Document Summaries for the Week of Feb. 20, 2017

ESTATES, TRUSTS & GIFTS

Tax Court increases valuation of estate’s two 17th-century paintings

The Tax Court determined that two 17th-century “old master” oil paintings held by an estate were valued at $2,370,000. The court rejected larger valuation discounts urged by the estate and generally accepted the valuations of the IRS’s expert. Estate of Kollsman, T.C. Memo. 2017-40 (2/22/17).

 

INDIVIDUALS

Failure to prove that mortgage interest deductions were related to property improvements nixes deduction

The Tax Court held that a taxpayer was not entitled to (1) a deduction for certain expenses paid from a disregarded entity to a controlled corporation; and (2) a deduction for certain mortgage interest where he did not show that the interest was incurred as acquisition indebtedness used to improve his residence. Finally, the court concluded that, because the taxpayer did not maintain sufficient records to substantiate most of the expenses underlying his deductions, he was liable for an accuracy-related penalty. Kauffman, T.C. Memo. 2017-38 (2/22/17).

Tax Court sustains levy on couple after finding no abuse of discretion on the IRS’s part

The Tax Court held that an IRS settlement officer verified that notices of deficiency were properly mailed to a couple at their last known address, and hence the tax was timely assessed. Finding no abuse of discretion, the court granted summary judgment for the IRS sustaining its determination to uphold a levy on the couple. Ruddy, T.C. Memo. 2017-39 (2/22/17).

 

IRS PROCEDURE

IRS settlement officer properly verified that tax deficiency assessments were valid

The Tax Court held that although the IRS was not entitled to a presumption of proper mailing in the case at issue, a dated copy of a notice of deficiency sent to the taxpayer, combined with a dated U.S. Postal Service Form 3877, were sufficient to show that the notice of deficiency was mailed to the taxpayer at his last known address. Consequently, the court held that it was not an abuse of discretion for an IRS settlement officer to rely on this information to verify that valid assessments had been made and, thus, he properly verified, pursuant to Sec. 6330(c)(1), that the requirements of any applicable law or administrative procedure had been met in sustaining a collection action against the taxpayer. Kaebel, T.C. Memo. 2017-37 (2/21/17).

OPR announces disciplinary sanctions

The IRS Office of Professional Responsibility (OPR) announced recent disciplinary sanctions involving attorneys and CPAs. Announcement 2017-1 (2/21/17).

 

PARTNERSHIPS

No bad debt deduction allowed for partnership’s payment to partner’s close friend’s company

The Tax Court held that a partnership’s alleged loan to a sole proprietorship owned by the 90% partner’s close friend was best characterized as a capital contribution or as a gift to the sole proprietorship motivated by the taxpayer’s friendship with the sole proprietor. Thus, the court concluded that the payment was not a loan for which a bad debt deduction was available; nor was it a valid partnership expense for which a partnership deduction was allowable. Scheurer, T.C. Memo. 2017-36 (2/21/17).

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PRACTICE MANAGEMENT

Tax software survey

Results of the annual survey are in, as more than 3,800 CPA tax preparers tell how their return preparation software worked for them during this year’s busy season.