February 1st, 2023
January Federal Tax Update
In Patacsil v. Commissioner, TC Memo 2023-8, the Tax Court required a couple to report relief from indebtedness income inasmuch as they did not prove the value of their business or real estate as well as the amount of a contingent liability.
In Smith v. Commissioner, TC Memo 2023-6, the Tax Court concluded that the taxpayer who worked for a private defense contractor in Alice Springs, Australia, in assigned housing away from the business premises did not qualify for an exclusion for the value of lodging as the cul-de-sac where he resided could not be considered an extension of the business premises although only employees of the contractor lived on the properties.
In Shilgevorkyan v. Commissioner, TC Memo 2023-12, the Tax Court determined that an individual was neither the legal owner nor equitable owner of property, given that the ownership claim was based on a quit claim deed from a brother who the Court found had no interest to transfer, and was denied a deduction for mortgage interest that was paid.
In Oakbrook Land Holdings, LLC v. Commissioner, the US Supreme Court declined to review a decision of the Sixth Circuit Court of Appeals at 129 AFTR2d 2022-1032 which had backed up the IRS position that it had not violated the Administrative Procedure Act with a regulation on conservation easement donations requiring that the donee share in any appreciation attributable to subsequent improvements to the property; the Court denied review although this case was in conflict with an Eleventh Circuit decision in Hewitt v. Commissioner.
In Chief Counsel Advice 202302011, IRS stated that no loss can be claimed on cryptocurrency that has substantially declined in value, in this case to less than one cent, because the virtual currency was not worthless, abandoned or otherwise disposed.
In Chief Counsel Advice 202302012, IRS indicated that a charitable donation of more than $5,000 in cryptocurrency requires a qualified appraisal and not simply reporting the value proffered by the cryptocurrency exchange.
RETIREMENT AND ESTATE PLANNING
In Lucas v. Commissioner, TC Memo 2023-9, the Tax Court determined that a diabetic was able to engage in substantial gainful activity and accordingly was subject to the 10 percent penalty for early withdrawal from a retirement plan; the taxpayer had excluded the withdrawal from income based on something that he thought he read on a website but it referred to applicability of the penalty and not to taxability of the withdrawal.
In Braddock v. Commissioner, TC Summary Opinion 2023-4, the Tax Court denied numerous unsubstantiated costs including car expenses where the log differed from the receipts more often than it corroborated them.
In Woodries v. Commissioner, TC Memo 2022-5, the Tax Court found that a couple engaged in ranching as a business and not as a hobby as they carried on the activity in a professional manner, the husband had decades of ranching experience and the couple reasonably expected the ranch to go up in value; the Court noted that the case was a “close call.”
In XC Foundation v. Commissioner, TC Memo 2023-3, the Tax Court denied a foundation the ability to challenge retroactive revocation of its tax exempt status inasmuch as its corporate status was suspended by California and remained suspended throughout the 90-day period, the Court treating a nonprofit in the same manner as it has multiple times with a profit making entity not in good standing.
In an FAQ regarding Schedules K-2 and K-3 , IRS set forth and answered 29 questions related to Schedules K-2 and K-3 arising as a result of the Tax Cuts and Jobs Act.
In Minemyer v. United States, 131 AFTR2d 2023-________, the Tenth Circuit Court of Appeals reversed the Tax Court and concluded that supervisory approval of a penalty may be made on or before the date of a Notice of Deficiency; the decision parallels one of the Second Circuit but lower courts have often cited an earlier requirement of approval.
In Adams v. Commissioner, 160 TC No. 1, the Tax Court determined that it lacked jurisdiction to review the underlying tax liabilities in the case of a passport denial due to “seriously delinquent tax debt.”
In Freman v. Commissioner, TC Memo 2023-10, a former spouse who was abused was found to be an innocent spouse and given equitable relief except for one large income item, a retirement plan distribution, for which she had actual knowledge.
In United States v. Alicea, 131 AFTR2d 2023-________, the Fourth Circuit Court of Appeals reversed a North Carolina Federal District Court and determined that the shared responsibility penalty, now repealed, is really a tax under the bankruptcy laws, concurring with the Third Circuit Court of Appeals and in opposition to the Fifth Circuit.