May 1st, 2024

April Federal Tax Updates

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INDIVIDUALS

In Estate of Finnegan v. Commissioner, TC Memo 2024-42, the Tax Court concluded that settlement proceeds paid by a state as a result of improper findings of abuse and neglect of their children were taxable as paid for violation of their civil rights and not for post-traumatic stress disorder (PTSD) which had little or no mention in the Complaint, jury instructions, voir dire questions or otherwise.

In Pascucci v. Commissioner, TC Memo 2024-46, the Tax Court denied a theft loss deduction to an investor who placed assets with Bernie Madoff as the investment was through insurance contracts and the taxpayer did not have a direct ownership interest in the underlying stolen assets which prevented tax on the inside buildup of the policies but also prevented loss on that buildup. 

In Amos v. Commissioner, 133 AFTR2d 2024-1267, the Eleventh Circuit Court of Appeals agreed with the Tax Court that a CPA who owned several burger franchises could not substantiate over $4 million in net operating losses dating back 15 years when no original records were produced except tax returns and a carryover worksheet.

In Buckelew Farm LLC v. Commissioner, TC Memo 2024-52, the Tax Court denied a conservation easement claim of $47.6 million as almost ten times the actual value based on current zoning and the likelihood of denial of a change.

In Announcement 2024-19, IRS indicated that amounts received from the Department of Energy for home energy rebate programs are not income but constitute a reduction in price paid for the home improvements.

In Fact Sheet 2024-13, IRS stated that the value of work-life information and referral services offered by an employer are generally exempt from taxation as de minimis.

RETIREMENT AND ESTATE PLANNING

In Bolles v. Commissioner, 133 AFTR2d 2024-1235, the Ninth Circuit Court of Appeals agreed with the Tax Court that transfers of money from a mother to her son were loans for the first five years but were gifts for the next 18 years; though transactions within the family are presumed to be gifts, there was an expectation of repayment in the early years which diminished.

In Notice 2024-35, IRS indicated that final regulations on inherited retirement plan interests will be issued later in 2024 and will take effect in 2025; meanwhile IRS will not require minimum distributions in such cases for 2024 (previously not required for 2021-23) of inherited accounts.

BUSINESS

In Piccirc LLC v. Commissioner, TC Memo 2024-50, the Tax Court denied an LLC’s claimed loss of $22.7 million in connection with the sale of trade receivables, holding that this LLC was one of a number of companies formed for tax avoidance purposes in violation of the partnership anti-abuse rules, the Court additionally finding that there was insufficient evidence to determine sufficient basis.

In ACI Construction LLC v. United States, 133 AFTR2d 2024-________, a Utah Federal District Court determined that the taxpayer was a successor-in-interest under state law to an entity with a huge tax debt and therefore assumed the liabilities.

PROCEDURE

In United States v. Olson, 133 AFTR2d 2024-1342, the Seventh Circuit Court of Appeals reversed an Indiana Federal District Court and held that a plumbing company that failed to pay over payroll taxes as well as income taxes could be enjoined and ordered to pay IRS ahead of creditors.

In Estate of Glassman v. Commissioner, TC Memo 2024-51, the Tax Court held that the length of time that a supervisor spent on penalty review is irrelevant in determining whether written supervisory approval of a penalty was obtained.

In Lamprecht v. Commissioner, 133 AFTR2d 2024-________, the DC Circuit Court of Appeals agreed with the Tax Court that Swiss citizens who were US residents were liable for the FBAR penalty regarding funds kept in a UBS account in Switzerland despite correcting their tax returns as soon as UBS began cooperating with IRS.

In United States v. Vettel, 133 AFTR2d 2024-________, a Nebraska Federal District Court determined that an international salesman “credibly testified” that he did not believe earnings from overseas placed in a Swiss bank account were subject to US taxes, the Court finding, however, that his conduct was that of “willful blindness” and imposed the penalty for willful failure to file an FBAR.

In Phillips v. Commissioner, TC Memo 2024-44, the Tax Court threw out a Notice of Deficiency when sent to an improper address, IRS apparently confusing the taxpayer (who was serving a seven-year prison sentence) with his adult son of the same name.

In Abdo v. Commissioner, 162 TC No. 7, the Tax Court determined that a statute provides for a mandatory 60-day extension of certain tax-related deadlines including filing a Tax Court Petition such that the retroactivity of the COVID disaster to January 20, 2020 made the petition timely notwithstanding a subsequent IRS regulation that set forth specific conflicting dates.

In Lynch v. Commissioner, No. 1398-24, the Tax Court threw out a Petition which was sent on the last day but received thereafter where the taxpayer used Fed Ex “Express Saver” which is not one of the eight services from Fed Ex allowed in lieu of using the US Postal Service.

In Belcik v. Commissioner, TC Memo 2024-49, the Tax Court determined that the husband had about $7 million of unreported income over a 20-year period when the couple did not file returns; he had a foreign bank account which he used to pay business and personal expenses (the wife had minimal income and deficiencies against her were not sustained).

In Diaz v. Commissioner, TC Memo 2024-45, the Tax Court threw out an argument by taxpayers that their signatures on a closing agreement were forged; no expert witness testimony was presented and the Court noted similarities between the signature of the husband on the closing agreement vis-à-vis other documents.

In Kehmeier v. United States, 133 AFTR2d 2024-1263, the Court of Federal Claims denied a refund claim of a taxpayer for not following administrative procedures when he sent a “Notice and Demand Letter” to IRS with a deadline for the return of tax withholdings.

In United States v. Wardle, 133 AFTR2d 2024-1317, a Montana Federal District Court held that IRS could enforce a tax lien where the taxpayer conceded liability though the exact amount was in dispute (the parties were $600,000 off).

In Shaw v. Commissioner, TC Memo 2024-48, the Tax Court rejected a CDP appeal filed well after the 30-day deadline when no explanation for the late filing was provided and, in any event, the individual had failed to file the last seven years of tax returns.

In White v. Commissioner, TC Memo 2024-53, the Tax Court agreed with IRS that the Internal Revenue Code does not require a face-to-face CDP hearing.

In Hartmann v. Commissioner, TC Memo 2024-46, the Tax Court sustained planned collection action by IRS against an attorney who had not filed all back returns and was not current on estimated tax payments, the Court finding that he was given multiple filing “extensions.”

In Morgan v. Bruton, 133 AFTR2d 2024-________, the Fourth Circuit Court of Appeals agreed with a North Carolina Federal District Court that a home owned tenants by the entirety is not protected from IRS in an individual bankruptcy as a state law protecting jointly owned homes from individual creditors does not apply to federal tax debts per the 2002 decision of the US Supreme Court in Craft.

Form 1099-DA was released in draft form for useage by crypto brokerages to report information on transactions.

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