Case Summaries

McNealy v. Comr., T.C. Sum. Op. 2014-14

(petitioner's equalization payment to former spouse not deductible as alimony; payment constituted property settlement and petitioner required to make payment even if former spouse died; requirements of I.R.C. Sec. 71 not satisfied). 

Discussion Draft of Proposed Tax Changes (Feb., 26, 2014)

(House Ways and Means Committee Chair Camp (R-MI, released discussion draft of tax proposals; among provisions included in draft discussion document are single 25 percent corporate tax rate phased in over time; 15 percent research credit of qualified expenses exceeding 50 percent of average qualified research for prior three years; phase-out of the DPAD; MACRS rules repealed and replaced with depreciation lives matching useful life of particular asset; expense method depreciation set at $250,000; some advertising expenses would be subject to capitalization and amortization; cash method of accounting allowed for all businesses with annual gross receipts not exceeding $10 million).  

To Be Valid, Partnership Return Must Be Signed By A General Partner or LLC Member-Manager.

In this administrative ruling, the an LLC was owned by a state entity and a foreign entity.  An unknown person signed the signature line on Form 1065 as "Foreign Entity."  The individual taxpayer that acted on behalf of the foreign entity did not file the return and indicated that someone from the tax preparer's office signed the partnership signature line.  The IRS determined that the Form 1065 was not valid because it wasn't signed by a general partner of LLC member manager, citing Agri-Cal Venture Associates v. Comr., T.C. Memo. 2000-271.  But, the invalid return does start the running of the statute of limitations period at issue for purposes of the taxpayer whose liability is being assessed, but not the statute of limitations for the partnership of LLC whose return might also report the transaction giving rise to the liability.  C.C.A. 201425011 (Feb. 21, 2014).   

King, et al. v. Sebelius, No. 3:13-CV-630, 2014 U.S. Dist. LEXIS 20019 (Feb. 18, 2014)

(case involves I.R.C. Sec. 36B credit which is designed to offset some of increase in health insurance premium costs caused by Obamacare; I.R.C. Sec. 36B(b)(2)(A) defines the "premium assistance amount" by referring to "the monthly premiums for...qualified health plans offered in the individual market...which were enrolled in through an Exchange established by the state under 1311 of the Patient Protection and Affordable Care Act..."; implementing regulation states that credit is available to enrollees in federally-facilitated Exchanges rather than just state Exchanges; plaintiffs were not eligible for government or employer-sponsored health insurance coverage and without the credit health insurance would not have been affordable to them and, hence, no penalty would apply for failing to obey the government dictate to buy health insurance; plaintiffs lived in state that had a federally-facilitated Exchange, thus the regulation now results in plaintiffs being penalized for failing to obey the government command to buy health insurance; court determined that plaintiffs case did not involve tax refund action (i.e., plaintiffs needed to buy insurance and waive their claims or don't buy insurance, get penalized and then file refund suit and recover only upon prevailing); court upheld regulation under Chevron (467 U.S. 837 (U.S. 1984)) deference standard). 

Black v. Comr., T.C. Memo. 2014-27

(petitioner borrowed against his life insurance policy and did not repay loans; upon termination of policy, loans satisfied by policy proceeds; petitioner didn't report income associated with satisfaction of the loans; IRS asserted that petitioner realized income to extent of policy loan principal and capitalized interest on policy loan; court upheld IRS determination; accuracy-related penalty imposed). 

Close v. Comr., T.C. Memo. 2014-25

(IRS claimed that petitioners' trusts for benefit of their children were shams; IRS failed to carry burden of proof; IRS bore burden of proof due to sham trust theory not being consistent with statutory notice of deficiency provided to petitioners; IRS failed to establish some of the factors required by Markosian v. Comr., 73 T.C. 1235 (1980)).

Shea Homes, Inc and Subsidiaries, et al. v. Comr., 142 T.C. No. 3 (2014)

(plaintiff, a builder, allowed to defer payment of tax on home sales until point in time at which sales of homes in huge development project reached 95 percent in the aggregate; IRS claimed that tax obligation triggered when each individual home sold; in so holding, court affirmed plaintiff's use of completed-contract method of accounting; similar case on same issue remains pending with Tax Court).

