu/article/operator-farmer%E2%80%99s-market-not-tax-exempt), the IRS has again said that an organization that operates a farmers' market is not a tax-exempt charity.  The IRS noted that most of the market's funding came from vendor and membership fees with the primary benefit going to the vendors that profited at the market by selling their goods to the public.  While a part of the reason for forming the market was to promote "healthy" foods, the IRS determined that was only a minor part of the reason of formation.  Priv. Ltr. Rul. 201510058 (Oct. 16, 2014). 


Being Nice Can Cost Deductions.

The petitioner provided computer consulting services to family members without charge.  He deducted expenses associated with the activity, but the IRS denied the deductions on the basis that the petitioner was not engaged in the activity with a profit intent.  The court upheld the IRS position.  Shah v. Comr., T.C. Memo. 2015-31.


Moving Expenses Not Deductible

The petitioner deducted expenses associated with moving his wife from her home in South Carolina to his home in Minnesota.  The IRS denied the deduction and the court agreed.  The petitioner had moved to various locations in Minnesota as well as changing jobs.  The expenses were denied because the distance from the taxpayer's old home to his new workplace were not at least 50 miles more than the distance from his old home to his old workplace as required by I.R.C. Sec. 217.  Palmer v. Comr., T.C. Memo. 2015-30.


No Gain Exclusion on Home Sale Because Taxpayers Never Lived in It.

The petitioners, a married couple, bought a home in 1994 for $200,000.  They used the home as a group home for disabled persons.  The petitioners resided in another home in a different town, and it was this home's address that was used on the petitioners checks, payroll records, their kids' school records, etc.  The petitioner's sold the group home in 2007 for $600,000 and sought to exclude the gain under I.R.C. Sec. 121.  The court, agreeing with the IRS, denied the exclusion because there was no evidence that the petitioners ever lived in the group home and used it as their principal residence.  Villegas v. Comr., T.C. Memo. 2015-33.  .


Tax Court Corrects IRS (and the Taxpayer) On Computing Tax on IRA Distribution.

The petitioner made an initial contribution of $1000.00 to an IRA and did not claim any deduction for the contribution.  The petitioner took a distribution of $950.81 from the IRA in 2010 at a time when the petitioner was less than age 59.5.  The petitioner received a Form 1099-R for that amount, but did not include the amount in income.  The IRS claimed that the full amount should have been included in income.  The Tax Court concluded that I.R.C. Sec. 72(e) applied which allows the taxpayer's investment in the IRA to be taken into account when computing the amount of the distribution to be included in gross income.  The court rejected the taxpayer's argument that because the distribution was less than his investment that the distribution should be treated as a return of the petitioner's investment.  The court also rejected the notion that the distribution was fully taxable.  Instead, the court told the parties to compute the taxable amount by utilizing I.R.C. SEc. 72(e)(3) and include in income the untaxed increase in the IRA value attributable to interest and investment growth from 2008 until the time of the distribution.  Morles v. Comr., T.C. Sum. Op. 2015-13. 


LLC, As Licensed Grain Dealer, Cannot Treat Grain Purchases As PURPIM.

The taxpayer was a nonexempt ag co-op that bought, stored, marketed and sold grain.  The grain was purchased from the co-op's members (farmers) and was sold to grain processors.  The co-op, along with two other co-ops, formed an LLC.  The LLC was the licensed grain dealer and was classified as a partnership for tax purposes, but was not a cooperative.  After the LLC was formed, the taxpayer got out of the grain business and surrendered its grain licenses under a non-compete agreement with the LLC.  The taxpayer's patrons could continue to sell to the LLC.  The taxpayer wanted to treat the LLC's purchases of grain as its own, the LLC's payments as patronage allocations and that the purchases were deductible on the taxpayer's return as PURPIMs.  The IRS determined that such treatment was not allowed because the purchases were by an entity that was not subject to cooperative taxation under Subchapter T.  The IRS also determined that there was no facts that provided an argument that the LLC was acting as the taxpayer's agent.  IRS noted that a payment to a co-op patron for grain cannot be treated as PURPIM unless it is paid by means of an agreement between a co-op and the patron.  That didn't exist.  F.S.A. 20150801F (Apr. 22, 2014).


IRS Again Says that "Small Partnership" Exception Is For TEFRA Purposes Only.

The IRS Chief Counsel's Office has issued guidance to IRS agents to assist in determining whether the TEFRA audit procedures apply to a partnership.  The Chief Counsel's Office noted that the TEFRA/non-TEFRA determination is to be made at the beginning of the audit of the partnership.  The small partnership exception of I.R.C. Sec. 6231 is then determined to apply or not based on the partnership return.  As such, the small partnership exception is only for purposes of the partnership being exempt from the TEFRA audit procedures and does not mean that the entity is not a partnership for other purposes.  C.C.A. 201510046 (Jan. 23, 2015).   


Related Party Exchange Run Through an Intermediary Fails Again.

The U.S. Court of Appeals has now joined the Ninth and Eleventh Circuits, in finding that inserting a qualified intermediary between related parties does not avoid I.R.C. Sec. 1031(f).  The plaintiff, a subsidiary of a Caterpillar dealer that sold Caterpillar equipment, ran the dealer's rental and leasing operations.  The plaintiff sold used equipment to third parties who then paid the sales proceeds to a qualified intermediary.  The qualified intermediary forwarded the sales proceeds  to the dealer who then purchased new Caterpillar equipment for the plaintiff and then transferred the new equipment to the petitioner through the qualified intermediary.  The arrangement provided favorable financing from Caterpillar and the dealer had up to six months from the invoice date to pay Caterpillar for the petitioner's new equipment.  The petitioner claimed the transaction was non-taxable as a like-kind exchange.  The trial court agreed with the IRS that the transactions failed I.R.C. Sec. 1031(f) and the appellate court agreed.  The court determined that the case was factually similar to Ocmulgee Fields (10th Cir 2010) and Teruya Bros. (9th Cir. 2009).  North Central Rental and Leasing v. United States., No. 13-3411, 2015 U.S. App. LEXIS 3383 (8th Cir. Mar. 2, 2015), aff'g.,  No. 3:10-cv-00066 (D. N.D. Sept. 3, 2013).


