Case Summaries

Proposed Treasury Regulation 127270-06 (Sept. 14, 2009)

(relates to the exclusion from gross income for amounts received on account of personal physical injuries or physical sickness that reflect amendments under the Small Business Job Protection Act of 1996; deleted is the requirement that to qualify for exclusion from gross income, damages received from a legal suit, action, or settlement agreement must be based upon “tort or tort type rights;” taxpayers affected are those receiving damages on account of personal physical injuries or physical sickness and taxpayers paying such damages). 


T.D. 9460 (eff. Sept. 9, 2009)

(IRS final regulations adopted providing rules for determining whether a donor may petition the Tax Court for declaratory judgments on gift valuations and providing guidance on the definition of exhaustion of administrative remedies; to be eligible for declaratory judgment procedure of I.R.C. Sec. 7477, Tax Court must determine that donor exhausted all administrative remedies (i.e., appeals conference is timely requested and donor fully participates in appeals conference or if request is not granted)).


Phemister v. Comr., T.C. Memo. 2009-201

(taxpayer did not engage in horse activity with intent to make a profit - over $500,000 of losses not fully deductible; addition to tax for failure to timely file return applied as did 20 percent penalty for substantial underpayment of tax; taxpayer's spouse entitled to spousal relief from joint and several liability with respect to understatements of tax resulting from disallowance of taxpayer's ER physician business expense deductions, but is not entitled to relief from tax deficiencies arising from horse activity). 


Teruya Brothers Ltd., et al. v. Comr., 580 F.3d 1038 (9th Cir. 2009)

(court affirmed Tax Court's determination that plaintiff's exchange of properties does not qualify for deferral of gain under I.R.C. Sec. 1031; transactions were structured to avoid the related party restriction of I.R.C. Sec. 1031(f) via a series of transactions which also were designed to allow related parties to receive nonrecognition treatment while cashing out of investments using basis-shifting provisions of I.R.C. Sec. 1031; but a principal purpose of the overall transaction was tax avoidance and, thus, I.R.C. Sec. 1031(f)(4) violated). 


Melvin v. Comr., T.C. Memo. 2009-199

(petitioners had $8,768 of discharge of indebtedness income arising from settlement of credit card debt; there was no dispute as to the amount or enforceability of the debt; petitioners may not deduct fee paid to company that negotiated settlement with credit card company).


CCA Ltr. Rul. 200943028 (Sept. 8, 2009)

(qualified small business owner does not include in income any interest paid by the Small Business Administration to the lender and has no interest deduction for the payment).


ECC 200945047 (Sept. 8, 2009)

(homosexual's failure to include employee discounts received for a domestic partner constituted "willful blindness" for failure to investigate the law; federal law (Defense of Marriage Act) is unequivocal with respect to its definition of a spouse; underreporting penalties applicable for taking a position on a return that is contrary to substantial authority and without a reasonable basis for such position).


Engle, et al. v. Comr., T.C. Sum. Op. 2009-138

(Honda Odyssey minivan, with accessories (as purchased) weighed 6,005 pounds and eligible for I.R.C. Sec. 179 depreciation, and also not a "passenger vehicle" under I.R.C. Sec. 280F which would trigger the strict substantiation and mileage log rules for listed property; but, even though vehicle used 100 percent in taxpayers' real estate business, taxpayer failed to substantiate business use in accordance with Treas. Reg. Sec. 1.274-5T(c)(2)(i)), thus I.R.C. Sec. 179 depreciation not available).


Balice, et ux. v. Comr., T.C. Memo. 2009-196

(married couple liable for tax deficiencies for two tax years; irrevocable trust created by one spouse was a sham that should be disregarded for tax purposes; trust was termed a "pure" trust and promoter was Ronald Ottaviano).


Priv. Ltr. Rul. 200945035 (Sept. 2, 2009)

(IRS guidance provided concerning how a liquid qualifies as renewable diesel for purposes of I.R.C. Sec. 40A biodiesel fuel credit; liquid fuel must meet relevant American Society of Testing and Materials standards before liquid is blended with petroleum-based diesel fuel).


In re Helt, Iowa Dept. of Revenue, No. 09201114 (Sept. 2, 2009)

(taxpayer's additional capital contributions to business non-deductible under I.R.C. Sec. 1244 because increase in basis of I.R.C. Sec. 1244 stock after original issuance, do not qualify for ordinary loss treatment). 