IRS Lays Out Flex Spending Account Correction Procedures.

When an improper payment has been made to an FSA, the IRS, in this Chief Counsel Advice, says that debit card collection procedures can be used.  Also, then the improper payment is treated as a business debt, the amount is to be reported as wages on Form W-2 for the year.  C.C.A. 201413006 (Feb. 12, 2014).

Green v. Comr., T.C. Memo. 2014-23

(petitioner, a waitress, received payments in settlement of civil rights claims against employer and excluded them from income as received on account of physical injury or sickness; IRS claimed payments not excludible under I.R.C. Sec. 104(a)(2) because they were labeled as wages and emotional distress rather than as being related to any physical injury or sickness; also, settlement did not indicate that petitioner incurred any non reimbursed medical expenses).

Vitarbo v. Comr., T.C. Sum. Op. 2014-11

(petitioner, neurosurgeon, entered into agreement with medical center designed to induce petitioner to establish practice in return for payment of student loans; for year in issue, petitioner earned income from third party educational institution and incurred certain expenses that petitioner deducted on Schedule C; court agreed with IRS that petitioner incurred expenses as employee and, as such, expenses deductible as miscellaneous itemized deductions on Schedule A to extent in excess of 2 percent of petitioner's AGI)

Hall v. Comr., T.C. Memo. 2014-16

(IRS claimed that petitioner had unreported business income and sought petitioner's books and records pertaining to business records; petitioner couldn't provide sufficient documentation and IRS sought deposit records to prepare bank deposits to reconstruct petitioner's income; IRS then reduced total deposits by reported income; court determined that IRS introduced enough evidence to establish extent of petitioner's unreported income to satisfy burden of production; petitioner claimed that unreported amounts were nontaxable advances, but petitioner failed to document that claim).

Estate of Richmond v. Comr., T.C. Memo. 2014-26

(decedent owned a 23.44 percent interest in a C corporation that functioned as a family personal holding company that was founded by her father; corporation held publicly-traded, dividend-producing stock and distributed all dividends, but sold nothing; stock had substantial built-in capital gain (BIG), and liquidation of corporation would trigger 39 percent capital gains tax rate (combined state and federal); issue before court was whether decedent's stock to be valued based on potential income stream derived from current investment strategy or via net asset value of stocks; either valuation approach to be combined with valuation discounts to reflect minority interest, lack of marketability and BIG tax; CPA valued decedent's interest via capitalization-of-dividends method, and produced draft report; report never finalized and decedent's interest reported on Form 706 at value of $3.15 million; IRS claims correct value is almost twice as much as reported value; after getting deficiency notice from IRS, estate hires expert appraiser; estate did not act with reasonable cause and in good faith in using unsigned draft report prepared by estate's CPA as basis for 706 value; CPA not a certified appraiser; estate later pushed for $5 million value at trial)   

Loving, et al. v. Internal Revenue Service, et al., No. 13-5061, 2014 U.S. App. LEXIS 2512 (D.C. Cir. Feb. 11, 2014), affirming, 917 F. Supp.2d 67 (D. D.C. Jan. 18, 2013)

(31 U.S.C. Sec. 330 does not authorize IRS to authorize regulation of tax return preparers; during first 127 years of statute, executive branch never interpreted statute to allow such regulation; trial court held that statute and context "unambiguously foreclose the IRS's interpretation" of the statute; tax return preparer is not a "representative" of persons before Treasury Department; tax return preparer does not "practice" before the IRS; history of legislation illustrates total inapplicability to tax-return preparation which did not exist at time of enactment; Congress has already enacted a separate set of statutes applicable to tax-return preparers and if statute at issue construed as IRS desires those other statutes would be gutted; nothing in statute or legislative history indicates vast expansion of IRS's authority over hundreds of thousands of individuals in huge industry; IRS never in the past interpreted statute in such fashion or even suggest it had such authority; IRS's interpretation of statute so arbitrary and capricious that IRS position not entitled to deference). 

