Document summaries for the week of May 22, 2017
Schoolteacher liable for tax on unemployment income, warned not to make frivolous arguments
The Tax Court held that a taxpayer who had been employed as a secondary schoolteacher had received $3,231 of unemployment compensation during 2013, which he did not report on his tax return. The court rejected as incomprehensible the taxpayer’s arguments that he was not taxable on the income and warned him that if he continued with such frivolous arguments, the court would assess a significant Sec. 6673 penalty. Timmins, T.C. Memo. 2017-86 (5/23/17).
Taxpayer cannot use overpayments on late-filed returns to offset payments due
The Tax Court held that a taxpayer had not proven he had reasonable cause for filing several years of tax returns late, including returns on which he was due a refund, or the late payment of the tax shown on other years’ tax returns. Thus he was liable for additions to tax under Secs. 6651(a)(1) and 6651(a)(2) for 2003, 2004, 2005, and 2007, the court held. In addition, because the taxpayer was late in filing returns on which he was due a refund, he could not use those overpayments to reduce amounts he owed on subsequent years’ returns. Niski, T.C. Summ. 2017-33 (5/23/17).
Couple substantially understated tax liability from jewelry business
The Tax Court held that a couple had unreported gross receipts from their jewelry business. After noting that the couple did not hire or seek advice from a tax professional in preparing their 2011 tax return and after determining that the couple had substantially understated their tax liability, the court upheld the IRS’s assessment of Sec. 6662(a) and Sec. 6662(b)(1) accuracy-related penalties. Kahmann, T.C. Summ. 2017-35 (5/25/17).
Taxpayer underreported gross receipts from firearm sales at Virginia gun shows
The Tax Court held that a taxpayer underreported gross receipts on his 2011 and 2012 tax returns from the sale of firearms at gun shows throughout Virginia. The court also held that the taxpayer and his wife were liable for accuracy-related penalties for the years at issue because the taxpayer failed to maintain adequate books and records. Palisi, T.C. Summ. 2017-34 (5/24/17).
Court dismisses whistleblower case where no IRS action was taken
The Tax Court granted summary judgment to the IRS in a whistleblower action where the whistleblower met none of the threshold requirements for a whistleblower award. The court noted that the IRS had not begun any administrative or judicial action on the basis of the information the whistleblower provided and had not collected any proceeds. Perales, T.C. Memo. 2017-90 (5/24/17).
Whistleblower cannot challenge award after previously waiving right to challenge
The Tax Court held that the IRS Whistleblower Office’s issuance of a check to a whistleblower constituted its “determination” that he was entitled to an award in the agreed-upon amount. Because the whistleblower filed a petition with the Tax Court within 30 days of the date on which the check was mailed to him, the Tax Court had jurisdiction to decide whether his prior waiver of his judicial appeal rights was valid and binding. The court concluded that the whistleblower’s prior agreement with the Whistleblower Office, whereby he explicitly waived his right to seek judicial review of the award, was binding on him. Whistleblower 4496-15W, 148 T.C. No. 19 (5/25/17).
Lien upheld where taxpayer failed to provide requested financial information
The Tax Court held that the IRS properly sustained a notice of federal tax lien filing against the taxpayer to collect the taxpayer’s unpaid tax liabilities for 2009, 2011, and 2012. Because the taxpayer failed to submit required financial information and did not supply copies of certain executed returns, the court concluded that the IRS settlement officer did not abuse her discretion in determining that the taxpayer was not eligible for a collection alternative. Yambo, T.C. Memo. 2017-85 (5/23/17).
Taxpayer entitled to $179,000 in administrative and litigation costs
The Tax Court held that a taxpayer, who won a court case dealing with a trust fund recovery penalty, was entitled to approximately $179,000 in administrative and litigation costs under Sec. 7430. However, the court rejected the taxpayer’s request to have the award calculated at a rate higher than the statutory rate because the taxpayer did not meet any of the special factors supporting enhanced recovery. Fitzpatrick, T.C. Memo. 2017-88 (5/24/17).
IRS considered all appropriate factors in sustaining a levy against the taxpayer
The Tax Court held that an IRS settlement officer considered all the appropriate factors in reaching a determination to sustain a collection action, in this case a levy, against a taxpayer who owed back taxes for 2009. The court also agreed that it was not an abuse of discretion for the IRS to include equity in property the taxpayer had transferred to his daughter after 2009 in a collection alternative consideration. Chiarelli, T.C. Memo. 2017-91 (5/25/17).
Collection action affirmed after couple fail to avail themselves of an IRS hearing
The Tax Court found no abuse of discretion by the IRS in its dealings with a couple who owed back taxes and affirmed a collection action against the couple. According to the court, once taxpayers have been given a reasonable opportunity for a hearing but fail to avail themselves of it, as happened in the instant case, the IRS may proceed to make a determination based on the case file. Spinner, T.C. Memo. 2017-87 (5/24/17).
Court upholds collection action against Arizona gun dealer with a history of tax noncompliance
The Tax Court granted an IRS motion for summary judgment and sustained a collection action against an Arizona gun dealer. The court noted that the taxpayer had a history of noncompliance with his federal tax obligations including a failure to file employment taxes for employees of his company as well as a failure to provide Forms 1099 to independent contractors. Durda, T.C. Memo. 2017-89 (5/24/17).
IRS prohibited from levying on property while an offer for an installment agreement is pending
The Office of Chief Counsel advised that, under Sec. 6331(k)(2)(B), the IRS is prohibited from levying on a taxpayer’s property while an offer for an installment agreement is pending and, if the offer is rejected, during the 30 days thereafter (and, if an appeal of the rejection is filed within 30 days, during the period that the appeal is pending). Additionally, the Chief Counsel’s Office stated, the collection statute expiration date is suspended during this time as well. CCA 201721018 (5/26/17).
Chief Counsel’s Office addresses disclosure issues for the Office of Tax-Exempt Bonds
The Office of Chief Counsel issued guidance on several disclosure questions it received regarding the manner in which the Office of Tax-Exempt Bonds (TEB) may seek to identify and communicate with bondholders during an examination of an issuer of bonds to determine whether the bonds are tax-exempt. The Chief Counsel’s Office also advised that Sec. 6103 does not prevent TEB from confirming the existence or status of the examination, or from providing other information, because the information collected about the tax-exempt status of the bonds is the return information of both the bond issuer and the bondholders. CCA 201721017 (5/26/17).
Regulatory authority in Sec. 163(j) allows for discretionary exercise of rulemaking authority
The Office of Chief Counsel issued advice relating to an unidentified Sec. 163(j) issue (the subsection limits the deduction of interest by certain corporate taxpayers). According to the Chief Counsel’s Office, the regulatory authority in that section is permissive in a way that is similar to Sec. 170(f)(8)(D) and allows for (but does not require) a discretionary exercise of rulemaking authority. CCA 201721015 (5/26/17).
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.