Tax Court Stretched Tax Code Too Far on Abandonment Transactions.

The plaintiff bought $98.6 million of third-party securities via an asset purchase agreement.  The securities lost value, and the third party offered to redeem them for $20 million which would have caused the transaction to have been treated as a capital loss (deductible against capital gain for five years).  The plaintiff didn't accept the offer, instead voluntarily surrendering them to the third party.  The plaintiff reported a $98.6 million loss on the surrender as an abandonment (I.R.C. Sec. 165) loss which was ordinary in nature.  The IRS maintained that the loss was a capital loss, which severely limited its deductibility.  The Tax Court, in Pilgrim's Pride Corp. v. Comr., 141 T.C. No. 17 (2013), agreed with the IRS in holding that I.R.C. Sec. 1234 caused the abandonment to trigger a capital loss even though there was no sale or exchange of the securities.  In addition, the Tax Court invalidated a portion of Rev. Rul. 93-80 where the IRS has determined that the abandonment of a partnership interest where no liability was released under I.R.C. Sec. 752 was not a sale or exchange and the result was ordinary loss treatment (i.e., full deductibility).  On appeal, the appellate court reversed.  The court determined that I.R.C. Sec. 1234A(1), by its plain terms, only applies to the termination of contractual or derivative rights and not to the abandonment of capital assets.  The court noted that the abandonment was of the securities and not a "right" or "obligation" with respect to the securities.  Pilgrim's Pride Corp. v. Comr., No. 14-60295 (5th Cir. Feb. 25, 2015).         


Poor Planning Causes Estate To Blow Charitable Deduction.

The decedent's estate contained her Ohio residence, a California condominium in which her brother lived and a state teachers' retirement account.  The residuary of the decedent's left $50,000 to her brother that lived in the condominium with the balance of the residuary estate passing to charity.  The estate received a distribution from the retirement account of $243,463 and set aside $219,580 of it “permanently” for charity by placing it in an unsegregated checking account.  Under I.R.C. Sec. 642(c), an estate can claim a charitable deduction for an amount that is set aside for charity, but hasn't yet been paid if, under the terms of the governing instrument, the possibility that the amount set aside will not be devoted to the charitable purpose or use is so remote as to be negligible.  Treas. Reg. Sec. 1.642(c)-2-(d).  When the estate income tax Form 1041 was filed on July 17, 2008, the charitable gift had not been completed, but the estate claimed the charitable deduction on the estate's Form 1041.  The IRS denied the deduction.  The court noted that for the deduction to apply, the charitable distribution must come from the estate's gross income, must be made pursuant to the governing instrument, and must be set aside.  The court determined that the charitable amount did come from gross income (pension distribution which is IRD) and was made according to the decedent's will.  However, the decedent's brother refused to move out of the condominium and claimed that existence of a resulting trust.  In state court litigation, the brother prevailed, but also caused the estate's funds to deplete sufficiently such that the charitable bequest was never paid.  The court noted that the brother's legal claims were public at the time the 1041 was filed and he had refused a buy-out to move out of the condo and the charity had refused to trade the monetary bequest for a life estate/remainder arrangement in the condominium.  Apparently, the CPA in Ohio knew none of this at the time the 1041 was filed.  The estate claimed that the "unanticipated litigation costs" were unforeseeable but, based on the facts and circumstances at the time Form 1041 was filed, the court held that the "so remote as to be negligible" requirement was not satisfied and upheld the denial of the charitable deduction.  The funds had not been permanently set aside.   The charity ultimately did receive a bequest, although it was less than initially anticipated, and the estate did not get a charitable deduction.  Estate of Belmont v. Comr., 144 T.C. No. 6 (2015).


IRS Says Proceedings Involving Worker Classification and Employment Tax Are Not Subject to TEFRA Rules.

In a Chief Counsel Advice, the IRS has concluded that the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) as codified in I.R.C. Sec. 6221, et seq. don't apply to partnership employment tax or worker classification issues.  In the Advice, the IRS also noted that "small partnerships" are not subject to the TEFRA rules, but gave no indication that that they are not partnerships for non-TEFRA purposes.  The IRS also concluded that there are no special procedures that revenue agents must follow when conducting employment tax examinations of partnerships that are subject to TEFRA.  C.C.M. 20145001F (Aug. 25, 2014). 


Hobby Store Not a Hobby.

The petitioner was an art teacher who inherited a hobby store from her father upon his death.  At the time, the petitioner was an art teacher in Nevada.  The hobby store was in Idaho, but was adjacent to a residence that she owned and lived in.  The petitioner hired a volunteer to watch over the store on a daily basis and she assisted with the business when she was in Idaho.  The store was open daily from 8-5, but incurred small net losses for each of the years in issue which the IRS denied under the hobby loss rules.  However, based on the nine factors of Treas. Reg. Sec. 1.183-2(b), the court determined that the petitioner operated the hobby business as a business with a profit intent.  She conducted the activity as a profitable business, retained the volunteer who had worked with her father, took over the business aspects after her father's death, developed the customer base, did not have substantial income from other sources and did not derive personal pleasure from the activity.  Savello v. Comr., T.C. Memo. 2015-24.


Operator Under Oil and Gas Lease Can Deduct Unreimbursed Business Expenses.