CAA 201411025 (Feb. 10, 2014)

(taxpayer, employee of a closely held C Corporation, requested guidance on grouping activities under IRC §469, to determine whether grouping can be used to determine material participation in taxpayer's personal activities;  IRS determined that taxpayer must have an ownership interest in each separate activity to be grouped as one activity per Treas. Reg. §1.469-4; additionally, for the measurement of gain or loss for the purpose of IRC §469,  the combined activities of the corporation and the taxpayer's personal business activities would not constitute an “appropriate economic unit”;  the purpose of Treas. Reg §1.469-4(d)(5)(ii)  was not to give a special advantage to non-owner employees of closely held corporations, and this is further supported by Treas. Reg. 1.469-5(f)(1);  IRS noted that if the employee performs work “in connection” with his or her other activities, that work may be counted towards material participation;  taxpayer bears the burden of proof to show that the work was “in connection” with an activity in which the taxpayer owns an interest).

Dargie v. United States, No. 13-5608, 2014 U.S. App. LEXIS 2148 (6th Cir. Feb. 5, 2014)

(plaintiff was medical student that had contractual agreement with University that University would pay plaintiff's tuition, fees and reasonable expenses associated with attendance; upon graduation and completion or residency, plaintiff required to repay amounts by either working in medically underserved community or by paying back twice the amount of all payments received; University paid plaintiff $73,000 and plaintiff did not work in underserved community but paid back $121,440.22 which was twice the principal plaintiff received plus interest; on amended return, plaintiff claimed full amount paid as Schedule C deduction and IRS disallowed amount; trial court judge upheld IRS on basis that amounts for personal expenses and were not deductible under I.R.C. Sec. 265(a)(1) because amounts related to tax-free income; appellate court upheld trial court determination on basis that origin and character of amounts received were personal in nature).

Rev. Proc. 2014-20, I.R.B. 2014-09 (Feb. 5, 2014)

(safe harbor provided concerning I.R.C. Sec. 108(a)(1)(D) which allows taxpayers (other than C corporations) to avoid debt discharge income on forgiveness of real property business debt where real property is used in taxpayer's trade or business and debt is secured by the real property; Rev. Proc. addresses issue of whether direct mortgage on such real property is considered to be "secured by the real property" for purposes of I.R.C. Sec. 108(a)(1)(D); safe harbor provides that where debt is secured by pledge of taxpayer's ownership interest in disregarded entity that holds the real property, security requirement is satisfied; security interest must be first priority security and at least 90 percent of fair market value of assets of disregarded entity must be real property used in taxpayer's trade or business and remaining assets must be incidental to acquisition and operation of such real property; safe harbor not sole method of satisfying requirements of I.R.C. Sec. 108(a)(1)(D) when security arrangement not accompanied by mortgage).   

Snellman v. Comr., T.C. Sum. Op. 2014-10

(petitioner's out-of-town work assignment in Missouri was for six months and was only temporary in nature; petitioner's "tax home" in Florida did not become Missouri location; petitioner entitled to deduct associated travel, lodging and meal expenses; petitioner clearly hired only for temporary work and was not merely indefinite; petitioner's apartment lease had expiration date tied to anticipated length of assignment; some claimed expenses reduced due to lack of substantiation). 

Curtis v. Comr., T.C. Memo. 2014-19

(petitioner owned apartment building that school district acquired via eminent domain proceedings; petitioner did not replace property, thus gain not avoided under involuntary conversion rules; petitioner's purchase price of building $82,500, but IRS disagreed as to cost of improvements that petitioner made to building; petitioner failed to carry burden of prove as to cost of improvements, so petitioner's basis not as high as claimed by petition and taxable gain more than reported; petitioner bore burden of proof because of failure to substantiate basis and maintain required records).      


