May 8th, 2025
April Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Zajac v. Commissioner, TC Memo 2025-33, the Tax Court found that one-half of a $35,001 settlement for the taxpayer’s arrest and incarceration for allegedly beating his wife which charges were dropped when not pursued by her were attributable to physical injury and the emotional distress caused by the physical for not receiving medical attention; the balance in the unallocated settlement was found taxable as there were claims for unlawful search, a gun seizure and suspension of his gun license.
In WT Art Partnership v. Commissioner, TC Memo 2025-30, the Tax Court heard conflicting testimony by expert witnesses and reduced the value of a claimed tax deduction on a 750 year old Chinese painting donated to the Metropolitan Museum of Art from $26 million to $12 million, allowing the reduced deduction despite the failure to utilize a “qualified appraiser” as the Court found reasonable cause that the appraiser met the standards.
In Chief Counsel Memorandum 202511015, IRS set forth its position that criminal scams of assets that are generally invested in securities and other financial products whether in IRAs or non-IRA accounts are generally investment rather than personal assets such that losses may be claimed in the year of discovery of the theft; IRS did require retirement assets actually received by the taxpayer to be reported as income notwithstanding the inducement to withdraw funds. (Look to the purported purpose of the withdrawal when the taxpayer is aware of the proposed withdrawal or to the purpose of the original investment when the taxpayer is unaware).
RETIREMENT AND ESTATE PLANNING
In Pierce v. Commissioner, TC Memo 2025 -29, the Tax Court agreed with the owner of a baby product company as to the value of an interest for gift tax purposes, accepting testimony that the business lacked long term viability due to the inferior quality of the product.
BUSINESS
In Hampton v Commissioner, TC Memo 2025-32, an S Corporation was denied a deduction resulting from seizure of its bank account caused by a forfeiture of the sole owner’s assets as part of a bribery/fraud and money laundering conviction as a financial advisor; the Court declined to separate the corporation from the individual holding that the seized cash derived from his criminal activity.
In Faulk Company v. Becerra, 135 AFTR2d 2025 – ___, a Texas Federal District Court concluded that IRS improperly assessed the Employer Shared Responsibility Penalty against a janitorial company which discontinued health insurance coverage for employees, determining that a Health and Human Services regulation which delegated authority for assessment from HHS to IRS was void.
In Himmel v Commissioner, TC Memo 2025-30, the Tax Court concluded that the breeding, boarding, showing and training of Arabian horses with no profits for at least 16 years was a hobby and not an activity engaged in for profit.
PROCEDURE
In Dealers Auto Auction of Southwest, TC Memo 2025-38, the Tax Court did not find reasonable cause for penalty abatement in the case of a dealer reporting only 116 of 382 cash payments in excess of $10,000, rejecting the argument that the computer system was to blame.
In Belagio Fine Jewelry v Commissioner, 164 TC No. 7, the Tax Court, which had previously permitted exceptions to the absoluteness of the 90-day deadline for filing Petitions in employment tax matters due to a different statute than in income tax matters, concluded that the taxpayer’s Petition, filed one day late due to use of the wrong FedEx service, was a “garden variety” type of negligence and insufficient to allow “equitable tolling” based on extraordinary circumstances.
In United States v. Byers 135 AFTR2d 2025-1319, the Eighth Circuit Court of Appeals agreed with a Minnesota Federal District Court that a state homestead law did not give the spouse who was not on title to a residence any rights to one half the proceeds upon forced share of the property by the IRS.
In Vanover v. Commissioner, TC Memo 2025-37, the Tax Court denied equitable Innocent Spouse Relief to the ex-wife who claimed spousal abuse where she herself had been found guilty of disorderly conduct and domestic violence for biting and punching her then husband.
In a Memorandum of Understanding, Treasury indicated that IRS will provide taxpayer data about immigrants to authorities with Homeland Security engaged in criminal investigations.
In Chief Counsel Advice 202514002, IRS reiterated that a Federal Tax Lien attaches to a taxpayer’s unqualified fixed right to receive periodic payments under a trust and attaches to discretionary distributions only when they are made; the lien does not otherwise attach to principal.