Under the facts of this memo, the operator of an oil and gas lease was required, via the operating agreement, to pay all of the expenses and bill co-owners their respective shares.  The operator paid the expenses up-front, but the co-owners didn't reimburse the operator for their shares.  A settlement was reached the next year for payment of the costs in year two.  The IRS determined that the unreimbursed expenses were deductible and were not barred by I.R.C. Sec. 162(f).  However, the operator could not deduct claim a business loss under I.R.C. 165 or a bad debt deduction under I.R.C. 166 for the unreimbursed amounts.  C.C.M. 20150801F (Apr. 22, 2014). 


Theft Loss Deduction Vaporized by Pirates.

The petitioner held a patent for a "smokeless tobacco vaporizer."  He had many years of low sales and claimed a $1 million deduction on his return for a "loss arising from theft."  He blamed the lack of success of his invention and the resulting "theft" loss on pirates stealing his intellectual property associated his patent.  The IRS disallowed the theft loss based on a complete lack of evidence of patent infringement or that the petitioner had suffered actual damages.  The petitioner claimed that Internet search engines had intentionally demoted his product, that social media had conspired to diminish his product's visibility, that the U.S. Postal Service intentionally misspelled the name of his business and that his computer had been continually hacked, among other claims.  He estimated his theft losses from $282 million to $294 million annually, but only claimed a deduction for $1 million to "prevent further victimization."  The court upheld the IRS determination, noting that the petitioner had not demonstrated that a theft had occurred as required by I.R.C. Sec. 165(e).  The court also noted that the petitioner had failed to show that he discovered the theft in the years in which the deduction was claimed rather than other years since his patent was filed.  The court upheld an accuracy-related penalty.    Sheridan v. Comr., T.C. Memo. 2015-25.


Corporate Veil Pierced - Majority Shareholders Liable For Unpaid Employment Tax.

In this case, the court held that the majority owners of a corporation were personally liable for the unpaid employment taxes of the corporation.  The court noted that under state (CA) the corporate veil is pierced if the creditor establishes the existence of unity of interest and ownership between the owners and the corporation such that the separate personalities of the corporation and the individual no longer exist, and that if the corporate acts are treated as those of the corporation alone, an inequitable result would follow.  The Court, upholding a trial court decision, noted that the majority shareholders exercised substantial control over the corporation's operations, and regularly drew on corporate funds to finance personal expenses.  The majority shareholder also borrowed corporate funds without proper documentation.  In addition, the majority shareholders facilitated the transfer of funds between the corporation and another corporation where there was a unity of interest and ownership.   As such, the majority shareholders were the corporation's alter egos and the corporate veil was pierced resulting in the shareholders being personally liable for the corporation's unpaid employment tax.  Politte v. United States, No. 12-55927, 2015 U.S. App. LEXIS 2380 (9th Cir. Feb. 17, 2015).   


NOL Does Not Offset Self Employment Earnings.

The petitioner operated a sole proprietorship and incurred a net operating loss (NOL) of $81,957 in 2007 and an NOL of $91,812 in 2008.  He claimed that the NOL carryover relating to 2007 could offset his 2008 net self-employment earnings.  The IRS disagreed and the court agreed with the IRS.  The court noted that I.R.C. Sec. 1402(a)(4) specifically provides that when determining self-employment earnings, the deduction for an NOL is not allowed.  The court also applied the I.R.C. Sec. 6651(a)(1) penalty for failure to timely file a return.  Stebbins v. Comr., T.C. Sum. Op. 2015-10.


Sales Were In Ordinary Course of Business Resulting in Ordinary Income.

The petitioner was a limited liability company that acquired real estate properties via tax deeds that they purchased at public auctions.  The petitioner then sold the properties under contracts for deed and reported the sales on the installment method as capital gain.  The IRS denied the installment method and capital gain treatment.  The court determined that while the deeds were acquired with the primary intent to profit from their redemption, the continuous property sales of the forfeited properties demonstrated that the petitioner did not intend to hold onto the properties with an expectation in appreciation in value, but to sell the properties in quick fashion for profit.  As such, when combined with the fact that the petitioner employed persons to act on the petitioner's behalf in acquiring the tax deeds, preparing the acquired tracts for sale and maintaining business records, the court determined that the sales were in the ordinary course of the petitioner's business as a dealer in real estate.  Thus, the income from the sales was capital gain in nature and also subject to self-employment tax and could not be reported on the installment method.  SI Boo, LLC v. Comr., T.C. Memo. 2015-19.


Horse-Related Activity Not Engaged In With Profit Intent.

The petitioner, a bankruptcy lawyer whose wife was a college professor, was held to have engaged in his horse activity without a profit intent.  As a result, the losses from the activity were largely non-deductible.  The court noted that the petitioner had no prior experience in horse activities.  While he did spend significant time in the activity, he had no expectation that asset values would increase.  There was also no evidence that the petitioner had any past success in related activities.  The petitioner incurred a lengthy period of substantial losses and only occasional profits, and there were elements of personal pleasure present.  Bronson v. Comr., No. 12-72342, 2015 U.S. App. LEXIS 1745, aff'g., T.C. Memo. 2012-17.


IRS Announces Private Letter Ruling User Fees.

In a recently released Revenue Procedure, the IRS has announced the user fee for obtaining a private letter ruling - a taxpayer request for guidance concerning an uncertain area of tax law.  The basic fee is $28,300 per request, but is $2,200 for taxpayers having gross income less than $250,000.  The user fee is $6,500 for taxpayers with gross income of less than $1 million but more than $250,000.  Rev. Proc. 2015-1


IRS Disagrees With Four Tax Court Decisions.