Establishment of MyRA (announcement by President Obama in State of the Union Address)

(Treasury Department to begin pilot program in late 2014 with a few employers to allow saving of only slight amounts in IRA-type account; account can be opened with as little as $25 and $5 every payday via payroll deductions (with no employer match); no fees involved, but account funds only earn interest at rate set forth in Government Securities Investment Fund in federal employees' Thrift Savings Plan which earned approximately 1.5% to 3% over past five years; subject to Roth IRA income and contribution limits; when balance reaches $15,000 or after 30 years (whichever occurs first) funds must be rolled into regular Roth; account can be rolled over to regular Roth at any time and can be transferred to new employer upon job switch; proposal largely viewed as political stunt and is not viable long-term solution to retirement-savings issue insomuch as rate of return unlikely to keep up with inflation, but option may be worthwhile for persons nearing retirement; better options currently exist allowing for minimal investment with no charges or fees and provide for higher rate of return with minimal risk).

Kelly v. Comr., T.C. Memo. 2014-24

(petitioner put 2009 return on extension until October 15, 2010; 2009 return prepared using TuboTax which instructed petitioner to mail return to Kansas City, MO, IRS office; petitioner claimed that return timely filed, but IRS did not receive return until March 12, 2012; only evidence was USPS receipt showing unspecified document delivered to Department of Treasury in Philadelphia on March 13, 2010; IRS claimed return filed late and petitioner claimed penalties should not apply because return timely filed; court agreed with IRS because evidence did not show that document delivered on March 13, 2010 was petitioner’s 2009 return and TurboTax instructed return be mailed to Kansas City, and petitioner requested extension on April 15, 2010, a time after petitioner allegedly filed 2009 return; penalty imposed).

Bobrow v. Comr., T.C. Memo. 2014-21

(petitioners, married couple, had several IRAs and moved funds in and out of the accounts, claiming that all fund movements were rollovers allowed under 60-day rule on a once-a-year basis; court determined that statute at issue, I.R.C. §408(d)(3), does not apply on calendar year basis but begins on date on which taxpayer withdraws funds; accuracy-related penalty imposed).

Rev. Proc. 2014-18

(IRS provides automatic extension of time through December 31, 2014, for decedents' estates without filing requirement to elect portability of deceased spouse's unused exclusion amount for benefit of surviving spouse; relief applicable to estates of decedents dying from January 1, 2011 through December 31, 2013; relief applicable to same-gender "marriages" in states where such unions recognized legally or are allowed; extension is applicable to estate that has already filed a timely estate tax return irrespective of whether portability election made; no application to deadline for filing refund claim for gift or estate taxes paid by surviving spouse or executor because portability election not made; no provision made for non-executor surviving spouse to make election - choice remains with executor; to make election, return for year of death should be used with notation in red made at top as follows:  "Portability Election Based on Rev. Proc. 2014-18").

Ries Enterprises, Inc. v. Comr., T.C. Memo. 2014-14

(petitioner, alleged S corporation, petitioner had ESOP as shareholder and other non-ESOP shareholder who was petitioner's only employee; court noted that I.R.C. Sec. 409(p) limits tax benefits of ESOP that owns S-corporate stock unless ESOP provides meaningful benefits to employees; if I.R.C. Sec. 409(p) is violated excise tax of 50 percent of prohibited allocation applies and ESOP no longer qualifies as ESOP; violation of I.R.C. Sec. 409(p) occurs when "disqualified persons" (any ESOP participant owning 10 percent or more of ESOP's stock) do not own 50 percent or more of S corporate stock; in present case, ESOP owner held 100 percent of shares, triggering I.R.C. Sec. 409(p); while 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, statute of limitations had run on IRS from adjusting petitioner's tax liability based on status; thus, petitioner treated as S corporation and petitioner liable for additional $161,200 in taxes and penalties of approximately $76,000). Annotation