Intermountain Insurance Service of Vail, LLC, et al. v. Comr., T.C. Memo. 2009-195

(final partnership administrative adjustment untimely because it was issued after the three-year statute of limitations expired; basis overstatement is not an omission from gross income and does not trigger the six-year statute of limitations (follows Salman Ranch and Beard).


United States v. Chisum, 343 Fed. Appx. 335 (10th Cir. 2009)

(defendant, tax protestor and promoter of fraudulent trusts, convicted of tax fraud and sentenced to 66 months in prison; certificate of appealabilitty denied - defendant's arguments either resolved on prior appeal or meritless).


A.J. Fowler, et al. v. United States, No. 08-216, 2009 U.S. Dist. LEXIS 78805 (W.D. La. Sept. 1, 2009)

(plaintiff failed to establish that soybean farming operation conducted for profit; activity appeared to be attempt to shelter income from other sources; lack of business records, activity not conducted in manner substantially similar to legitimate farming operations, no abandonment of unprofitable activities or adoption of new techniques, lack of evidence of substantial time put into soybean farming activity, no evidence of asset appreciation as proof of profit motive, no evidence of success in similar activities, history of income or loss not helpful to plaintiff's position, plaintiff had six-figure income from non-farm passive sources, no evidence of expenses claimed, but plaintiff did have knowledge and expertise in soybean farming; but amount previously abated by IRS was done with knowledge).


Neb. Dept. of Rev., Rev. Rul. 01-09-1 (Sept. 1, 2009)

(effective Sept. 1, 2009, Iowa and its political subdivision's industrial machinery purchases in Nebraska are subject to sales and use tax because the Iowa Department of Revenue has taken the position that the two states' reciprocity laws are too dissimilar to provide an exemption and that the statutes must be virtually identical in order for reciprocity to exist between Iowa and Nebraska).


Cunningham v. Comr., T.C. Memo. 2009-194

(losses from horse activities conducted in California not deductible by petitioner (who resided in NY and had no knowledge of what the horse activities consisted of; total lack of material participation and activity deemed passive under I.R.C. Sec. 469; addition to tax for late filing also applied).


Priv. Ltr. Rul. 200949018 (Aug. 31, 2009)

(payments from farming cooperative to members and nonmember patrons qualify as per-unit retain allocations paid in money; cooperative's DPAD to be computed without regard to deductions for those payments).


United States v. Bigalk, et al., 654 F.Supp.2d 983 (D. Minn. 2009)

(plaintiff granted partial summary judgment in suit to foreclose federal tax liens; defendants' transfer of their farm to a trust was a fraudulent conveyance to avoid paying taxes and should be set aside; trust was defendants' alter ego or nominee; fraudulent trust promoter was Alex Yung and used "Cache Properties Unlimited" as the grantor).


Moore v. United States, No. 4:07-cv-00180-JAJ, 2009 U.S. Dist. LEXIS 77236 (S.D. Iowa Aug. 27, 2009)

(IRS properly gave notice to plaintiff of his responsibility as a "responsible person" to pay payroll taxes (over $50,000) for company that is now bankrupt (plaintiff was Secretary/Treasurer of the Company); plaintiff signed Form 2751 consenting to the assessment and collection of the taxes; Form 1153(DO) is not exclusive method for providing notice to taxpayer and I.R.C. Sec. 6672(b)(1) does not describe specific method of notice to be used).


Estate of Brandon v. Comr., 133 T.C. 83 (2009)

(tax lien for trust fund recovery penalties not extinguished upon taxpayer's death; IRS notice valid even though it named the taxpayer individually after his death; lien held to have attached to property before taxpayer's death).


Hopson v. Comr., T.C. Summ. Op. 2009-130

(taxpayer has duty to review return generated by tax software (which didn't detect error at issue) to ensure that all income items were included; so-called "Turbo Tax" defense utilized successfully by Timothy Geithner to win Senate Confirmation as U.S. Treasury Secretary (head of IRS) rejected by court; accuracy-related penalties assessed).


CCA Ltr. Rul. 200943034 (Aug. 25, 2009)

(I.R.C. Sec. 170(f)(14) deduction reduced by amount which bears the same ratio as the rehabilitation tax credits allowed for the 5 preceding tax years over the FMV of the building on the date of the contribution).


Iowa Dept. of Rev. Policy Letter, 09300060 (Aug. 25, 2009)

(dyed diesel fuel seller need not pay sales tax on environmental protection charge; separately stated, legally imposed fees are excluded from taxable sales price of tangible personal property).