The IRS has issued a non-acquiescence with four Tax Court cases from 2004 involving discharge of debt under I.R.C. Sec. 108(a)(1) - the exclusion from gross income of any amount derived from the discharge of debt of the taxpayer if the discharge occurs in bankruptcy if the taxpayer is under the bankruptcy court's jurisdiction.  For partnerships, the discharge provision is applied at the partner level.  In the four cases, the taxpayer in each case was a general partner of a partnership who had personally guaranteed partnership debt.  When each partnership filed Chapter 11, each of the respective general partners agreed to make payments to the particular bankruptcy estate in exchange for the release of creditor claims against them personally.  The bankruptcy court order approving the agreement indicated that every one of the general partners was under the court's jurisdiction.  Each partner excluded the discharged debt from income and IRS disagreed with that characterization, assessing several hundred thousand of dollars of additional tax.  The Tax Court, in each case, held that the IRS was wrong because the partnership debt was discharged in bankruptcy in accordance with Sec. 108(d)(2) and that the discharge released the partners from liability in a bankruptcy matter and that the partners were subject to the court's jurisdiction.  The court determined in each case that it was immaterial that none of the partners was in bankruptcy in their individual capacities.  IRS Action on Decision, 2015-001 (Feb. 9, 2015).  The cases are Gracia v. Comr., T.C. Memo. 2004-147; Mirarchi v. Comr., T.C. Memo. 2004-148; Price v. Comr., T.C. Memo. 2004-149; and Estate of Martinez v. Comr., T.C. Memo. 2004-150.


IRA Excess Contribution Case Involves Battle Over Taxes.

The taxpayers, a married couple, made excess contributions in 2007 to their IRAs.  They withdrew the excess contribution and earnings on the excess on March 23, 2010.  In addition, their returns for 2008 and 2009 were not timely filed.  The taxpayers sought a waiver of the 6 percent excise tax on the excess contribution, but IRS refused and levied the excise tax plus penalties for late filing plus interest and penalties for late payment.  After paying the alleged deficiency, the taxpayers sought refunds on the basis that IRS had improperly determined the date of payment because the IRS calculated interest based on the date the payment was received rather than on when the taxpayer mailed the payment.  In addition, the taxpayers argued that they were owed a refund for 2009 taxes because they had removed the IRA funds before April 15, 2010.  The court determined that IRS had improperly calculated interest because the "postmark rule" applies, and that because the excess IRA funds were withdrawn before April 15, 2010, the penalty for 2009 did not apply.  Wu v. United States, No. 14-cv-3925, 2015 U.S. Dist. LEXIS 12991 (N.D. Ill. Feb. 3, 2015).   


Court Allows Statute of Limitations To Be Extended Even Though Form 872 Erroneous.

The petitioner's return was under audit and IRS sought the petitioner's signature on Form 872 to extend the normal three-year statute of limitations for assessment of additional tax to allow IRS more time to complete the audit.  However, Form 872 contained the wrong tax year and the petitioner argued that the statute of limitations had not been extended and, thus, IRS couldn't assess additional tax because the statute of limitations had run.  The court disagreed, noting that both the petitioner and the IRS believed that the Form 872 actually applied to the tax year being audited.  Thus, the parties had made a mutual mistake and the court allowed the Form 872 to be reformed such that it was applicable to the tax year under audit.  Hartland Management Services, Inc. v. Comr., T.C. Memo. 2015-8. 


IRS Guidance on Marijuana-Related Deductions.

Marijuana is an illegal drug under federal law and I.R.C. Sec. 280E bars deductions for any amounts related to trafficking in controlled substances.  However, the taxpayer can reduce gross receipts by the cost of goods sold.  Here, IRS said that expenses that would not be included in cost of goods sold because they would normally be capitalized under I.R.C. Sec. 263A (and reduce income) cannot be capitalized when they relate to selling marijuana.  Also, IRS said that when they audit a cash-basis marijuana seller, the IRS can allow the seller to deduct its costs that would have been inventoriable had the taxpayer used the accrual method.  C.C.A. 201504011 (Dec. 10, 2014).


IRS Claim That Building Not Placed in Service Until Store Open For Business "Totally Without Merit."

In this case, the petitioner operated a retail business that sold home building materials and supplies.  The petitioner built two new retail stores.  As of December 31, 2008, the buildings were substantially complete and partially occupied and the petitioner had obtained certificates of completion and occupancy and customers could enter the stores.  However, the stores were not open for business as of the end of 2008.  The petitioner claimed the 50 percent GoZone depreciation allowance for 2008 on the two buildings which created a tax loss for 2008 and allowed the petitioner to carry back the losses for the 2003-2005 tax years and received a refund.  The IRS disallowed the depreciation deduction on the basis that the petitioner had not put the buildings in service and assessed a deficiency of over $2.1 million for tax years 2003-2008.  The petitioner paid the deficiency and sued for a refund.  The IRS argued that allowing the depreciation would offend the "matching principle" because the petitioner's revenue from the buildings would not match the depreciation deductions for a particular tax year.  The court held that this argument was "totally without merit."  As to the government's "placed in service" argument, the court noted that Treas. Reg. Sec. 1.167(a)-11(e)(1) says that placed in service means that the asset is in a condition of readiness and availability for its assigned function.  With respect to a building, the court noted that this meant that the building must be in a state of readiness and availability without regard to whether equipment or machinery housed in the building has been placed in service.  The court held that there was no requirement that the petitioner's business must have begun by year-end.  Cases that the IRS cited involving equipment (in one case an airplane) being placed in service were not applicable, the court determined.  The court also noted that the IRS's own Audit Technique Guide for Rehabilitation Tax Credits stated that "[A] 'Certificate of Occupancy' is one means of verifying the 'Placed in Service' date for the entire building (or part thereof)".  The court noted that the IRS had failed to cite even a single authority for the proposition that "placed in service" means "open for business,"  and that during oral arguments admitted that no authority existed.  The court granted summary judgment for the petitioner and noted that the petitioner could pursue attorney fees if desired.  Stine, LLC v. United States, No. 2:13-03224, 2015 U.S. Dist. LEXIS 9850 (W.D. La. Jan. 27, 2015). 


Maintaining Logs and Calendars Did Not Establish That Taxpayer Was a Real Estate Professional.

