Document summaries for the week of May 15, 2017
No abuse of IRS discretion in IRS’s denial of an installment agreement
The Tax Court held that it has jurisdiction to review an IRS settlement officer’s determination to the extent the officer denied relief requested by a church’s child care center after a deficiency was assessed with respect to payroll taxes reported but not paid. The court also held that the settlement officer did not abuse his discretion in denying the child care center’s request for an installment agreement because the child care center at that time was not in compliance with its ongoing tax return filing obligations. First Rock Baptist Church Child Development Center and First Rock Baptist Church, 148 T.C. No. 17 (5/18/17).
ESTATES, TRUSTS & GIFTS
Deathbed transfer is includible in decedent’s estate
The Tax Court held that the value of cash and securities transferred shortly before a decedent’s death from the decedent’s revocable trust to a limited partnership in exchange for a 99% limited partnership interest is includible in the value of the decedent’s gross estate. In addition, the value of the decedent’s estate also includes the value of the 99% limited partner interest as of the date of death. Estate of Powell, 148 T.C. No. 18 (5/18/17).
Court cannot consider penalty in innocent spouse proceeding
In consolidated cases of divorced spouses who both filed innocent spouse claims, the Tax Court determined the percentage of tax liabilities that each spouse owed for the two years at issue. The Tax Court also concluded that, in a stand-alone Sec. 6015 case independent of a deficiency proceeding, the court can only consider whether the innocent spouse relief provisions of Sec. 6015 are available and cannot consider other issues such as liability for accuracy-related penalties. Asad, T.C. Memo. 2017-80 (5/15/17).
IRS did not abuse discretion in pursuing collection where taxpayer did not provide requested information
The Tax Court held that an IRS determination to proceed with the collection of taxes due from a taxpayer and to deny the taxpayer’s request for collection alternatives was not an abuse of discretion. The court noted that the taxpayer did not provide a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, with supporting documentation, along with three months of bank statements, that the IRS settlement officer overseeing the case had requested. Daniel, T.C. Memo. 2017-82 (5/16/17).
No patent-related deductions available where evidence of bases is missing
The Tax Court held that taxpayers could not deduct depreciation or amortization for certain patents they created where they failed to introduce any documents or an accounting of any expenses providing evidence of their bases in the patents. The court also held that the taxpayers were liable for the Sec. 48D recapture tax relating to a qualifying therapeutic discovery projects award they had received. Wang, T.C. Memo. 2017-81 (5/15/17).
Deficiency determinations are not reduced by restitution orders
In a tax protester case, the Tax Court held that the IRS should not reduce deficiency determinations against a taxpayer, who had pled guilty to tax evasion, for the amount of restitution previously ordered by a district court where a civil judgment has not yet been entered. According to the court, although neither Sec. 6201(a)(4) nor Sec. 6213(b)(5) explicitly provides that assessed restitution amounts may not be considered in the definition of a deficiency under Sec. 6211, common sense dictates that they not be included as amounts previously assessed as a deficiency. The court also upheld penalties the IRS assessed, including a 75% fraud penalty. Muncy, T.C. Memo. 2017-83 (5/17/17).
Negotiation of a couple’s check submitted with an OIC did not mean tax liabilities for that year were settled
The Tax Court held that the statute of limitation for assessing deficiencies attributable to S corporations owned by a taxpayer had not expired because it was based on the taxpayer’s return filing, not the S corporations’. Thus, the IRS was not barred from determining flowthrough income for the taxpayer from his wholly owned S corporations. The court also concluded that the taxpayer and his wife had not entered into a contract settling the couples’ income tax liabilities for 2011 and 2012 where the couple had submitted a check with an offer in compromise and the IRS negotiated, but later returned, the check. Whitesell, T.C. Memo. 2017-84 (5/18/17).
June 2017 AFRs issued
The IRS issued the applicable federal rates for June 2017. Rev. Rul. 2017-12 (5/17/17).
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.