Document Summaries for the Week of Nov. 23, 2015


IRS did not abuse its discretion in revoking ESOP determination letter

In a declaratory judgment proceeding, the Tax Court held that the IRS did not abuse its discretion when it  determined that the corporation’s employee stock ownership plan (ESOP) was not qualified under Sec. 401(a) and that the trust was not exempt under Sec. 501(a) for the plan year ending on Dec. 31, 2004, and all subsequent plan years. The court found that the ESOP was not operated in accordance with its original terms, the corporation failed to make recurring and substantial contributions, and the doctor who set up the plan made excess contributions, any one of which would have disqualified the ESOP. Fleming Cardiovascular, P.A., T.C. Memo. 2015-224 (11/23/15).



Federal income tax refunds includible in decedent’s gross estate

The Tax Court held that a decedent had property interests in his federal income tax refunds and thus the refunds were includible in the decedent’s gross estate for federal estate tax purposes. The court rejected the estate’s argument that, even if the decedent had an expectancy to receive the income tax refunds, under Kentucky law, a mere expectancy is not the same as an interest in property. Estate of Badgett, T.C. Memo. 2015-226 (11/24/15). 



Lack of substantiation and “for profit” motive precludes deductions

The Tax Court upheld the IRS’s denial of deductions for a taxpayer’s computer software business for lack of substantiation and disallowed deductions for the taxpayer’s sports memorabilia activity because the taxpayer failed to show that it was engaged in for profit under Sec. 183. The court also upheld the assessment of penalties for failure to timely file his returns and failure to pay, finding that the taxpayer habitually filed late or not at all, had no tax withheld from his wages, and did not prove that he had reasonable cause for these failures. Akey, T.C. Memo. 2015-227 (11/24/15).



Taxpayer raised genuine issue of receipt of notice of deficiency

In denying the IRS’s motion for summary judgment for 2005-2008, the Tax Court held that whether the taxpayer received a notice of deficiency for those years was a genuine issue of material fact that required a trial. However, because the taxpayer admitted her liability for 2004, the court upheld the IRS’s motion for summary judgment for that year. Garrett, T.C. Memo. 2015-228 (11/24/15).

Tax Court denies IRS request to impose Sec. 6673 penalty

The Tax Court upheld the IRS’s denial of a number of the taxpayers’ Schedule C deductions for lack of substantiation or establishing a business purpose and upheld the Sec. 6662 accuracy-related penalty. But, despite  the taxpayers long history of challenging the IRS (this was their 14th case in 30 years), in denying the taxpayers’  claimed Schedule C home mortgage interest expense deduction as a business expense, the IRS inexplicably failed to make the corresponding adjustment for the deduction  of home mortgage interest on Schedule A. Given the IRS’s mistake, the court could not conclude that the case was maintained primarily for delay or that the taxpayers’ positions were entirely frivolous, and thus denied the IRS’s request to impose a Sec. 6673 penalty. Boring, T.C. Summ. 2015-68 (11/24/15).

Veteran disability benefits are includible in determining amount taxpayer can afford to pay

In granting the IRS’s motion for summary judgment, the Tax Court held that the IRS did not abuse its discretion in including a taxpayer’s monthly veteran disability benefits in determining the amount that the taxpayer could pay each month to the IRS for his unpaid tax liabilities, even though they were not included in taxable income. Mathews, T.C. Memo. 2015-225 (11/23/15).

National Office offers guidance on when interest accrues on a general adjustment overassessment

The IRS National Office advised that, under Sec. 6611, interest accrues on a general adjustment overassessment when the IRS has simultaneously determined that there is an increase in tax due to adjustments to carrybacks from subsequent years and the net effect of these increases and decreases is an overassessment. Overpayment interest is allowable on the portion of the overpayment used to satisfy the underpayment from the date of the overpayment to the due date of the loss year return. TAM 201548019 (11/27/15).

OPR announces disciplinary sanctions

The IRS Office of Professional Responsibility announced recent disciplinary sanctions involving practitioners subject to Circular 230. Announcement 2015-26 (11/23/15).



Repair regulations’ de minimis safe harbor increased

The IRS increased the safe harbor deductible amount for purchases of tangible property by taxpayers without applicable financial statements (AFSs) from $500 to $2,500 per item. Notice 2015-82 (11/24/15) (see related news story).

Tax Insider Articles


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.