Case Summaries

Mayo Foundation v. United States, 568 F.3d 675 (8th Cir. 2009), cert. granted, No. 09-837 (Jun. 1, 2010)

(Treasury Regulations limiting student exceptions to FICA tax imposed on employers and employees to students who are not full-time employees entitled to deference; decision reverses trial court determination that stipends paid to residents participating in accredited graduate medical programs qualified for the exception).

Congressional Budget Office Report (June 2010), "Average Federal Tax Rates in 2007"

(refutes Administration's claim that the "rich" are paying less than their fair share of federal taxes and that the middle class is overburdened; reports details that, for 2007, every income group except the wealthiest 20 percent of U.S. households earned a greater share of income than their share of the tax burden; top 20 percent earned 55.9 percent of all income, but paid 68.9 percent of all taxes (86 percent of income taxes); for top 1 percent, share of income has grown from 9.3 to 19.4 percent, but share of income taxes has grown from 18.3 percent to 39.5 percent, an all-time high).

H.R. 5424, introduced on May 27, 2010 and referred to the U.S. House Ways and Means Committee (among other committees)

(would repeal the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010; would enact H.R. 4038, the “Common Sense Health Care Reform and Affordable Act as initially introduced on November 6, 2009; bill has 30 co-sponsors).  

Curcio v. Comr., T.C. Memo. 2010-115

(payments for life insurance premiums not deductible; payments made to welfare benefit plans). 

Watson, P.C. v. United States, 714 F.Supp.2d 954 (S.D. Iowa 2010)

(plaintiff, sole owner of S corporation CPA firm, paid a $24,000 salary and treated remaining $180,000 of annual income as S corporation K-1 income (not subject to FICA tax at 15.3 percent up to $106,800 (for 2010), and 2.9 percent Medicare tax on all income); plaintiff's motion for summary judgment denied - intent to pay compensation is to be determined based on a facts and circumstances test rather than self-serving assertions of proprietor; case arose based on examination into firm's potentially underpaid employment taxes).

Priv. Ltr. Rul. 201034015 (May 26, 2010)

(payments that cooperative makes to farmers for grain sales constitute per-unit retains paid in money (PURPIM); consequently, cooperative's DPAD to be computed without deducting the PURPIMs). 

Polly's Properties, LLC v. Department of Taxes, 998 A.2d 1047 (Vt. Sup. Ct. 2010)

(plaintiff may claim property tax exemption for land transferred as start-up capital during formation of plaintiff by plaintiff's organizers; formative event of an LLC is the initial transfer of capital or capitalization of the LLC, not when articles of organization filed with state; thus transfer made within 90 days of formation under state law).

Freedom From Religion Foundation, Inc. v. Geithner, 715 F.Supp.2d 1051 (E.D. Cal. 2010)

(court denied defendant's motion to dismiss plaintiff's claim that I.R.C. Sec. 107 is unconstitutional, but granted defendant's motion to dismiss plaintiff's claim that I.R.C. Sec. 265(a)(6)(B) is unconstitutional). 

Jones v. Comr., T.C. Memo. 2010-112

(innocent spouse relief granted on portion of tax debt attributable to taxpayer's spouse, but no relief granted from taxes and penalties related to unreported income that taxpayer knew ex-spouse failed to report). 

United States v. Fort, No. 1:08-CV-3885-TWT, 2010 U.S. Dist. LEXIS 51057 (N.D. Ga. May 20, 2010)

(taxpayer had recognizable gain on sale of partnership interest in exchange for stock; constructive receipt doctrine applied - taxpayer had argued that because stock subject to significant restrictions (taxpayer couldn't sell the stock for 5 years) and stock would be forfeited if taxpayer went into competition with buyer of partnership interests, or quit working for the buyer or was fired for cause or poor performance, that taxpayer did not have gain recognition; court determined that constructive receipt doctrine applied because taxpayer would benefit from appreciation in value during 5-year period, would receive dividends during five-year period and could direct the voting of shares; transaction also structured to result in full taxation in year of sale).

Priv. Ltr. Rul. 201034005 (May 20, 2010)

(transaction structured to separate two businesses qualifies as tax-free reorganization, but purchase of assets from parent company trigger gain or loss). 

