Document summaries for the week of Oct. 19, 2020

INDIVIDUALS

Taxpayers’ failure to report theft loss in ‘discovery’ year precludes deduction

The Tax Court held that two brothers, who founded a bank, were not entitled to a theft loss deduction under Rev. Proc. 2009-20 on their 2012 tax returns as a result of losses suffered when a bank officer siphoned money from the bank and forced it into receivership. According to the court, because the indictment of that bank officer happened in 2010, that was the year the loss was discovered for Rev. Proc. 2009-20 purposes. Giambrone, T.C. Memo. 2020-145 (10/19/20).

FBAR penalties upheld against couple with Swiss bank accounts

The Fourth Circuit upheld a district court decision that imposed penalties against a couple for willful failure to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), to report amounts they held in Swiss bank accounts. The court also held that the FBAR penalty is not capped at $100,000 by 31 C.F.R. Section 1010.820(g)(2). Horowitz, No. 19-1280 (4th Cir. 10/20/20).

Taxpayer successfully established gambling losses of more than $350,000

The Tax Court held that a taxpayer substantiated gambling losses in excess of $350,000, the amount of his gambling winnings, but did not meet the heightened substantiation requirements of Sec. 274(d) and thus could not deduct $402 on Schedule C, Profit or Loss From Business, for the purchase of a laptop computer. In determining that the taxpayer had substantiated his gambling losses, the court relied on a report compiled by a professional gambling expert with 20 years’ experience who concluded with a 99% level of certainty that the taxpayer not only suffered gambling losses that wiped out his gambling winnings but also that he sustained at least $150,000 in net gambling losses during the year in issue. Coleman, T.C. Memo. 2020-146 (10/22/20).

IRS PROCEDURE

Tax relief for Hurricane Delta victims

The IRS announced that victims of Hurricane Delta, which began on Oct. 6, now have until Feb. 16, 2021, to file various individual and business tax returns and make tax payments. IR-2020-236 (10/19/20).

Tax relief for California wildfire victims

The IRS announced that victims of the California wildfires that began on Sept. 4 now have until Jan. 15, 2021, to file various individual and business tax returns and make tax payments. IR-2020-237 (10/19/20).

Tenth Circuit upholds IRS summonses against marijuana dispensary

The Tenth Circuit refused to quash IRS summonses against a marijuana dispensary, holding that the IRS has “broad latitude” to issue summonses for the purpose of ascertaining the correctness of any return, had demonstrated good faith in issuing the summonses, and had followed all administrative steps required by the Code. Speidell, No. 19-1214 (10th Cir. 10/20/20).

IRS did not abuse discretion in not accepting offer in compromise

The Ninth Circuit held that the IRS did not abuse its discretion in not accepting the taxpayer’s offer in compromise and sustaining notices of federal tax liens. The case was remanded to the Tax Court for consideration of whether it had jurisdiction to hear the taxpayer’s challenge to the IRS’s refusal to return a payment he made along with the proposed offer in compromise. Brown, No. 19-73233 (9th Cir. 10/22/20).

MISCELLANEOUS

US terminates reciprocal tax agreement on shipping income with Hong Kong

The United States announced that it provided written notification, dated Aug. 18, 2020, to the government of the Hong Kong Special Administrative Region of its termination of a reciprocal agreement to exempt from income tax certain income from the international operation of ships. The announcement provides that the termination will take effect on Jan. 1, 2021, and will have effect for tax years beginning on or after that date. Announcement 2020-40 (10/20/20).

PARTNERSHIPS

IRS releases draft Form 1065 instructions with revised capital account reporting

The IRS released an early draft of the instructions for the 2020 Form 1065, U.S. Return of Partnership Income. The instructions change the method for partnerships to report capital accounts to partners. Draft Form 1065 Instructions (10/22/20) (see related news story).