July 7th, 2025
June Federal Tax Update
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Beaverdam Creek Holdings v. Commissioner TC Memo 2025-53, the Tax Court concluded that a partnership had claimed a conservation easement based on a “preposterous” financial model and allowed a deduction of about $193,000 rather than the $22 million dollars shown on the tax return.
In Glade Creek Partners v. Commissioner, 135 AFTR2d 2025 -1836, the Eleventh Circuit Court of Appeals agreed with the Tax Court that a deduction for a conservation easement was not only overstated but also was treated improperly as a capital asset where the property had been inventory in the hands of the LLC member who contributed it to the company.
BUSINESS
In Stevens v. Commissioner, TC Memo 2025-45, the Tax Court denied the deduction of interest by an accrual basis taxpayer as not “bona fide” under a complex scenario where interest would never actually be paid.
In Kelly v. Commissioner, 135 AFTR2d 2025 – 1828, the Ninth Circuit Court of Appeals agreed with the Tax Court that an intercompany loan which would have simultaneously given nonrecognized cancellation of debt income to the borrower and a bad debt deduction to the lender was not proven to be worthless.
In Conmac Investments v. Commissioner, 135 AFTR2d 2025 – ___, the Eighth Circuit Court of Appeals agreed with the Tax Court that the amortization of rights to subsidies from the US Department of Agriculture constituted a change in accounting method where the company did not make previously amortize similar rights.
In AbbVie and Subsidiaries v. Commissioner, 164 TC No. 10, the Tax Court held that a $1.6 billion payment under a Termination Agreement to walk away from a pending merger constituted a ordinary loss to the payor as no right or obligation with respect to property existed which would have created a capital transaction; rather the Court concluded that the payment constituted termination of an agreement with mutual covenants upon rejection of the deal by the payor’s Board.
In Stenson Tamaddon v. Internal Revenue Service, 135 AFTR2d 2025- ___, an Arizona Federal District Court upheld Notice 2021-20, limiting businesses eligible for the Employee Retention Credit as a valid interpretation of the statute and did not require notice and comment before issuance.
PROCEDURE
The Department of Justice budget request to Congress calls for elimination of the Tax Division at DOJ and shifting its 390 attorneys to either the Civil Division or Criminal Division with responsibilities beyond tax matters.
In United States v. Watson, 135 AFTR2d 2025 – ____, the Fourth Circuit Court of Appeals agreed with a Maryland Federal District Court that a tax preparer’s own personal returns were admissible in a trial for aiding and abetting in the preparation of false returns for the purpose of proving intent or lack of accident.
In Shleifer v United States, 135 AFTR2d 2025-1841, a Florida Federal District Court disallowed a deduction of an executive placed on an amended schedule C for depreciation of an interest in an airplane used in lieu of commercial travel, concluding that no business existed; the executive tried to argue that it would have been allowable on a schedule E as a partner business expense but the Court did not look at the merits, holding that the “variance doctrine” does not allow consideration of an argument not set forth on the earlier Claim for Refund.
In Cano v. Commissioner, TC Memo 2025-65, the Tax Court threw out an IRS Notice of Deficiency for not being sent to a correct street address rather than accepting the IRS position that the petition should be thrown out as having been filed more than 90 days after the date on the notice (which would have permitted assessment by the IRS).
In Commissioner v. Zuch, 135 AFTR2d 2025 -___, the US Supreme Court by an 8-1 vote resolved a split among the appellate courts and reversed the Third Circuit Court of Appeals, allowing dismissal by the Tax Court of a CDP Appeal when the liability for the docketed years was satisfied by refunds of subsequent years applied to the liability despite taxpayer direction of the refunds to future rather than back years.
In Towarnicky v Commissioner, TC Memo 2025 – 62, the Tax Court denied attorney fees to a litigant wife who used her husband as counsel and could not prove that she paid him any fees.
In United States v. Fakir, 135 AFTR2d 2025 -___, a Michigan Federal District Court gave judgement to the United States in a suit brought against the last surviving original member of the Four Tops for unpaid income taxes, concluding that the 10-year statute of limitations had not run out due to extensions resulting from bankruptcy and installment agreements (Mr. Fakir died during the pendency of the suit).
In Horshan v. Commissioner, TC Memo 2025-56, the Tax Court sustained a lien against an individual paying pursuant to an installment agreement where the taxpayer could not show that the lien adversely affected her employment or her ability to pay the tax liabilities, noting that she could apply for removal of the lien when her $32,000 balance dropped below $25,000.
In United States v. David, 135 AFTR2d 2025- ___, an Ohio Federal District Court concluded that an IRS lien against a son did not attach to property owned by the mother and leased to the son in that Ohio law did not allow the creation of equitable interests in property and in any event IRS failed to show that the lease was a sham giving the son an identifiable interest in the real estate.
In Smith v. Commissioner, TC Summary Opinion 2025-6, the Tax Court gave Innocent Spouse treatment to a former wife based on separation of liability believing that she was unaware of the extent of her husband’s self-employment income and his relief from indebtedness; the Government had to prove that she had actual knowledge in order to deny Innocent Spouse status.
The National Taxpayer Advocate Blog, set forth that IRS was deleting a required admission of willfulness on Form 14457, the Voluntary Disclosure Practice Preclearance Request and Application, which on its most recent version had to be stated in the affirmative to come under the voluntary disclosure program
In Notice 2025-33, IRS extended the penalty relief through 2026 transactions for brokers as to backup withholding on digital asset transactions reportable on Form 1099-DA.