The petitioners (married couple) owned a condominium as a rental property and the husband managed the property.  The husband also had a full-time job that was not a real estate trade or business.  The petitioners attempted to deduct the loss associated with their rental property, but the IRS disallowed the loss on the basis that the petitioners did not satisfy the real estate professional test.  While the husband claimed that he spent 799 hours in the rental activity, he testified that some of his entries in his logs and calendars were inaccurate and some of his testimony was inconsistent.  The court also noted that the husband would have to put more hours into the rental activity than he did his full-time job.  The court upheld the IRS determination on the basis that the petitioners failed to prove that the real estate professional test had been satisfied.  Flores v. Comr., T.C. Memo. 2015-9   


If Not Away From Home, No Deductions For Traveling Expenses.

The petitioner was a long-haul over-the-road truck driver who spent many weeks on the road and was compensated on a per-mile basis.  When not traveling for work, the petitioner lived in Minnesota with his family.  The petitioner claimed deductions for meals and lodging while traveling, claiming that he incurred the expenses while "away from home."  The court determined that the petitioner was never away from his "tax home" and was not entitled to business-related deductions for meals and lodging under I.R.C. Sec. 162.  The court noted that the petitioner didn't establish that he paid household expenses for the communal kibbutz in MN or used the MN address for voter registration purposes.  Jacobs v. Comr., T.C. Summ. Op. 2015-3       


Contract Payments For (Human) Egg Production Not Excludible As Damage Payments.

The petitioner entered into contracts to produce unfertilized eggs for transfer to infertile couples.  The contracts characterized the payments as being for the petitioner's time, effort, inconvenience, pain and suffering and not in exchange for or purchase of eggs.  The petitioner underwent numerous physical exams and self-administered painful hormonal injections.  The petitioner suffered bruising and an eventual surgery to harvest the eggs.  In total, the petitioner was paid $20,000 pursuant to the contracts for the tax year at issue, received a Form 1099 for the total amount but excluded the amount from income under I.R.C. Sec. 104(a)(2) as damage payments for pain and suffering.  The IRS disallowed the deduction.  The court agreed with the IRS, construing the payments as being received for personal services.  The fact that the petitioner suffered physical pain or injury during the performance of rendering services pursuant to the contract did not change the result.  The payment was not received on account of personal injuries or sickness, but rather for services.  The court noted that the petitioner voluntarily contracted to be paid to produce eggs via a process that involved pain and suffering.  Perez v. Comr., 144 T.C. No. 4 (2015).


Estate Beneficiaries Liable For Unpaid Estate Tax.

The decedent died in 2001 with a gross estate of  approximately $1.7 million and an estate tax return was filed reporting a net estate tax liability of $275,000.  The estate paid $123,000 and made an additional payment of $4,200 in 2009.  In 2008, the IRS entered into a settlement agreement with the estate for the outstanding estate tax liability whereby the estate tax would be paid in installments.  Ultimately, approximately $84,000 of estate tax, interest and penalties remained unpaid.  The IRS did not assess the failure to pay penalty of approximately $35,000 until early 2013 and the estate claimed that the penalty was time-barred via I.R.C. Sec. 6501(a) or 6502(a)(1).  The court determined that neither of those provisions applied and the assessment of the failure-to-pay penalty was not time barred.  The estate also claimed that the interest assessment was incorrectly calculated, but the court disagreed.  The court also determined that the beneficiaries of the estate were liable for the unpaid estate tax and rejected their arguments that the government should be equitably estopped from enforcing the judgment or that the government had violated their due process rights.  United States v. Estate of Hurd, No. CV12-7889-JGB (VBKx), 2015 U.S. Dist. LEXIS 3350 (C.D. Cal. Jan. 8, 2015).


Mortgage Must be Subordinated To Get Charitable Deduction For Donated Conservation Easement.

In a prior opinion, Mitchell v. Comr., T.C. Memo. 138 T.C. No. 16 (2012), the Tax Court disallowed the petitioner's charitable deduction for a permanent conservation easement donation due to the failure to satisfy the mortgage subordination requirement of Treas. Reg. Sec. 1.170A-14(g)(2).  In the prior case, the petitioner argued that the conservation purpose of easement was protected in perpetuity even without a subordination agreement because the probability of default on the mortgage was negligible.  However, the court rejected that argument on the basis that the Treasury Regulations require a subordination agreement.  In a subsequent Tax Court case, the petitioner argued that Kaufman v. Comr., 687 F.3d 21 (1st Cir. 2012) required the Tax Court to reconsider its prior decision.  The Tax Court disagreed, noting that Kaufman was not binding on the Tax Court because it addressed different legal issues.  Kaufman involved the "proceeds" regulation governing entitlement to proceeds upon judicial extinguishment of an easement, while the present case involved the mortgage subordination regulation.  The court also noted that the subordination regulation is specific and there is no "functional" subordination contemplated by the regulation.  The court also rejected the petitioner's argument that Carpenter v. Comr., T.C. Memo. 2012-1 created a safe harbor and that the regulation should be read as a safe harbor.  Instead, the court noted that Treas. Reg. Sec. 1.170A-14(g) is specific, mandatory and cannot be ignored.  The petitioner argued that the court should create a general rule with respect to the perpetuity requirement of I.R.C. Sec. 170(h)(5)(A) based on Kaufman.  However, the court rejected that argument on the basis that Kaufman did not create a general rule that protecting proceeds from extinguishment of a conservation easement would satisfy the perpetuity requirement of Treas. Reg. Sec. 1.170A-14(g)).  Mitchell v. Comr., T.C. Memo. 2013-204.  On further review, the Tenth Circuit affirmed.  The appellate court specifically noted that Treas. Reg. Sec. 1.170A-14(g)(3) does not relieve a donor from having to meet the subordination requirement when the probability of default on the mortgage is negligible.  Mitchell v. Comr., No. 13-9003, 2015 U.S. App. LEXIS 116 (10th Cir. Jan. 6, 2015). 


