Document Summaries for the Week of Nov. 2, 2015
ESTATES, TRUSTS & GIFTS
Trust’s charitable donation of property is valued at fair market value, not basis
A district court allowed a trust to value its deduction for donated property at fair market value under Sec. 642 rather than its adjusted basis. In granting the trust’s motion for summary judgment, the court stated that Sec. 642 permitted a deduction “without limitation,” as opposed to the language in Sec. 170, which limits the deduction to the donated property’s adjusted basis, as the IRS had argued. Green, No. CIV-13-1237-D (W.D. Okla. 11/4/15).
Doctor cannot write off majority of his motor home costs
The Tax Court held that a doctor was not entitled to allocate 85% and 100% of his motor home use to business purposes for 2008 and 2009, respectively, where the documentary evidence showed that the motor home was used for business 27 days in 2008 and 36 days in 2009. The court found that the motor home was used for personal purposes the rest of the time and, thus, the doctor was not eligible for business depreciation and Sec. 179 expense deductions greater than the IRS had allowed. Cartwright, T.C. Memo. 2015-212 (11/3/15).
Taxpayer wins partial victory on business deductions but cannot deduct travel expenses to California
The Tax Court held that, because the taxpayer credibly testified that he was required to remove his business solar panels from the market because they caused a fire that damaged a home, and because he adequately substantiated a related payment through bank records, that amount was includible in the taxpayer’s deduction for returns and allowances on his Schedule C for 2009. However, the court disallowed several other contested deductions due to lack of substantiation. The court also concluded that the taxpayer’s employment in California was “indefinite” rather than temporary, and, thus, he was not entitled to a deduction for expenses while traveling away from his residence in Virginia. Smith, T.C. Memo. 2015-214 (11/3/15).
Tax Court rejects IRS attempt to impose sanctions
The Tax Court denied the IRS’s motion to impose sanctions against the taxpayer pursuant to Sec. 6673(a)(1), noting that, although the taxpayer advanced frivolous arguments during trial, he stopped doing so when warned. Further, the court said that since it found for the taxpayer with respect to the Sec. 6702 penalty for tax year 2003, part of the taxpayer’s case had merit. However, the court warned the taxpayer that if he did not “abandon his misguided positions,” a penalty “very likely” would be imposed in the future. Martens, T.C. Memo. 2015-213 (11/3/15).
IRS extends safe-harbor method for certain mortgage-related payments and information filings
The IRS is extending through tax year 2017 the safe-harbor method for computing a financially distressed homeowner’s deduction for payments made on a home mortgage and the relief for mortgage servicers and state housing finance agencies from penalties relating to information reporting required under these programs. Notice 2015-77 (11/6/15).
Notice of nonjudicial sale may not be delivered by private delivery services
The IRS Office of Chief Counsel advised that a notice of nonjudicial sale delivered by a private delivery service such as FedEx and UPS was not valid. The notice must be sent by U.S. certified and registered mail because Sec, 7425(c) requires delivery by that method. The Chief Counsel’s Office noted that it has always interpreted “registered or certified mail” as referring to the registered or certified mail services provided by the U.S. Postal Service (USPS) and not any alternative mailing services. CCA 201545025 (11/6/15).
IRS can levy on taxpayer’s rights in pension plan
The Office of Chief Counsel clarified that if a taxpayer has any vested property rights in a pension plan, the IRS can levy. An issue that could arise, the Chief Counsel’s Office noted, is when the levy source is obligated to turn over funds in response to the levy. CCA 201545024 (11/6/15).
Chief Counsel’s Office needs taxpayer’s consent to disclose return information
The Office of Chief Counsel advised that it could not disclose the information being requested without the taxpayer’s consent. Although Sec. 6103 allows the IRS to disclose return information to states, it only does so in limited circumstances to certain state agencies. The state office requesting the information, an office regulating attorneys, was not one of them. CCA 201545023 (11/6/15).
Taxpayer should claim refund by filing Form 1120X
The Office of Chief Counsel advised that a taxpayer asking for a refund had to file a Form 1120X, Amended U.S. Corporation Income Tax Return, instead of Form 1139, Corporation Application for Tentative Refund, because it was too late to file Form 1139. The refund period for the 2012 tax year was still open for filing Form 1120X, and the Chief Counsel’s Office also clarified that interest on the refund would run from the date the Form 1120X was filed. CCA 201545022 (11/6/15).
Taxpayer timely filed amended return
The Office of Chief Counsel advised that, under the unique facts presented, the taxpayer timely filed its 2010 amended federal income tax return because the amended return would have been timely filed at the time the taxpayer’s electronic amended return was transmitted to the IRS and rejected, and the paper amended return was postmarked within 10 days of the date of the IRS’s e-file rejection notice. The Chief Counsel’s Office also noted that, while in general taxpayers should contact the e-Help desk and make a waiver request when filing an amended return on paper, no waiver request is required for an amended Form 1120, U.S. Corporation Income Tax Return, where the IRS no longer can accept such a return electronically. CCM 201545017 (11/6/15).
Taxpayer who pleaded guilty to filing false claim can still litigate tax penalties
The Office of Chief Counsel addressed various tax issues about the taxpayer’s tax returns and penalties that could be assessed as a result of the taxpayer filing returns reporting false original issue discount income and false withholdings. The fact that the taxpayer pleaded guilty to a filing a false, fictitious, or fraudulent claim against the U.S., the Chief Counsel’s Office said, does not collaterally estop the taxpayer from litigating Sec. 6651(f) fraudulent failure to file additions to tax or the Sec. 6663 fraud penalty for any of the tax years at issue because the intent to evade tax was not an element of his fraud conviction. CCM 201545016 (11/6/15).
Taxpayer’s “good time” with retirement withdrawals did not show he expended funds for essential living expenses
The Tax Court held that an IRS settlement officer did not abuse her discretion when she treated the taxpayer’s $400,000 in retirement account withdrawals as “dissipated assets” and rejected his offer in compromise of $2,938 on a $600,000 tax liability for that reason. According to the court, the taxpayer’s testimony at trial that he “had a good time” spending the funds on “anything and everything” suggested that the assets were not expended for essential living expenses. Chandler, T.C. Memo. 2015-215 (11/4/15).
IRS did not abuse discretion in sustaining lien and levy against Indian tribe
The Tax Court held that an IRS Appeals office did not abuse its discretion by sustaining lien and levy actions against a federally recognized Indian tribe for the years at issue because the taxpayer did not raise any valid challenge to the lien filings and levy and did not submit the requested financial information required for an installment agreement. Miccosukee Tribe of Indians of Florida, T.C. Memo. 2015-216 (11/4/15).
Chief Counsel addresses Sec. 199 issue involving gross receipts from providing online access
In highly redacted advice, the Office of Chief Counsel addressed an issue involving the Sec. 199 deduction and gross receipts from providing access to computer software online. CCA 201545021 (11/6/15).
Receipts from sports broadcasting contract are not domestic production gross receipts
The Office of Chief Counsel advised that a taxpayer’s share of gross receipts from a contract with a sports broadcasting network did not qualify as Sec. 199(c)(4)(A)(i)(II) domestic production gross receipts (DPGR) because the taxpayer was not the producer of the game broadcasts. CCM 201545018 (11/6/15)