Articles

May 1st, 2023

April Federal Tax Update

Posted in: Tax Law    Tagged: David S. De Jong

INDIVIDUALS

In Kiczuk v. United States, 131 AFTR2d 2023-1292, a Connecticut Federal District Court concluded that disability benefits paid to a state employee were taxfree and akin to workers compensation as the result of a fall leaving work; Connecticut had an application for seeking retirement with alternatives and the taxpayer was approved for retirement based on on-the-job injury despite questions as to its severity.

In Hailstone v. Commissioner, TC Summary Opinion 2023-17, the Tax Court concluded that disability income was taxable to an individual whose premiums were employer-paid in pretax dollars, unsuccessfully arguing that he was not given a choice at the time and should get an exclusion.

In Teague v. Commmissioner, TC Summary Opinion 2023-16, the Tax Court concluded that a full time Comcast sales representative was not a real estate professional inasmuch as hours expended related to three rental cabins did not exceed hours spent in his full time position.

In Schmerling v. Commissioner, TC Summary Opinion 2023-14, the Tax Court decided that performance bonuses and commissions of a car salesman placed on a 1099 rather than a W-2 that were tied to the wage income are reportable as “other income” on the tax return and not on a Schedule C; accordingly, the associated expenses can only be claimed as miscellaneous itemized deductions pre-2018 or post-2025.

In Evan v. Commissioner, TC Summary Opinion 2023-15, the Tax Court denied a credit for alternative minimum tax claimed by the taxpayers because their “software automatically generated the credit”; however, IRS produced transcripts indicating that the credit carryforward had been fully used in prior years.

In Notice 2023-30, IRS provided “safe harbor” deed language for dealing with corrections to extinguishment and boundary line adjustment clauses in a conservation easement; this guidance was required by Secure 2.0 Act.

In Fact Sheet 2023-11, IRS determined that compensation payments made by states to individuals who were victims of forced, involuntary or coherced sterilization under state programs are excludable from income as compensatory for physical injuries.

RETIREMENT AND ESTATE PLANNING

In In Re:  Kelly, 131 AFTR2d 2023-________, an Iowa Federal District Court ruled that a bankrupt’s IRA rolled over from the IRA of her late husband, cannot be reached by the trustee in bankruptcy in contrast to an “inherited IRA” which cannot be the subject of a rollover.

BUSINESS

In Gage v. Commissioner, TC Memo 2023-47, the Tax Court determined that an otherwise deductible $875,000 cashier’s check obtained in 2012 but not turned over until final acceptance of a settlement in 2013 was not deductible in the earlier year; the Court cited prior caselaw that a check dated in one year but cashed in the next year cannot be deducted until the succeeding year absent proof of delivery in the earlier year.

In United States v. TKW LP, 131 AFTR2d 2023-________, the Ninth Circuit Court of Appeals agreed with a Washington Federal District Court that limited partnerships were nominees, alter egos and/or fraudulent transferees of partners and their property management company, using other legal forms to evade taxes and false mortgages on the properties to hide value.

PROCEDURE

Proposed Regulations under Code Section 6751 would allow the required written supervisory approval of penalties until issuance of the Statutory Notice of Deficiency.

In Trammer v. Commissioner, the Tax Court in a Bench Opinion declined to impose an accuracy penalty on taxpayers who provided all numbers to their preparer where the preparer deducted certain personal expenses as business expenses and double or triple counted additional items; the Court determined that the taxpayers acted in good faith and had reasonable cause for the underpayments despite the quality of the tax preparer.

In Stanojevich v. Commissioner, 160 TC No. 7, the Tax Court determined that a trustee is personally liable for filing a frivolous trust return as the trustee is considered to be the “filer.”

In Farhy v. Commissioner, 160 TC No. 6, the Tax Court concluded that IRS could not summarily assess a penalty for failure to file Form 5471, an information return with respect to foreign corporations.

In In Re:  Geary, 131 AFTR2d 2023-________, a Pennsylvania Bankruptcy Court ruled that a bankruptcy court does not have jurisdiction to grant innocent spouse relief.

In Announcement 2023-11, IRS indicated that it will abandon its position that “listed transactions” can be identified without complying with notice and public comment procedures.

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