CCA Ltr. Rul. 200943033 (Aug. 24, 2009)

(guidance on charitable contributions of facade easements).


IRS Info. Ltr. 2009-0167 (Aug. 24, 2009)

(first-time homebuyer credit may be claimed for purchase of duplex, but credit only claimable against portion of purchase price attributable to portion of duplex that taxpayer will use as principal residence).


ECC 200944035 (Aug. 21, 2009)

(IRS concedes that an overstatement of basis is not an omission from gross income for purposes of extending the statute of limitations under I.R.C. Sec. 6501(e)(1) and that an item must be fully omitted to be covered by I.R.C. Sec. 6501(e)(2)).


Florida Dept. of Rev. Tech. Adv. No. 09A-042 (Aug. 20, 2009)

(purchase of propane pool heater for use at tropical fish farm exempt from sales and use tax because heater used exclusively on farm).


Southgate Master Fund, LLC v. United States, 651 F.Supp.2d 596 (N.D. Tex. 2009)

(IRS properly denied plaintiff's claimed capital loss; transaction that created high basis in stock lacked economic substance and is disregarded for tax purposes).


In re Petro, Iowa Dept. of Revenue, No. 09201112 (Aug. 18, 2009)

(taxpayers, married couple, lost amounts overpaid for 2000 and 2001 because returns for those years not filed until May 27, 2008, well beyond the three years of the due date for the return or within one year after payment was made; taxpayers could not have overpayment applied to future tax liability on line 71 of Iowa Form 1040). 


Iowa Dept. of Rev. Policy Letter No. 09300058 (Aug. 17, 2009)

(sales of solar-powered attic fans not subject to sales and use tax; fans convert solar radiation into electrical energy).


United States v. Textron, Inc., et al., 577 F.3d 21 (1st Cir. 2009)

(tax accrual papers not protected by work product privilege; privilege aimed at protecting work conducting in preparation for litigation rather than work performed in preparing financial statements; IRS access to such papers serves legitimate function of detecting and disallowing abusive tax shelters).


Priv. Ltr. Rul. 200946020 (Aug. 13, 2009)

(cooperative's DPAD limited to one-half of W-2 wages in accordance with Treas. Reg. Sec. 1.199-7 such that expanded affiliate group (EAG) members are treated as a single corporation; facts involved a cooperative with a wholly-owned subsidiary).


Priv. Ltr. Rul. 200947024 (Aug. 13, 2009)

(proceeds received upon married couple's sale of home before using home as principal residence for 2 years qualifies for exclusion of gain under I.R.C. Sec. 121; primary reason for sale was unforeseen circumstance - change in military assignment). 


Priv. Ltr. Rul. 200946020 (Aug. 13, 2009)

(cooperative's DPAD limited to one-half of W-2 wages in accordance with Treas. Reg. Sec. 1.199-7 such that expanded affiliate group (EAG) members are treated as a single corporation; facts involved a cooperative with a wholly-owned subsidiary). 


Priv. Ltr. Rul. 200947024 (Aug. 13, 2009)

(proceeds received upon married couple's sale of home before using home as principal residence for 2 years qualifies for exclusion of gain under I.R.C. Sec. 121; primary reason for sale was unforeseen circumstance - change in military assignment). 


Priv. Ltr. Rul. 200946021 (Aug. 12, 2009)

(payments from a farming cooperative qualify as per-unit retain allocations paid in money with result that cooperative's DPAD should be computed without regard to deductions for payments made to farmers for commodities). 

 


Priv. Ltr. Rul. 200946021 (Aug. 12, 2009)

(payments from a farming cooperative qualify as per-unit retain allocations paid in money with result that cooperative's DPAD should be computed without regard to deductions for payments made to farmers for commodities). 


Beard v. Comr., T.C. Memo. 2009-184

(overstated basis in two S corporations that were sold in 1999 which caused an understatement of gross income by more than 25 percent of the amount reported on tax return is not an "omission from gross income" for purposes of extending the statute of limitations from 3 to 6 years). Note: On 1/26/11, the 7th Circuit reversed the Tax Court's opinion.


Priv. Ltr. Rul. 200947027 (Aug. 11, 2009)

(reflective roof surface associated with photovoltaic solar generation system qualifies as I.R.C. Sec. 48 property because reflective surface is uses solar energy to directly generate electricity and contains the appropriate equipment and materials).


