March 6th, 2025
February Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Green Valley Investors LLC v. Commissioner, TC Memo 2025 – 15, IRS reduced a conservation easement deduction from the $90 million that was claimed down to $1.15 million, rejecting arguments intended to avoid penalty that the taxpayers reasonably relied on professional advice and noting that the properties had recently been acquired for about $2.2 million.
BUSINESS
In Smith v. Department of the Treasury, 135 AFTR2d 2025- ____, a Texas Federal District Court lifted its injunction against enforcement of the Corporate Transparency Act following an earlier decision by the U.S. Supreme Court to lift the stay in a separate challenge; in FinCEN Notice FIN-2025-CTA1, an extended due date of March 21, 2025 for filing was announced but subsequently FinCEN announced that it would not commence enforcement or impose penalties until a later date [HOWEVER, ON MARCH 2, 2025, TREASURY ANNOUNCED THAT IT WOULD NOT ENFORCE FINES AGAINST US CITIZENSAND DOMESTIC COMPANIES OR THEIR BENEFICIAL OWNERS AND WOULD NARROW REPORTING TO FOREIGN COMPANIES ONLY].
In Boyle v. Bessent, 135 AFTR 2d 2025 -____, a Maine Federal District Court concluded that the FinCEN reporting was within the power of Congress under the Commerce Clause.
In Weston v. Commissioner, TC Memo 2025-16, the Tax Court denied a loss to a married couple who funded two businesses at a cost of $2.1 million and subsequently took control from the co-owner, the Court concluding that these payments were investments and any claiming of a loss was premature.
In Westpon v. Commissioner, TC Memo 2025-16, the Tax Court denied a couple a $2.1 million loss deduction related to a home renovation business and a demolition/excavating business where they could only provide invoices and a spreadsheet but no other books and records for either business; in Langlois v. Commissioner, TC Memo 2025 -12, the Tax Court denied an individual losses from two partnerships because he could not prove his basis in either, the Court noting that he introduced a “digital dump truck” of receipts which the Court declined to sort through.
In Clark v. Commissioner, TC Memo 2025-13, the Tax Court agreed with IRS that an individual had self-employment income from movie review writing and selling memorabilia online despite reporting it as “other income” rather than on a schedule C.
In Bucci v. Commissioner, 135 AFTR2d 2025-____, the Second Circuit Court of Appeals agreed with the Tax Court that a salt mine owner’s farming and horse racing rental activities with losses year after year were “indulgences… a genuine passion, a dream” and not an activity engaged in for profit.
In Chief Counsel Advice 202505027 IRS determined that a Consent to Extend the Time to Make Partnership Adjustments was invalid where signed by a partner other than the designated Partnership Representative as named on the filed Forms 1065.
PROCEDURE
The Internal Revenue Service terminated over 3,500 probationary employees in the Small Business- Self- Employed Division who had less than two years experience and about 4,500 total employees took early retirement; all employees were told to return to the office by March 10, 2025 (though there could be a space shortage due to prior reductions and an impending closing of 128 taxpayer assistance centers and five call centers at the end of tax season).
In Murphy v. United States, 135 AFTR2d 2025-___, a California Federal District Court agreed with a widow that she had reasonable cause for abatement of penalties where the CPA failed to file a trust tax return after a joint revocable trust became irrevocable upon the death of the first spouse, the Court stating that the widow’s failure to examine the returns was meaningless inasmuch as she would not have recognized the error and the Court noting that incorrect preparation is akin to giving improper tax advice when the preparer is informed of a change in circumstances.
In Hamel v. Commissioner, TC Memo 2025-19, in a case involving producer Alan Hamel and his late wife, actress Suzanne Somers, the Tax Court revisited whether IRS could impose an individual penalty after a partnership proceeding regardless of whether partner level determinations were required and determined again that it could do so; the second chance followed the recent decision of the US Supreme Court in Loper Bright Enterprises requiring an agency’s regulations to be the best interpretation and not just any reasonable interpretation of law.
In United States v. Veeraswamy, 135 AFTR2d 2025-610, a New York Federal District Court confirmed that the statute of limitations on willful failure to file an FBAR form runs from the due date of the return and not from the end of the reporting year.
In Donlan v Commissioner, 164 TC No. 3, the Tax Court determined that an electronic signature on a Petition with the taxpayer’s name in the signature block satisfies the requirement for an electronically filed Petition.
In Kyick Holdings LLC v Commissioner, Docket No. 11594-23, the Tax Court dismissed a petition for late filing based on a taxpayer’s argument that the Notice of Deficiency was not sent to the last known address; IRS mailed the Notice to the address shown on the last filed return but the taxpayer argued unsuccessfully that IRS had a later address from property records and an Asset Purchase Agreement.
In Daniel v. Commissioner, in an Order on Document No. 17859-24, the Tax Court declined to consider a deficiency for a year in which the Petition was filed late notwithstanding identical issues for the subsequent year where the Petition was filed timely, the Court noting that the taxpayer had alternatives in dealing with the earlier year.
In In re Pirron 135AFTR 2d 2025-_____, an Illinois Bankruptcy Court concluded that a tax refund belonged solely to the non-bankrupt spouse as no income nor prepayments were made by the spouse who filed for bankruptcy
In Peoplease LLC, v. Commissioner, TC Memo 2025-14, the Tax Court concluded that IRS did not err in failing to consider an unprocessed Employee Retention Credit which allegedly would have offset the unpaid tax liability.
In Brown v. Commissioner, TC Memo 2025-17, the Tax Court determined that IRS properly rejected an Offer in Compromise based on Effective Tax Administration where the taxpayers sought to have IRS give credit for a like-kind exchange even though they did not meet all of the criteria; the Court also noted that the taxpayers were precluded from challenging the underlying liability since they had a prior opportunity.
In Morris v. United States, 135 AFTR2d 2025-561, an Illinois Bankruptcy Court followed precedent of the Seventh Circuit Court of Appeals and held that tax liabilities assessed through a Substitute for Return are always nondischargeable in bankruptcy.