Alli v. Comr., T.C. Memo. 2014-15

(petitioner acquired 34-unit apartment building at auction in late 1980s, financing purchase through HUD which later repeatedly cited petitioner for housing violations and initiated foreclosure action; petitioner paid-off mortgage and operated building another 8 years and then quitclaimed building to charity for nominal amount; charity provided written acknowledgment of gift stating that petitioner received nothing in return; petitioner, however, did not attach acknowledgment to return, and appraisal summary submitted with Form 8283 did not identify appraiser that supported petitioner's claimed value of gift of almost $500,000; charity ultimately sold property to third party for $60,000; earlier appraisal conducted for non-tax purposes and later appraisal deemed deficient as it was based on repairs that didn't occur; IRS also challenged petitioner's ownership of building with court determining that any deduction would pass-through from petitioner's S corporation; court determined that appraisal inadequate insomuch as appraiser not qualified and basis overstated and condition of building misrepresented; appraiser also deemed not qualified; substantial compliance inapplicable and deduction denied).

Priv. Ltr. Rul. 201403012 (Sept. 25, 2013)

(decedent owned general partnership interest with son that made up in excess of 50 percent of decedent's estate and estate's executor had elected installment payment of federal estate tax for estate; partnership assets consisted entirely of commercial real estate parcels titled in decedent's and son's names as tenants-in-common as nominee for partnership; executor proposed to distribute undivided interests in each parcel to partner's on pro-rata basis and then recontribute such interests to newly formed limited liability companies with each new LLC to hold a separate parcel; no other money or property involved in transaction; based on Rev. Rul. 66-62, IRS determined that transaction was mere change in form with no acceleration of installment payment of estate tax triggered; no mention of whether election itself was valid).

CCA 201403006 (Sept. 26, 2013)
(IRS Small Business/Self-Employed (SB/SE) examination unit can disclose to Office of Professional Responsibility (OPR) an audit report and unagreed case package of practitioner engaging in practice before IRS before case is resolved at Appeals or via statutory notice of deficiency when OPR referred practitioner to SB/SE exam unit for examination; thus, for practitioners referred to IRS for examination of practitioner's own return as result of Circular 230 investigation, OPR can obtain copy of revenue agent's report before Appeals completes review of case).

State Law Controls Rescission of Gift.

In a Chief Counsel's Advice, the IRS has said that gift taxes can be refunded when a local court correctly applies state law to rescind the gift.  But, the IRS noted that no refund will occur until the taxpayer recovers the original gift.  In addition, the IRS said that the statute of limitations should be extended to allow the taxpayer to apply for a refund when the taxpayer gets the gift back.  C.C.A. 201412015 (Jan 15, 2014). 

Douglas v. Comr., T.C. Sum. Op. 2014-7

(petitioner's vehicle involved in accident and determined unsalvageable by insurance company; insurance company paid petitioner $49,950 for loss; petitioner claimed $12,020 casualty loss attributable to vehicle by taking original cost of vehicle of $60,020 and subtracting $48,000; petitioner miscalculated casualty loss; petitioner must first compute difference in value of vehicle before casualty and immediately after the casualty, and from that result subtract the insurance recovery (unless cost of repairs used - not at issue in case); petitioner did not provide evidence of before and after values; court would not assume that value immediately before accident was equal to value of vehicle as new; casualty loss deduction denied).

Chen v. Comr., T.C. Sum. Op. 2014-6

(petitioners, married couple, not entitled to deduct expenses related to planning development of real estate that petitioners did not sell; petitioners had not fully abandoned development plan; accuracy-related penalty imposed). 

CCM 20140202F (Aug. 23, 2013)

(issue was whether bonus depreciation available for various building projects at hotel/casino/restaurant complex; property was being renovated and consisted of four separate construction projects over several years; bonus depreciation not available because taxpayer didn't separately identify property associated with project so that qualified property could be identified - petitioner only utilized cost segregation study and didn't satisfy burden of proof to show that properties qualified). 

AM20014-001 (Dec. 13, 2013)

(IRS Chief Counsel Memo involving co-op advertising allowance (amount retailer receives from vendor for placement of advertisement of vendor's products in retailer's advertising flyer) and whether it is domestic production gross receipts for purposes of I.R.C. Sec. 199 deduction; IRS noted that determination is fact-dependent and determined on basis of whether allowance is advertising income from retailer's performance of advertising services for vendor and whether flyers qualify for advertising income exception of Treas. Reg. Sec. 1.199-(3)(I)(5)(ii)).