Acoba v. Comr., T.C. Sum. Op. 2010-64

(innocent spouse relief not available for taxpayer from joint liabilities with former spouse; equitable relief unavailable because taxpayer had knowledge that tax liabilities would not be paid).

Harris, et ux. v. Comr., T.C. Sum. Op. 2010-63

(taxpayers, married couple, cannot deduct loss from joint venture; under joint venture operating agreement, payment not required until year after tax year in which loss claimed). 

Priv. Ltr. Rul. 201033023 (May 19, 2010)

(decedent's estate denied extension of time to make alternate value election under I.R.C. Sec. 2032; CPA error in not considering alternate valuation date on Form 706). 

Priv. Ltr. Rul. 201035003 (May 19, 2010)

(gain from sale of renewable energy credits under state program by state resident included in resident's income; full I.R.C. Sec. 25D credit not available for purchase of qualified solar electric property because credit not available for expenditure to extent of the amount excluded as a subsidy under I.R.C. Sec. 136(a)). 

DeMattos, et al. v. Comr., T.C. Memo. 2010-110

(taxpayer not entitled to relief from joint tax liabilities with former spouse because taxpayer had actual knowledge of reason for tax deficiencies). 

Carter v. Comr., T.C. Memo. 2010-111

(taxpayer's failure to report capital gains as a result of sale of stock not return preparer's fault; accuracy-related penalty upheld against taxpayer). 

E.C.C. 201025074 (May 18, 2010)

(losses that are disallowed due to the at-risk rules of I.R.C. Sec. 465 are to be determined in accordance to partnership items, but are actually applied at the partner level; IRS would determine partner's share of partnership liabilities and whether those liabilities are recourse, non-recourse or shams, then IRS would issue on affected item notice of deficiency to the indirect partner to limit the partner's partnership losses to the amount of the partner's risk). 

Ramirez, et ux. v. Comr., T.C. Memo. 2010-108

(IRS deficiency determination and accuracy-related penalty sustained against taxpayers, a married couple; taxpayers did not have sufficient records to support their claimed deductions - long-term loss carryover, short-term capital loss, and various Schedule A deductions). 

In re Estate of Loomer, 2010 ND 93 (N.D. Sup. Ct. 2010)

(trial court's partition of farmland not clearly erroneous and claimed misconduct by referee appointed to assist in partition of land did not require appellate court to reverse). 

Milano's Inc. v. Kansas Department of Labor, 231 P.3d 1072 (Kan. Ct. App. 2010)

(plaintiff, strip club operator, employed dancers as employees rather than independent contractors; plaintiff maintained sufficient control over dancers such that dancers were employees for unemployment tax purposes; plaintiff designated place where dancers performed, controlled customers, cover charge, tips, schedules, shifts, and fees charged for particular "services"; dancers also prohibited from "working the crowd" around stage area while another dancer on stage, and if dancer violated "house rule" plaintiff's management had authority to impose fines or terminate business relationship; also, dancers required to charge minimum price for various "dances" and if minimum not paid, plaintiff's doorman would inform customer that such behavior unacceptable).

Estate of Fortunato, et al. v. Comr., T.C. Memo. 2010-105

(group of companies not includible in decedent's estate; decedent did not retain ownership interest in companies at time of death, did not bear financial burdens of ownership and had no intent to own any interest in the companies).

I.L.M. 201025049 (Mar. 12, 2010)

(corporation not entitled to I.R.C. Sec. 167 depreciation deductions or I.R.C. Sec. 1031 treatment for equipment that the corporation held for sale to customers and designated as rental equipment at the same time; under the facts presented, IRS determined that corporation held the equipment primarily for sale to customers).

Arengard v. Cayko, et al., 782 N.W.2d 54 (N.D. Sup. Ct. 2010)

(plaintiff not entitled to property tax exemption for residence located on farm; plaintiff's non-farm income exceeded $40,000 and ratio of non-farm income to farm income too high). 

