Document Summaries for the Week of Sept. 21, 2015


Residual value insurance contracts are insurance policies

The Tax Court held that the taxpayer’s “residual value insurance” contracts were policies that cover an insurance risk and constitute insurance contracts for federal income tax purposes. R.V.I. Guaranty Co., Ltd., 145 T.C. No. 9 (9/21/15).



Estate not entitled to charitable deduction

The Tax Court held that a contributed amount was not permanently set aside for charitable purposes, and therefore the estate was not entitled to a charitable deduction. Estate of DiMarco, T.C. Memo. 2015-184 (9/21/15).



List of practitioners private foundations may rely on expands

Final regulations expand the types of tax professionals who private foundations can rely on when making a good-faith determination that a foreign grantee is a public charity. T.D. 9740 (9/24/15) (see related news story).



Taxpayer improperly claimed NOLs

The Tax Court held that the taxpayer improperly claimed loss deductions for net operating loss carryovers for tax years 2008–2010. In addition, the court said the taxpayer was liable for an addition to tax under Sec. 6651(a)(1) for failure to timely file his 2010 tax return and was liable for accuracy-related penalties under Sec. 6662(a). Jasperson, T.C. Memo. 2015-186 (9/22/15).

Court finds argument that records were lost in a flood unconvincing

The Tax Court denied a majority of a Kentucky lobbyist’s business deductions due to lack of substantiation. The court found his argument that he lost his records in a flood unconvincing. Young, T.C. Memo. 2015-189 (9/22/15).

Court disallows carryback of NOLs resulting from writedowns of real property during market downturn

The Tax Court held that the taxpayer was not entitled to net operating loss carryback deductions resulting from substantial writedowns in 2008 of Florida residential properties held by the taxpayer’s S corporation. Further, the court found the taxpayer liable for Sec. 6662(a) accuracy-related penalties where he could not prove he acted with reasonable cause and in good faith. Tucker, T.C. Memo. 2015-185 (9/22/15).

Taxpayer failed to substantiate most expenses

Because she failed to properly substantiate them, the Tax Court held, the taxpayer was not entitled to deduct unreimbursed employee business expenses she reported on Schedule A and was not entitled to deduct expenses related to an internet business (except for one expense) beyond the amounts conceded by the IRS. She was also liable for the Sec. 6662 accuracy-related penalty. Spjute, T.C. Summ. 2015-58 (9/21/15).

IRS updates SIFL rates for noncommercial flights

The IRS issued the Standard Industry Fare Level formula valuation rates for noncommercial flights on employer-provided aircraft for the period July 1 through Dec. 31, 2015. Rev. Rul. 2015-20 (9/21/15).

IRS addresses gambling statement provided to nonresident aliens

The Office of Chief Counsel advised that casinos ordinarily provide year-end statements of player-card data that reflect information from which a nonresident alien gambler can calculate gains. Unless the individual is a professional gambler or employs session netting, the individual’s losses are not taken into account. The Chief Counsel’s Office also advised that the IRS has no position at this time as to the use of the player card in session netting. CCA 201539028 (9/25/15).



Court can review whether Treasury secretary abused his discretion in not extending treaty benefits to the taxpayer

The U.S. District Court for the District of Columbia held that because the United States–Switzerland tax treaty does not reflect an unambiguous intent to foreclose judicial review, and the technical explanation of the treaty supplies a meaningful standard for determining whether a Swiss company qualifies for treaty benefits, the court may review whether the Treasury secretary abused his discretion in not extending those benefits to the taxpayer. Thus, the court denied the government’s motion to dismiss; but it also denied the taxpayer’s claim that the IRS violated the treaty by failing to consult with the Swiss competent authority. Starr International Co., No. 14-cv-01593 (D.D.C. 9/18/15).

United States signs first competent authority arrangements with United Kingdom and Australia

The IRS announced that the United States has signed the first competent authority arrangements under the Foreign Account Tax Compliance Act. The arrangements with the United Kingdom and Australia implement automatic exchange of information under the countries’ intergovernmental agreements. IR-2015-108 (9/24/15) (see related news story).



Court disregards postmark in favor of USPS tracking data

The Tax Court held that a taxpayer’s petition for redetermination delivered to the Tax Court by the U.S. Postal Service (USPS) 98 days after the IRS mailed the notice of deficiency to the taxpayer was not timely mailed and was therefore not timely filed. While the envelope containing the petition bore a mailing label generated by the taxpayer that included a “postmark” that indicated it was generated on the 90th day, the court disregarded that postmark in favor of the USPS tracking data. Tilden, T.C. Memo. 2015-188 (9/22/15).

IRS did not abuse discretion in failing to abate interest on tax liabilities

The Tax Court held that the IRS’s denial of the taxpayers’ claim for abatement of interest on their tax liabilities was not an abuse of discretion. Foote, T.C. Memo. 2015-187 (9/22/15).

OPR announces recent disciplinary sanctions

The IRS Office of Professional Responsibility announced recent disciplinary sanctions involving attorneys, CPAs, enrolled agents, and other practitioners enrolled under Circular 230. Announcement 2015-20 (9/21/15).

Tax Court finds taxpayer did not properly raise issues, IRS did not abuse discretion

The Tax Court held that the taxpayer failed to raise the issue of application of his voluntary payments against his trust fund recovery penalties in his collection due process (CDP) hearing and therefore he cannot dispute this issue before the Tax Court. And although the taxpayer never had a face-to-face CDP hearing, the court held that his correspondence with the IRS settlement officer constituted a proper CDP hearing. Finally, the court held that the taxpayer’s failure to make a written offer in compromise justified the IRS’s determination not to consider an offer. Au, T.C. Memo. 2015-183 (9/21/15).

Taxpayer cannot appeal denial of penalty waiver by IRS Tax-Exempt Bonds office

The Office of Chief Counsel advised that a taxpayer does not have appeal rights if the IRS Office of Tax-Exempt Bonds denies a request under Section 5.02 of Rev. Proc. 2005-40 to waive the arbitrage penalty imposed under Sec. 148(f)(7). CCA 201539029 (9/25/15).

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