Dong, et al. v. Comr., T.C. Sum. Op. 2014-4

(petitioners, married couple, received loan from husband's parents to buy principal residence; home equity loan agreement and home equity deed of trust signed in favor of parents; terms were $130,000 loan with interest at 3.5 percent plus prime rate not to exceed 12 percent annual rate; court termed agreement a credit line mortgage and not a purchase money mortgage; petitioners did not record or perfect agreement; under I.R.C. Sec. 163, lender's security interest must be perfected under local law as a prerequisite to claiming mortgage-related deductions; net result was savings of $2,665 in recording tax, about $1,000 in legal fees, but loss of approximately $30,000 of deductible interest).

Pool, et al. v. Comr., T.C. Memo. 2014-3

(gain from sale of LLC (taxed as a partnership) real estate characterized by petitioner as long-term capital gain; court upheld IRS determination that proceeds of sale should have been reported as ordinary income because real property held for sale to customers in ordinary course of business; evidence showed that property acquired for development and sale and petitioner couldn't show that sales not frequent and substantial; over 80 purchasers sought after by petitioner). 

West v. Comr., T.C. Memo. 2014-2
(petitioner claimed theft loss deduction attributable to amount transferred to account for education expenses of petitioner's children from prior marriage with signature authority given to wife from prior marriage; petitioner then needed funds in account and claimed that funds should have been placed in revocable trust rather than educational accounts and sued ex-wife for theft; court held that petitioner did not carry burden of proof on theft issue; deduction denied).

Adeyemo v. Comr., T.C. Memo. 2014-1

(petitioner failed to spend sufficient hours in real estate business to satisfy real estate professional test under the passive loss rules; petitioners, married couple, were involved in pharmacy profession and also owned and managed seven rental properties and incurred losses from the properties that were reported on 2008 and 2009 returns; husband worked 1,500 hours in pharmaceutical sales in 2008 and only 800 hours in rental business and only 715 hours in rental business in 2009; log entries not contemporaneous and no argument made that wife was real estate professional; petitioners' testimony not a reliable estimate of how much time the spent on the rental properties).

Oros v. Comr., No. 12-71071, 2013 U.S. App. LEXIS 25891 (9th Cir. Dec. 31, 2013), aff'g., T.C. Memo. 2012-4

(petitioner not in trade or business of being book author for year in issue; no deductions allowed for related expenses under I.R.C. Sec. 162; petitioner was full-time employee of Intel  and took four-month sabbatical to travel various parts of the world; petitioner took many pictures and made notes with intent to write book about trip, but had no experience writing or publishing books; while petitioner did have business plan and kept detailed journal and had profit intent, he had other full-time employment and had no intent to keep writing; no book income reported for year in issue; accuracy-related penalty not imposed because petitioner had good faith reliance on tax advisor with 36 years' experience). 

Roberts v. Comr., 141 T.C. No. 19 (2013)

(petitioner, based on facts involved, not considered "payee" or "distribute" of IRA under I.R.C. Sec. 408(d)(1) and need not include in gross income distributed amounts and not liable for penalty tax on early distributions under I.R.C. Sec. 72(t); petitioners former spouse submitted false withdrawal requests and forged petitioner's signature on distribution checks and deposited checks in joint account that petitioner did not use and that former spouse used for personal benefit).

Brewer v. Comr., T.C. Memo. 2013-295

(petitioner, IRS agent, claimed FTHBC of $7,500 via I.R.C. Sec. 36 on new home purchased with girlfriend even though, at time of purchase, petitioner, owned interest in condominium; condo purchased in 2005, but petitioner moved out of condo in 2005 an moved in with girlfriend and allowed girlfriend's sister to live in condo rent-free; new home purchased in 2008; on loan application, petitioner listed condo address as current address and claimed mortgage interest and real estate taxes on 2006 Form 1040; IRS denied FTHBC because petitioner used condo as principal residence in prior three years; court disagreed with IRS based on fact that condo hadn't been petitioner's principal residence since mid-2005 and petitioner satisfied requirement of not owning home in prior three years). 