Facility That Generates Electricity From Manure Not Entitled To Tax Exemption.

The petitioner operated a facility that generated electricity from biogas produced by the anaerobic digestion of livestock manure.  The manure came from the petitioner's dairy operation and the electricity generated is used to operate the petitioner's dairy operation and is sold to the electrical grid.  The petitioner claimed that the facility was exempt from state income tax because it is a "manure storage and handling" facility.  The court disagreed on the basis that the statute at issue contemplated a facility that is used to store and handle manure only.  The tax exemption statute has no application to an anaerobic digester or electrical generator.  An amendment to the statute did not apply because it did not have retroactive application.  In re Synergy, LLC v. Kibler, No. 1171 CA 14-00173, 2015 N.Y. App. Div. LEXIS 44 (N.Y. Sup. Ct. Jan. 2, 2015).  


S Corporation Shares Allocated To Sole Employee's ESOP Triggers Excise Tax Penalty.

I.R.C. Sec. 409(p) limits tax benefits of an Employee Stock Ownership Plan (ESOP) by limiting the ability to defer tax for the highly compensated employees.  More specifically, I.R.C. Sec. 409(p) limits the tax benefits of an ESOP that owns S-corporate stock unless the ESOP provides meaningful benefits to employees.  If I.R.C. Sec. 409(p) is violated, an excise tax of 50 percent of prohibited allocations applies and the ESOP no longer qualifies as an ESOP.  Tax deferral is lost if any portion of the plan assets that are attributable to the employer securities accrue to the benefit of a "disqualified person" during a nonallocation year.  A nonallocation year is any ESOP plan year during which the plan holds employer securities consisting of S corporation stock and the disqualified persons own at least half of the number of S corporate shares.  A disqualified person is a taxpayer that owns at least 10 percent of the deemed owned shares in the S corporation.  This case involved an S corporation with an ESOP as a shareholder and another non-ESOP shareholder who was the petitioner's only employee and sole participant.  Thus, the  ESOP owner held 100 percent of shares, triggering I.R.C. Sec. 409(p).  The court noted  that while the corporation had two classes of stock which would disqualify it for S corporate status and, therefore, would not result in I.R.C. Sec. 409(p) violation, the statute of limitations had run on IRS from adjusting petitioner's tax liability based on status.  Thus, the petitioner was treated as an S corporation and was liable for additional $161,200 in taxes and penalties of approximately $76,000. Ries Enterprises, Inc. v. Comr., No. 14-2094, 2014 U.S. App. LEXIS 24623 (8th Cir. Dec. 31, 2014), aff'g., T.C. Memo. 2014-14.


Oil Landman Not Entitled To Depletion Deduction For Supplemental Salary Payments.

The plaintiff was hired by an oil and gas company as a “landman” to secure properties for oil and gas leasing.  He had an “employee incentive agreement” with his employer that would pay him bonuses equal to a percentage of the net income from oil and gas properties that the employer acquired through the plaintiff’s efforts.  For the tax years in issue, the plaintiff initially treated such payments as ordinary income, but then filed amended returns treating as capital gain the income from the sale of properties that the employer purchased via the plaintiff’s efforts, and also claiming a depletion deduction associated with the income from the proceeds of producing properties.  The IRS disallowed capital gain treatment and disallowed a depletion deduction for the tax years at issue.  The plaintiff paid the additional tax of over $500,000 and sued for a refund.  The court upheld the IRS position noting that a depletion deduction is only available to an owner of an “economic interest” in the mineral deposits.  The court noted that the plaintiff had not acquired an interest in the minerals through a capital investment and that, therefore, the plaintiff’s return on investment was not realized solely from mineral extraction.  The plaintiff’s argument that his time, skill and experience in locating properties for his employer constituted a capital investment providing him with an economic interest in the minerals was rejected as a matter of law.  The court noted that the plaintiff’s compensation agreement with his employer did not separately pay him for his “landman” duties, but that his regular job duties would include work as a “landman” and that the bonus payments were to incentivize his good work and continued employment.   In addition, the agreement also specified that bonus payments were also tied to sales of the properties that the plaintiff helped the employer acquire.  The plaintiff also failed to establish that he had acquired a “net profits interest” in any minerals, and whether such an interest would constitute an economic interest in the minerals.  The court granted the government’s motion for summary judgment.  Gaudreau v. United States, No. 13-1180-JWL, 2014 U.S. Dist. LEXIS 177522 (D. Kan. Dec. 29, 2014).   


Paying College Tuition In Wrong Tax Year Eliminates A $2,100 Credit For The Taxpayer.

The petitioner's step-daughter graduated high school in 2010 and enrolled in college later that fall.  For the 2011 spring semester, the college billed the step-daughter $2,113.16 for tuition and $253.14 for various fees.  The petitioner paid $2,150.85 of the amount on behalf of his step-daughter on December 28, 2010, by taking a distribution from his I.R.C. Sec. 529 account plan and remitting the payments to the college via a debit/credit card.  The petitioner and his spouse filed a joint return for 2011 on which they claimed an American Opportunity Tax Credit (AOTC) of $2,107 for the step-daughter's college expenses.  The IRS disallowed all but $157 of the AOTC (the $157 amount was actually paid in 2011).  The Tax Court upheld the IRS disallowance of the AOTC.  While the petitioner paid AOTC-eligible expenses and was not subject to the AOTC income phase-out limitations, the court noted that the statute at issue (I.R.C. Sec. 25A) only allows the credit to be claimed when payment is made in the same year that the academic period begins.  Here, the petitioner paid the expenses in 2010 for an academic period that began in 2011.  Thus, the AOTC could not be claimed on the 2011 return.  While I.R.C. 25A(g)(4) allows for prepayment of tuition in the immediate prior tax year for an academic semester that begins in the first quarter of the next year, that statute only allowed the petitioner to claim the AOTC in 2010 and not 2011.  The court also determined that the petitioner was not eligible for an AOTC for the amounts paid in 2011 because they failed to establish that those amounts were necessary for enrollment or attendance at the college or that the payments were applied solely to qualified tuition and related expenses, requirements to claim the AOTC.  Ferm v. Comr., T.C. Sum. Op. 2014-115. 


