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).
ESTATES, TRUSTS & GIFTS
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).
Business meal deductions after the TCJA
This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.
Quirks spurred by COVID-19 tax relief
This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.