Document Summaries for the Week of Feb. 13, 2017


Taxpayers allowed to use DISC to overfund Roth IRA

The Sixth Circuit Court of Appeals allowed taxpayers to use a domestic international sales corporation (DISC) to transfer millions of dollars to Roth IRAs, in spite of the Roth IRA contribution limits and eligibility rules, because the trasactions complied with the Internal Revenue Code. Summa Holdings, Inc., No. 16-1712 (6th Cir. 2/16/17).



Couple cannot exclude retirement payments from income

The Tax Court held that a couple could not exclude from income California State Teachers’ Retirement System payments to the wife that were determined by reference to her age and length of service. After noting the couple’s history of failing to pay tax liabilities, the court also concluded that the IRS did not abuse its discretion in sustaining notices of federal tax liens and refusing to accept the couple’s offer in compromise. Olson, T.C. Memo. 2017-33 (2/13/17).

Girlfriend’s son and cousin’s daughter are not ‘qualifying children’ of taxpayer

The Tax Court held that a taxpayer was not entitled to child tax credits and an earned income tax credit for his girlfriend’s son, whom he had not adopted, and his cousin’s daughter because neither was a “qualifying child” for purposes of Sec. 152. Evidence also indicated the cousin’s daughter did not have the same principal place of abode as the taxpayer for the entire tax year for one of the years at issue or any portion of the other year at issue, so she could not be a qualifying relative of the taxpayer. However, the girlfriend’s son did live with the taxpayer for both years, and the taxpayer could claim a dependency exemption for him as well as head-of-household filing status. Walker, T.C. Summ. 2017-8 (2/13/17).

Dentist qualifies as real estate professional, can deduct rental real estate losses

The Tax Court held that a dentist’s logs of real estate activities and witnesses’ testimony tended to corroborate his limited schedule at his dental practice and the hours he claimed to have spent in his real estate business. The court was thus satisfied that the dentist qualified as a real estate professional and could deduct his rental real estate losses. Zarrinnegar, T.C. Memo. 2017-34 (2/13/17).

Taxpayer is not liable for trust fund recovery penalties after brief investigation by IRS

The Tax Court held that a taxpayer was not liable for trust fund recovery penalties (TFRPs) assessed against him because of the nonpayment of employment tax liabilities by a restaurant partially owned by his son and not owned by the taxpayer. The court noted that the IRS agent in charge (1) did not secure the restaurant’s bank records or make any attempt to interview the individuals against whom she was proposing TFRPs; (2) failed to determine whether the taxpayer willfully failed to remit employment taxes to the IRS; and (3) went forward with her recommendation to assess TFRPs against the taxpayer on the basis of the limited information she had collected during her brief investigation. Shaffran, T.C. Memo. 2017-35 (2/16/17).



IRS issues March 2017 AFRs

The IRS issued the applicable federal rates for the month of March 2017. Rev. Rul. 2017-7 (2/17/17). 



Burnett Ranches nonacquiescence announced

The IRS announced its nonacquiescence to the holding in Burnett Ranches, Ltd., 753 F.3d 143 (5th Cir. 2014), that a limited partnership was not a “farming syndicate” tax shelter because the sole shareholder of an S corporation that was a limited partner actively participated in the farming business. Action on Decision 2017-1 (2/13/17).

Tax Insider Articles


Business meal deductions after the TCJA

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