Penalty For Not Timely Filing S Corporation Return.

The petitioner is a dermatologist in Fresno, CA, who operates his business as an S corporation in which the petitioner is the sole shareholder.  For 2010, he claimed that he mailed Form 7004 to the IRS to request an extension of time to file the S corporation return (which is required via I.R.C. Sec. 6037), but IRS never received it.  The S corporation return (Form 1120S) was received on Jan. 31, 2012, for the 2010 tax year.  IRS assessed a late filing penalty of $2,145 ($195 per month for the 11 months the return was late) pursuant to I.R.C. Sec. 6699(a).  IRS appeals suggested a partial abatement of the penalty, but the petitioner refused, and claimed that he was not properly informed of the penalty and was unaware of the statutory basis for the penalty.  The court rejected the petitioner's argument and determined that the petitioner did not have reasonable cause for late filing so as to avoid the penalty.  The court also noted that the petitioner was a chronic late filer, and that the IRS had followed all appropriate administrative procedures.  Babak Roshdieh, M.D., Corp. v. Comr., T.C. Sum. Op. 2014-113.


Auto Dealerships Are Separate Activity From Horse Activity Under Hobby Loss Rules.

The petitioner was a third-generation auto dealer with successful dealerships, and his family has been involved in horse-related activities since the 1960s.  The petitioner started his own horse activity in 1993.  For various reasons, the horse activity lost money for the years in issue, but the petitioner argued that the auto dealerships and the horse activity constituted a single activity for purposes of I.R.C. Sec. 183.  The court held, however, that the activities were separate.  Based on the evidence, the court noted that the activities were not conducted in the same locations and there was no relationship between the customers of the horse activity and the customers of the auto dealerships.  In addition, there was minimal cross-advertising between the activities and there was no leasing of assets between the two activities.  The court also noted that the activities were not similar in nature.  Price v. Comr., T.C. Memo. 2014-253.


IRS Shares Its Views on Home Mortgage Interest Deduction When Mortgage Paid By Co-Owners.

In this Advice from the Chief Counsel's Office, the IRS discussed three sets of facts involving claiming the home mortgage interest deduction when there is more than a single owner of the mortgage home that is paying on the mortgage.  The first scenario involved a married couple that are jointly and severally liable on a mortgage.  One spouse died during the tax year and the bank issued a Form 1098 under the decedent's Social Security number.  The surviving spouse filed a separate return and payments on the account were made either from a joint account or from separate funds of the couple.  The IRS determined that if the decedent paid on the mortgage before death, the decedent's return should reflect one-half of the interest paid from the joint account before death.  After death, the surviving spouse can claim the deduction for interest.  The second scenario involved an unmarried couple that were jointly and severally liable on the mortgage.  The bank issues a Form 1098 under either one Social Security number or under both numbers.  One or both of the owners claims the mortgage interest deduction on their individual returns.  The IRS determined that both parties are entitled to the mortgage interest deduction to the extent of the interest that each taxpayer pays.  If the mortgage interest is paid from separate funds, each taxpayer can claim the mortgage interest deduction paid from each taxpayer's separate funds.  If the interest is paid from a joint account in which each party has a equal interest IRS presumes that each owner has paid an equal amount unless there is evidence to the contrary.  In the third situation, related persons co-owned a house and were liable on a mortgage.  The bank may issue a Form 1098 either under one or both of the parties names, and payment on the mortgage might be made from a joint account or from separate funds of the owners.  Again, IRS stated that each owner is entitled to a mortgage interest deduction attributable to the amount that owner actually pays.  Of course, IRS reiterated that that overall limitations on deducting mortgage interest under I.R.C. Sec. 163(h) apply in all of the scenarios.  C.C.A. 201451027 (Oct. 1, 2014).


Appellate Court Affirms That Bonus Payment Is Ordinary Income.

The petitioner received $883,250 as an up-front bonus payment to allow  an oil and gas company to lock-up his property for an eventual lease.  The petitioner treated the amount as capital gain and argued that the agreement under which he was paid the bonus constituted a sale rather than being a lease.  The IRS claimed that the amount was ordinary income and assessed additional tax of $147,397 and imposed an accuracy-related penalty of $29,479.  The Tax Court agreed with the IRS and also disallowed a percentage depletion deduction because no production had occurred.  No well had been drilled on the property at the time the payment was received and a permanent easement was not involved.  On appeal, the court affirmed.  The appellate court noted that the agreement was for five years and could be automatically extended as long as thereafter as either oil or gas was being produced from the property.  There was also a "shut-in" clause.  Under the agreement, the petitioner was entitled to royalty payments equal to 16 percent of the net profits of extracted oil and gas.  The court determined that the royalty interest was an economic interest that made the transaction a lease.  There also was not determinable quantity of oil and gas for a determined price, which would have been evidence of a sale.  Dudek v. Comr., No. 14-1517, 2014 U.S. App. LEXIS 24428 (3d Cir. Dec. 24, 2014), aff'g., T.C. Memo. 2013-2.


In Divorce, Tax Consequences Of Selling Land Matter When Dividing Property Even If No Sale Ordered.

