Document Summaries for the Week of Dec. 21, 2015


Pakistani medical resident cannot use Pakistan–U.S. treaty to exempt income from U.S. tax

The Tax Court held that a Pakistani citizen who was a foreign medical school graduate and entered the United States to participate in a three-year internal medicine residency training program was not in the United States for “the purpose of teaching” for the year at issue and therefore was not entitled to exempt his income from U.S. tax under the U.S.–Pakistan income tax treaty. In addition, the court found that the taxpayer had not proved that he was in the United States under arrangements with the United States or an agency or instrumentality thereof, as required by the treaty. Bhutta, 145 T.C. No. 14 (12/22/15).

Court rejects IRS interpretation of moving deduction regulation; calculates moving deduction at 10% of what taxpayer claimed

The Tax Court calculated a taxpayer’s moving costs, using the standard mileage rate, to be approximately 10% of what the taxpayer had calculated using tax preparation software. In doing so, the court rejected the IRS’s interpretation of Regs. Sec. 1.217-2(b)(3), saying it would ignore the actual cost incurred by individuals who move their own personal property and would effectively limit the purpose of the regulation to instances where taxpayers paid a commercial mover or nonfamily member to move their personal property. Parmeter, T.C. Summ. 2015-75 (12/21/15).

No deduction for unsubstantiated expenses; accuracy-related penalties apply

The Tax Court held that the taxpayer did not properly substantiate deductions taken for unreimbursed employee expenses, charitable contributions, and medical expenses and thus was not entitled to deductions above what the IRS had allowed. The court upheld the IRS’s assessment of accuracy-related penalties for the years at issue. Chaudry, T.C. Summ. 2015-74 (12/21/15).

Guidance issued on health coverage tax credit

The IRS issued guidance on the recently extended Sec. 35 health coverage tax credit, including information on who may claim the credit, the amount of the credit, procedures for claiming the credit for tax years 2014 and 2015, and the interaction of the credit with the Sec. 36B premium tax credit. Notice 2016-2 (12/22/15) (see related news story).



Artwork valued at date of death during market decline

The Tax Court held that the values of a decedent’s three pieces of artwork—paintings by Pablo Picasso, Robert Motherwell, and Jean Dubuffet—as of the date of death (July 28, 2009) were $10 million, $800,000, and $500,000. While the paintings or comparable ones by the same artists were sold one to two years earlier or later at much higher prices, the court adjusted the sale prices downward from the IRS’s valuations to account for market conditions at the date of death. Estate of Newberger, T.C. Memo. 2015-246 (12/22/15).



Appeals officer did not abuse discretion

The Tax Court held that an IRS Appeals officer did not abuse her discretion by rejecting collection alternatives and sustaining a proposed collection action where the taxpayer failed to make a specific offer and failed, after being given sufficient opportunities, to supply the officer with required forms and supporting financial information. The court advised the taxpayer that he could submit an offer in compromise supported by the necessary financial information to the IRS at any time. Hawkins, T.C. Memo. 2015-245 (12/21/15). 

Newsletter Articles


Traps for the unwary: Tax Cuts and Jobs Act changes

By now many of us are familiar with the various provisions of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. Here is a list of changes together with (perhaps) unexpected nuances.


Qualified business income deduction regs. and other guidance issued

The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.