United States v. Davison, No. 08-0120-CV-W-GAF, 2010 U.S. Dist. LEXIS 45898 (W.D. Mo. May 11, 2010)

(tax fraud case in which plaintiff, accountant and lawyer, enjoined from marketing tax "schemes"; one "scheme" involved execution of "flock contracts" for clients which plaintiff claimed allowed clients to become "farmers" eligible to claim deductions for the cost of purchasing laying hens). 

Ringgold Telephone Co. v. Comr., T.C. Memo. 2010-103

(plaintiff, newly-formed S corporation which held a partnership interest that it sold in its first year for $5.2 million claimed tax basis in interest (pursuant to appraisal) at $2.98 million, but IRS claimed sale price was best evidence of value which triggered built-in gain tax of $925,260 and understatement penalty of $185,052; court viewed sale price as relevant as well as appraisal value and weighted appraiser's report at two-thirds and sale price at one-third for a final value of $3,727,142; penalty not sustained).

Ludwick, et ux. v. Comr., T.C. Memo. 2010-104

(case involves value of petitioners' (married couple) respective 50% tenancy-in-common interests in residential real estate in Hawaii; court rejected appraisals of both IRS and petitioners and used its own methodology - (1) determine if partition not necessary to sell property by determining pro rata share of appraised value of full parcel, projected one-year into future (estimated time to complete sale); reduce resulting value by appropriate discount for time needed to sell property; reduce result by pro rata share of selling costs; reduce value further by estimated operating costs over the time needed to sell property; (2) determine value as if partition necessary to sell property by determining pro rata share of appraised value of full parcel, projected two years into future (estimated time to complete both partition and sale); reduce resulting value by discount for time needed to partition and sale; reduce value further by pro rata share of selling costs; reduce value further by estimated operating costs over time period needed to partition and sell property; resulting value is value between step one and step two based on expert opinion on likely need of partition; under facts of case, there was a 10 percent likelihood of need for partition). 

IRS Info. 2010-0126 (May 10, 2010)

(married couple does not qualify for long-term homeowner tax credit because one of the spouses didn't own and use the same principal residence for five consecutive years in eight-year applicable time period). 

ILM 201042023 (May 10, 2010)

(trust's charitable donation deduction limited to trust's adjusted basis of property that trust purchased from accumulated gross income; IRS rejected trust's argument that properties were purchased with previous years' gross income). 

Wilburn Quarries LLC, et al. v. Department of Revenue, No. 2090522 (Ala. Ct. Civ. App. May 7, 2010)

(plaintiff, which removes natural materials from mining strip piles and processes them into different grades of crushed sandstone and then sells the processed materials for use in gravel, cement and asphalt, liable for severance tax on sandstone removed from mining operation and processed into new materials because plaintiff was producer responsible for collecting tax from purchaser).

IRS Info. 2010-0142 (May 7, 2010)

(for purposes of long term homeowner tax credit, IRS lack authority to waive the five consecutive year ownership and use requirement for military personnel). 

Iljazi v. Comr., T.C. Summ. Op. 2010-59

(innocent spouse relief granted to taxpayer even though request untimely; taxpayer otherwise qualified for relief and court had previously invalidated time limitations contained in the Treas. Reg. in Lantz v. Comr., 132 T.C. 131 (2009)).

Intermountain Insurance Service of Vail, LLP v. Comr., 134 T.C. 211 (2010)

(IRS regulation which specifies that overstatement of basis results in an 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 did not apply to the case because it is effective for tax years for which the applicable period for assessing tax did not expire before September 24, 2009; court noted that as a trial court it was bound by U.S. Supreme Court's opinion in Colony, Inc. v. Comr., 357 U.S. 28 (1958)) which held that overstatement of basis is not an omission from gross income, but that IRS was not so bound by a Supreme Court opinion based on Swallows Holding Ltd. v. Comr., 515 F.3d 162 (3d Cir. 2008)). 

New Hampshire HB 1445 signed into law

(repeals the 9 percent state tax on rooms and meals at campsites). 

Priv. Ltr. Rul. 201034012 (May 5, 2010)

(contributions to and payments from a plan operated by city providing for health and medical benefits after employment ceases are excludable from the participants' gross income; contributions to and payments for the benefits aren't subject to FICA or FUTA tax). 