The parties in this case were married in 1980.  In 1979, the husband purchased 98 acres on contract for approximately $1,400 per acre.  The tract contained the marital home and was paid off during the marriage.  The wife started a milking operation on the tract and generally conducted the farming operations along with the three children of the marriage.  The wife filed for divorce in 2011, and the trial court dissolved the marriage with the wife getting all of the farm real estate with making an "equalization payment" of $1,548,287 to the husband.  The husband appealed on the basis that the property distribution was inequitable to him arguing that he should either be a joint owner on the real estate or that is should be sold and the proceeds split, and claiming that there were valuation errors.  On appeal, the court affirmed.  The court noted the public policy of preserving family farming operations in the hands of the farming spouse.  Importantly, the Iowa Court of Appeals, contrary to a prior opinion of the Iowa Supreme Court, said that tax considerations surrounding the sale of the land were to be factored even if there was no order to sell the land.  In re Marriage of McDermott, 827 N.W.2d 671 (Iowa 2013).  The court also noted that it would not further the policy of preserving the farming operation if the husband were to be a joint owner of the land given his past history and relationship with the children and wife.  On the valuation issue, the court held that the husband did not properly preserve the issue.  The court also upheld the trial court's award of $10,000 of attorney fees.  In re Marriage of Simon, No. 14-0735, 2014 Iowa App. LEXIS 1256 (Iowa Ct. App. Dec. 24, 2014).         


IRS Says Disabled Vet Should Have Worked Faster - Disallows Rental Losses.

The petitioner was a disable Vietnam War veteran, sustaining an overall disability of 60 percent, including 50 percent to his right arm and 30 percent to his feet.  The petitioner owned a rental property that adjoined his home and kept the property free of debris, made bank deposits, did some repairs personally, and handled tenant disputes, among other things.  The petitioner sustained losses for the years at issue on the rental property and deducted the losses.  The IRS severely limited the losses and maintained that the petitioner was not a real estate professional under I.R.C. Sec. 469(c)(7) because he failed to meet the 750-hour test.  While the petitioner did not have other work and, therefore, satisfied the 50 percent test, the IRS maintained that the only way the petitioner put in more than 750 hours into the rental activity was because he worked too slowly.  Had he worked faster, IRS maintained, he would not have put in the requisite 750 hours.  The court disagreed with the IRS and allowed the deductibility of the losses.  The court noted that the petitioner was disabled and, based on the record of the work that he performed and his physical condition, satisfied the 750-hour test.  Lewis v. Comr., T.C. Sum. Op. 2014-112. 


Calendar Year Applies In Determining DPAD Wage Limitation.

The taxpayer, a corporation, computed its income on a 52 or 53-week tax year ending on the last Saturday in December.  A question arose about the corporation's computation of the 50 percent of W-2 wage limitation for purposes of the domestic production activities deduction (DPAD) under I.R.C. Sec. 199.  The wage limitation is computed based on wages paid to employees during the calendar year that ends during the employer's tax year.  While that would typically be the 12-month period ending on December 31, and would coincide with the calendar year, in this instance the taxpayer's 52 or 53-week tax year for 2017 did not include a calendar year and, thus, did not coincide with a calendar year.  As a result, the corporation was concerned that it might not be entitled to a DPAD for 2017 because there was no tax year to determined the W-2 wage limitation.  However, the IRS determined that under I.R.C. Sec. 441(f) allowed the corporation to deem its 2017 tax year as ending on December 31, 2017 - the last day of the calendar month ending nearest to the 52 or 53-week tax year.  That means that the calendar year 2017 will be the corporation's tax year for purposes of determining the wage limitation for DPAD purposes.  Priv. Ltr. Rul. 201447027 (Aug. 19, 2014).


Home Purchased in 1993 Does Not Qualify For First-Time Homebuyer Credit in 2008.

The petitioner bought a home via a land contract in 1993 for $27,500.  The contract specified that the seller would transfer the property to the purchaser on full performance of the contract, and required a $1,000 downpayment with $223.39 to be paid monthly over a five-year term which was renewable.  Interest was set at 9 percent.  The five-year term was renewable and the petitioner did renew the contract twice.  Upon the expiration of the third five-year term, the petitioner borrowed money from a third party lender and paid off the contract in 2008.  The petitioner claimed a first-time homebuyer credit (FTHBC) in 2008 worth $2,609.  The IRS denied the credit and the court agreed.  The court noted that under state (WI) law, the petitioner became the equitable owner of the house at the time the contract was entered into in 1993 because she bore the benefits and burdens of ownership at that time - a prerequisite for the FTHBC.  The petitioner had been paying, in accordance with the contract, the real property taxes, assessments and insurance.  The petitioner also bore the risk of loss, and had the right to obtain legal title at any time by paying off the then-existing balance of the contract.  Wodack v. Comr., T.C. Memo. 2014-254.


IRS Discusses Who Can Be Engaged In a Real Property Brokerage Business.

The IRS Chief Counsel's Office, in a memo, discussed whether a real estate agent who is not licensed as a real estate broker can be engaged in a real property brokerage trade or business for purposes of the real estate professional rule contained in I.R.C. Sec. 469(c)(7).  The IRS determined that the agent could be engaged in a real property brokerage business because he brought together buyers and sellers of real estate.  Conversely, the IRS determined that a mortgage broker of financial instruments is not in a real property brokerage trade or business as defined by I.R.C. Sec. 469(c)(7)(C).  C.C.M. 201504010 (Dec. 17, 2014).


Groups Lack Standing To Challenge Form 990 Filing Exemption For Churches.

The plaintiffs, tax-exempt atheist organizations, challenged the exemption for churches contained in I.R.C. Sec. 6033(a)(3) from filing Form 990 that most other tax-exempt organizations must file.  The court dismissed the case for lack of standing on the basis that the plaintiffs never sought an exemption from the Form 990 filing requirement and never showed any interest in seeking such an exemption.  Freedom From Religion Foundation, et al. v. Koskinen, No. 12-cv-946-bbc, 2014 U.S. Dist. LEXIS 174017 (W.D. Wis. Dec. 17, 2014). 


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