Austin Otology Associates, et al. v. Comr., T.C. Memo. 2013-293

(petitioner, personal service corporation of physician, not allowed business deductions for vacation home costs that was leased to physician for hunting purposes; home deemed an entertainment facility and expenses non-deductible under I.R.C. Sec. 274; other hunting-related hunting expenses also disallowed because not related to business of corporation; other purported business expenses not allowed for lack of business purpose; Sec. 179 deduction disallowed for vehicle used on hunting trips, but could be depreciated for single month it was in service). 

Mathis v. Comr., T.C. Memo. 2013-294

(petitioners, a married couple, operated cutting horse training business including breeding activities intended to produce horses that could compete in for-pay events; losses sustained in first five years and trainers quit; business emphasis shifted to breeding rather than training; written business plan utilized and records maintained and operation conducted in business-like manner; cumulative losses exceeding $8 million sustained from 1996-2008 ($3 million of which occurred in 2006-2008); IRS took position that losses not deductible on basis that activity was a hobby, resulting in tax liability of $1.2 million for 2006-2008 and additional 20 percent penalty; court agreed with IRS determination primarily on basis of history of sustained losses; while business conducted in business-like manner, no experts consulted, substantial personal and recreational aspects of activity present, expectation of appreciation related to investment nature and not business activity, no history of success in similar ventures).

Priv. Ltr. Ruls. 201352001-003 (Sept. 11, 2013)
(each ruling involves treatment of GSTT trust for 2010 decedent where estate executor elected out of estate tax; rulings are identical and each likely involves identical trust for each of decedent's three grandchildren; decedent allocated portion of annuity to trust with payout over term tied to decedent's life expectancy at time of death; trust called for current distribution of payments to beneficiary, and if beneficiary did not survive term, remainder to be distributed to beneficiary's descendants or, if none, to siblings; trustee had invasion power over principal in accordance with ascertainable standard; executor elected out of estate tax by filing Form 8939; death-time basis allocated among assets and unused GSTT exemption allocated to other trusts, but not to any of the GSTT trusts such that resulting inclusion ration was 1; IRS determined that transfer to trust was direct skip, tax on direct skip was zero (because GSTT rate was zero), and distributions to beneficiary not a taxable distribution based on I.R.C. Sec. 2653(a); no taxable distributions or terminations unless beneficiary failed to survive annuity term).

Sharp v. Comr., T.C. Memo. 2013-290

(petitioner entered into settlement agreement arising from personal non-physical personal on-the-job injuries; settlement agreement did not indicate that parties intended petitioner to receive settlement proceeds in exchange for settling claim under Iowa Workers' Compensation Act (IWCA); and only included vague reference to workers' compensation claim where agreement conditioned on petitioner settling workers' compensation claim; court determined that such vague reference not sufficient to establish that petitioner paid proceeds in exchange for settling claim under IWCA; petitioner's lawyer also failed to offer any documents relating to petitioner's claims under IWCA; burden of proof is on petitioner to establish exclusion from income for amount to compensate petitioner for personal injuries in accordance with I.R.C. Sec. 104(a) and Treas. Reg. Sec. 104-1(b); petitioner's lawyer also failed to argue either at trial or on briefs that any portion of settlement proceeds related to medical care for petitioner's emotional distress - such amounts are excludible from income in accordance with I.R.C. Sec. 104(a)(2); 20 percent underpayment penalty imposed). 

Hart v. Comr., T.C. Memo. 2013-289

(petitioner not allowed to deduct  costs associated with obtaining MBA degree under I.R.C. Sec. 162(a); petitioner graduated from college in 2007 and enrolled in MBA program in 2009; petitioner had various employers in 2009, none of which required him to obtain MBA; petitioner not in established trade or business before enrolling in MBA program, thus expenses not deductible; while petitioner qualified to engage in trade or business of selling pharmaceutical products, petitioner did not actually carry-on such business before enrolling in MBA program). 