Doherty v. Comr., 373 Fed. Appx. 640 (8th Cir. 2010); Loveland v. Comr., 373 Fed. Appx. 638 (8th Cir. 2010); Snyder v. Comr., 373 Fed. Appx. 642 (8th Cir. 2010)

(Tax Court properly disallowed business-related deductions under I.R.C. Sec. 162 and I.R.C. Sec. 44 (disabled access credit) for investment in payphones and ATMs that were equipped with modifications that rendered them ADA compliant; under taxpayer's purchase and service agreements, taxpayer never acquired ownership for tax purposes; taxpayer not eligible for disabled-access credit because taxpayer not required to comply with ADA; taxpayer not engaged in trade or business involving the payphones or ATMs for purposes of I.R.C. Sec. 162 deductions). 

Senate Finance Committee Finding, May 2010

(Administration's recess appointment of Alan Bersin as Commissioner of Customs and Border Protection, the agency in charge of enforcing laws concerning whether employees are legally able to work in the United States, resulted in finding by Senate Finance Committee that Mr. Bersin had failed to properly complete and maintain Employment Eligibility Verification Forms (I-9s) for 9 out of 10 household employees employed over the past 20 years). 

Hawaii HB 2866

(reinstates state estate tax effective for deaths after April 30, 2010; includes provision which picks up I.R.C. Sec. 2102 which grants a credit for state estate tax paid by a non-citizen estate with situs in Hawaii).

Chandler v. Comr., T.C. Memo. 2010-92

(thoroughbred horse racing and breeding activity not engaged in for profit under multi-factor test). 

United States v. Moskowitz, Passman & Edelman, 603 F.3d 162 (2nd Cir. 2010)

(partner's advance on partnership profits subject to IRS administrative levies; advances or partner "draws" were "wages" in accordance with I.R.C. Sec. 6331(e); accuracy-related fine imposed). 

IRS Info. 2010-0137 (Apr. 29, 2010)

(taxpayer not eligible for long term homeowner tax credit; home purchased before effective date of provision - Nov. 7, 2009). 

Kaufman v. Comr., T.C. Memo. 2010-89

(no surviving spouse relief for surviving spouse; joint tax liabilities were paid by deceased spouse's estate and plaintiff lacks standing because surviving spouse not payor).

Koch Industries, Inc., et al. v. United States, 603 F.3d 816 (10th Cir. 2010)

(corporation not eligible to report income from highway construction project under percentage of completion method of I.R.C. Sec. 460; agreements not long-term construction contracts).

Kauffman, et ux. v. Comr., 134 T.C. 182

(married couple denied tax deduction for charitable contribution of facade easement to conservation organization; easement did not satisfy requirements of I.R.C. Sec. 170(h)(1) - contributed property still subject to mortgage and, thus, did not satisfy the perpetuity requirements under Treas. Reg. Sec. 1.170A-14(g)).

Orr, et ux. v. Comr., T.C. Summ. Op. 2010-55

(married couple not entitled to deduct wife's gambling losses; wife was professional gambler, but Groetzinger did not support her tax position).

IRS Info. 2010-0100 (Apr. 26, 2010)

(for purposes of the long-term homeowner credit, married couple is considered to own their residence even if title is only in one of their names). 

Wilkes, et ux. v. Comr., T.C. Sum. Op. No. 2010-53

(petitioners, married couple, not entitled to charitable deduction for private gifts made to needy persons through an alleged "church"; some deductions allowed for missionaries; petitioners' constitutional arguments rejected).

Gessic v. Comr., T.C. Memo. 2010-88

(petitioner not entitled to dependency exemptions for children; form ex-spouse signed to purportedly allow him to claim the children did not conform to the IRS form; taxpayer also not entitled to child tax credits).

IRS Info. 2010-0117 (Apr. 22, 2010)

(married couple not eligible for the first-time homebuyer tax credit or the long-term homeowner tax credit because one of the spouses owned a principal residence in prior three years and the other spouse did not own a residence within the applicable timeframes). 

In re Cobb, et al., 431 B.R. 23 (Bankr. E.D. Va. 2010)

(debtor, as vice president of company, was responsible for payment of company's withholding taxes; debtor willfully failed to pay over tax and IRS objection to bankruptcy plan sustained).