I.L.M. 200940030 (Aug. 7, 2009)

(indebtedness incurred by individual to acquire, construct or substantially improve qualified residence can be home equity indebtedness to the extent it exceeds $1 million, subject to the limitations of I.R.C. Sec. 163(h)(3)(C) ($100,000 and fair market value limitations).


Salman Ranch, Ltd., et al. v. United States, 573 F.3d 1362 (Fed. Cir. 2009)

(overstatement of basis (resulting in understatement of reported gain on sale of property) is not an "omission from gross income" for purposes of extending the statute of limitations (from 3 to 6 years) for IRS to assess additional income tax if omission is greater than 25 percent of amount of gross income stated on the return; decision reverses Court of Federal Claims decision (Salman Ranch, Ltd. v. United States, 79 Fed. Cl. 189 (2007) and is consistent with Bakersfield Energy Partners, LP, et al. v. Comr., 568 F.3d 767 (9th Cir. 2009); court relied on Colony, Inc. v. Comr., 357 U.S. 28 (1958) where the Supreme Court indicated that the statutory language specifically referred to the specific situation where a taxpayer actually omitted income that had been received or accrued when computing gross income rather than errors in computing gross income).


Priv. Ltr. Rul. 200945005 (Jul. 28, 2009)

(petitioner on cash method held to be in receipt of disbursement from deferred compensation plan as of date of actual receipt of check (Jan. 2) and not when he was advised that the check was available to be picked up (Dec. 31 of prior year); office at which checked could be picked up closed on Dec. 31 so petitioner not in constructive receipt of check as of Dec. 31 of prior year). 


FAA 20093701F (Jul. 27, 2009)

(multi-member LLC formed under Washington law that did not elect corporate tax treatment incurred liability for employment taxes and subsequently became a single-member LLC that was disregarded as a tax entity; unpaid employment taxes incurred during pre-disregarded status years cannot be collected personally from single member of LLC). 


Priv. Ltr. Rul. 200945020 (Jul. 27, 2009)

(owner and lessor of condemned commercial real estate has three years to acquire qualifying like-kind replacement property, starting from the end of the tax year in which the taxpayer took actual or constructive receipt of the proceeds from the condemnation).


ILM 200944027 (Jul. 22, 2009)

(both NRSA and non-NRSA grant payments (stipends) from university to postdoctoral fellows are subject to FICA tax because they are compensation for services under I.R.C. Sec. 117(c) and because there is an employment relationship between the university and the postdoctural fellows receiving payments).


IRS issue acquiescence in result only in Thompson v. United States, 87 Fed. Cl. 728 (Fed. Cl. 2009)

(LLC interests are not limited partner interests for purposes of Treas. Reg. Sec. 1.469-5T(e)(3)(i)). 


Priv. Ltr. Rul. 200944002 (Jul. 15, 2009)

(grantor's contribution to trust was taxable gift; no ruling made on whether trustee's discretion to distribute income and principal of trust to grantor causes trust's assets to be included in grantor's estate via I.R.C. Sec. 2036). Priv. Ltr. Rul. 200944012 (Jul. 27, 2009)(owner and lessor of condemned commercial real estate has three years to acquire qualifying like-kind replacement property; three-year period begins from the end of the tax year in which owner and lessor took actual or constructive receipt of the proceeds from the condemnation).


Merrill v. Comr., T.C. Memo. 2009-166

(petitioner, a millionaire homosexual activist who was also a tax protestor that refused to file tax returns as an act of civil disobedience must pay income tax deficiency of $836,304 plus penalties; while petitioner married to same-sex partner under California law for years at issue, taxpayer never filed return for years at issue and is, therefore, statutorily ineligible for married filing joint status; constitutionality of DOMA irrelevant).


IRS Info. Ltr. 2009-0155 (Jul. 10, 2009)

(taxpayers who obtain benefits and burdens of ownership of new home can claim first-time homebuyer credit even if seller still retains legal title; involved house purchased on contract for deed).


IRS Notice 2009-84

(provides limited administrative exception to ability of IRS to examine Form 706 in connection with certain protective claims for refunds that are timely filed; if claim for refund ripens and becomes ready for consideration after expiration of period of limitations on assessment in I.R.C. Sec. 6501, IRS will limit review of Form 706 to evidence relating to deduction under I.R.C. Sec. 2053 that was the subject of the protective claim).


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