C.C.M. 201351018 (Aug. 16, 2013)

(partnership that becomes disregarded entity when one partner becomes an employee files income taxes as sole proprietorship, but must use EIN of former partnership when filing employment tax forms in accordance with Rev. Rul. 2001-61; all business activity of former partnership treated as sole proprietorship of remaining "partner" and reported on Schedule C). 

Chaganti v. Comr., T.C. Memo. 2013-285

(petitioner, an attorney, did legal work for brother for which reimbursement was anticipated in current year but didn't occur until several years later; petitioner incurred expenses related to brother's business during tax years 2001-2005 and deducted per diem expenses in 2006-2007 when reimbursements paid; deductions disallowed because petitioner on cash basis and expenses only deductible in year(s) incurred). 

Adkins v. United States, No. 10-851T, 2013 U.S. Claims LEXIS 1908 (Fed. Cl. Dec. 11, 2013)

(petitioners, married couple, were victims of fraudulent investment scheme that seek refund of taxes based on losses sustained in scheme; petitioners claim deductible theft loss of over $2.5 million resulting in tax refund of over $300,000; operator of investment scheme (broker) would buy large block of stock in companies and artificially inflate price which would encourage customers to buy then operator would sell stocks and trigger gains for the broker, but losses for the clients; court determined that some of claimed losses not deductible because reasonable expectation of recovery remained; while summary judgment denied for government, court noted that some of claimed losses will not ultimately be deductible because stock at issue not purchased as part of fraudulent investment scheme; petitioners also denied summary judgment because material facts remained concerning whether petitioners had reasonable expectation of recovery with respect to other losses on stocks involved in scheme). 

Avilez v. Comr., T.C. Sum. Op. No. 2013-99

(before marriage to petitioner, wife owned own home and used it as primary residence; after marriage, petitioner and wife lived in home as primary residence; two years later, in 2008, couple separated and wife continued to live in home; couple then purchased another home in 2009 and closed on it on 4/10/09; petitioner claimed first-time homebuyer credit on second home on 2008 MFJ return in accordance with I.R.C. Sec. 36(g); IRS disallowed credit; couple married at time second home acquired and wife's ownership of other home within prior three years attributed to petitioner; consequently, petitioner not a first-time homebuyer within meaning of I.R.C. Sec. 36(c); accuracy-related penalty imposed). 

Puentes v. Comr., T.C. Memo. 2013-277

(petitioner’s brother purchased home with title taken in brother’s name; petitioner ultimately pays approximately $28,000 in mortgage interest and claims interest deduction; brother received Form 1098 and IRS denied deduction to petitioner; petitioner did not have legal title and did not have any indicia of beneficial ownership of home; while not addressed by court, transaction likely implicated gift tax). 

C.C.M. 201349013 (Oct. 24, 2013)

(payments made by taxpayer to veterinary corporation in course of taxpayer’s trade or business must be reported to IRS in accordance with I.R.C. §6041 if in amount of $600 or more annually;  under Treas. Reg. §1.6041-3(p)(1), corporations engaged in providing medical and healthcare services are not exempt from reporting requirement; corporation providing veterinary services is “engaged in providing medical and healthcare services” and is not exempt from information reporting  requirement of I.R.C. §6041 as corporate payee). 

Li v. Comr., T.C. Sum. Op. 2013-97

(petitioner claimed $8,000 first-time homebuyer tax credit; petitioner's cousin obtained title to home and then transferred title to FLP of which petitioner owned 47 percent interest; petitioner not entitled to credit because legal title originally not in petitioner and, hence, petitioner did not acquire interest in home and did not benefits and burdens of ownership in home in accordance with I.R.C. Sec. 36(c)(3); transfer to FLP also does not entitle petitioner to credit because only natural persons are eligible for credit and FLP is not a natural person; accuracy-related person not imposed).