January 9th, 2025
December Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Bruyea v United States, 134AFTR 2d2024-6310, the US Court of Federal Claims became the second court to determine that a treaty-based (in this case Canada) foreign tax credit applies against the Net Investment Income (Medicare) Tax.
In News Release 2024-304, IRS warned of promoters of fraudulent tax schemes involving donations of ownership interests in closely held businesses.
RETIREMENT AND ESTATE PLANNING
Proposed Regulations under Code section 401 clarify an ambiguity under the law and set forth that the applicable age to commence minimum distributions for employees born in 1959 is age 73.
BUSINESS
In Texas Top Cop Shop v Garland, 134 AFTR2d2024 – ___, the Fifth Circuit Court of Appeals, days after throwing out an injunction granted by a Texas Federal District Court that had blocked enforcement of the Corporate Transparency Act, reversed itself and reinstated the injunction putting the need for compliance on hold pending Supreme Court review or the appeal on the merits.
In Aboui v. Commissioner, TC Memo 2024-126, the Tax Court determined the IRS erred in its bank deposit analysis of a used car business, failing to adjust out amounts reported as income in a prior year.
In Shoe v. Commissioner, TC Summary Opinion 2024-24, the Tax Court, stating that a taxpayer cannot argue “substance over form” or “nominee” status, required the sole signatory on a tow truck business account to report the deposits despite her argument that the business belonged to her daughter’s then fiancé.
In Avery v. Commissioner, 134 AFTR2d 2024 – 6331, the Tenth Circuit Court of Appeals agreed with a Colorado Federal District Court that the race car driving activities of a personal injury lawyer throughout the country did not qualify as a marketing expense despite the law firm decal on the car.
In Phoenix Design Group v. Commissioner, TC Memo 2024-113, the Tax Court, denying the research tax credit and noting it is to be narrowly applied, commented that “engineers solve problems you did not know you had in ways you cannot understand.”
In Denham Capital Management LP v Commissioner, TC Memo 2024-114, the Tax Court again stated that designation as a limited partner does not necessarily exempt earnings from self employment tax, finding that the limited partners here were crucial and active parts of the business and not passive investors.
PROCEDURE
Final Regulations under Code section 6045 explain how decentralized cryptocurrencies exchanges are to report tax information.
Proposed Regulations under Title 31 Part 10 follow a 2014 decision of the US Court of Appeals for the District of Columbia in Loving and clarify that practice before the Internal Revenue Service does not include the preparation of tax returns unless submitted in connection with a matter before IRS; the Proposed Regulations would “relocate” the restriction on contingent fees so that they would apply to preparation of a tax return or claim for refund not constituting practice before IRS and would require a practitioner discovering an error, whether made by that practitioner, any other practitioner or the client, to disclose the mistake to the client along with the needed actions for correction.
In Safdieh v Commissioner, Docket No. 11680-20L, the Tax Court ruled again that the penalty under Code section 6038 for failing to disclose an interest in a foreign business could not be summarily assessed by IRS and that suit was required; the appellate courts are divided.
In United States v. Rodriguez, 134 AFTR2d 2024- ___, the IRS was successful in requiring a “ghost preparer”, one who fails to sign returns, to disgorge all fees that she had received.
In Marcano v. Commissioner, TC Summary Opinion 2024-26, the Tax Court interpreted the 150-day rule for filing a Tax Court petition rather than 90 days was inapplicable when the taxpayer was outside the US for 24 days during the 90-day period but the absence did not cause delay in receipt of the Notice of Deficiency.
In US v. Regas, 134 AFTR2d 2024 -___, a Nevada Federal District Court entered judgment for IRS on its suit against a taxpayer who claimed that it was filed beyond the 10-year deadline; however, the Court found that the statute had been extended twice, once due to a bankruptcy filing and again due to seeking an installment agreement.
In United States v. Movoselsky, 134 AFTR2d 2024 -____, a Wisconsin Federal District Court held that the Tax Anti- Injunction Act does not preclude a court from hearing and challenging the revocation of an Offer in Compromise.
In In Re Link, 134 AFTR2d 2024-6219, an Oklahoma Bankruptcy Court refused to discharge tax debts of a couple (the husband was a CPA) who kept no books and records and appeared to have “lost” $90 million in assets over 18 years; the Court quoted from the play and movie, The Best Little Whorehouse in Texas and subsequently noted “never has so much been said for so long with so little substance.”
