June 1st, 2023
May Federal Tax Update
In Rodgers v. Commissioner, TC Memo 2023-56, the Tax Court concluded that interest paid on a past due child support obligation constitutes income to the recipient and not additional taxfree child support.
In Bibeau v. Commissioner, TC Memo 2023-66, the Tax Court conceded that treaties with Native American nations are to be interpreted based on the understanding of tribal members; however, the Court refused to expand prior interpretation of an 1837 treaty which gave the Chippewa the right to “hunt, fish and gather the wild rice” on their lands.
In Soleimani v. Commissioner, TC Memo 2023-60, the Tax Court concluded that a couple had likely presented false documents to claim Iranian confiscation losses but, in any event, the Court found that the couple could not prove the year of the loss.
In Ledbetter v. Commissioner, TC Summary Opinion 2023-19, the Tax Court denied an expense deduction to a sheet metal worker whose daily round trip was 184 miles as his employment was not “temporary” in nature, the Court tacking on time with five separate contractors during his time at a single location.
In Gregory v. Commissioner, 131 AFTR2d 2023-________, the Eleventh Circuit Court of Appeals agreed with the Tax Court that expenses related to hobby losses can only be claimed as miscellaneous itemized deductions (pre-2018 and post-2025).
In Bright v. Commissioner, in a Bench Opinion the Tax Court rejected records of a part-time non-professional gambler and allowed losses only to the extent that they could be shown from cassino records.
RETIREMENT AND ESTATE PLANNING
In In Re: Brainard, 131 AFTR2d 2023-________, a Connecticut Bankruptcy Court exempted from creditors only an amount equal to one year’s IRA contribution plus its earnings, declining to exempt the entire account which was funded by an impermissible rollover from a nonqualified deferred compensation plan.
In United States v. Paulson, 131 AFTR2d 2023-________, the Ninth Circuit Court of Appeals agreed with a California Federal District Court that co-trustees and beneficiaries had liability for unpaid estate taxes in a $200 million estate inasmuch as the statutory times for collection from third parties had not passed.
In Gould v. Commissioner, in a Bench Opinion the Tax Court followed precedent and required an insurance broker to report income on commissions received for insurance purchased on his own life, noting that the result would be the same in the case of a real estate broker or a stockbroker.
In Clary Hood, Inc. v. Commissioner, 131 AFTR2d 2023-________, the Fourth Circuit Court of Appeals, dropping the proposed penalty, after examining multiple factors as to reasonableness including, most importantly, comparable companies allowed about one-half of two $5 million bonuses above a $169,000 salary paid in successive years by a $70 million C corporation.
In ES NPA Holding, LLC v. Commissioner, TC Memo 2023-55, the Tax Court concluded that a new owner in a limited liability company received only a profits interest as the Court accepted that governing documents required that the value at the time of admission of the new owner go entirely to the existing owners in the event of a hypothetical liquidation.
In Cardiovascular Center, LLC v. Commissioner, TC Memo 2023-64, the Tax Court found that medical assistants were employees and not independent contractors as they submitted time sheets identifying them as “employees”, were subject to supervision and office procedures and received overtime pay; the Court also ruled that Section 530 relief did not apply inasmuch as there was no reasonable basis to classify the workers as independent contractors.
In Cashaw v. Commissioner, 131 AFTR2d 2023-________, the Fourth Circuit Court of Appeals affirmed a Tax Court decision holding a temporary chief administrator of a hospital personally liable for unpaid payroll taxes when she admittedly utilized funds first for “essential patient care services.”
In Sherman v. Commissioner, TC Memo 2023-63, the Tax Court held that a physician with a background in the arts who started a film company but made no money was not engaged in the activity for profit, the Court finding that every single factor weighed in favor of a hobby determination.
In Letter Ruling 202319013, IRS opined that stock in a C corporation software company was eligible for the small business stock exclusion as the principal asset of the business was not the reputation or skill of employees because their training was on processes unique to the company which could be learned quickly.
In Mann Construction v. United States, 131 AFTR2d 2023-1551, a Michigan Federal District Court refused to grant a stay pending appeal of a decision of the Sixth Circuit Court of Appeals requiring notice and comment procedures to be followed before a life insurance arrangement considered abusive could be labeled as such by IRS.
In Polselli v. Internal Revenue Service, 131 AFTR2d 2023-1683, a unanimous US Supreme Court agreed with a divided Sixth Circuit Court of Appeals affirming a Michigan Federal District Court that no advance notice is required to be given to a person identified in a summons whose liability is at issue in the summons.
In Tracy v. Commissioner, TC Summary Opinion 2023-20, the Tax Court abated failure to file and failure to pay penalties of a 92 year old solo practitioner attorney who was closing his practice and failed to supervise his assistant.
In United States v. Kelly, 131 AFTR2d 2023-6011, a Michigan Federal District Court, rejecting an argument by an anesthesiologist that he did not seek advice concerning the tax implications or reporting obligations on a Swiss bank account because he “didn’t see a need” and he “had no questions”, concluded that he willfully failed to file an FBAR.
In Nutt v. Commissioner, 160 TC No. 10, the Tax Court once again threw out a petition because it was electronically filed minutes after the 11:59 p.m. eastern deadline on the 90th day; the time is based on the situs of the Tax Court in the eastern time zone and not based on the residence of the taxpayers which was in the central time zone.
In Boykin v. United States, 131 AFTR2d 2023-________, a North Carolina Federal District Court determined that an emergency room physician who owed IRS almost $4.5 million fraudulently transferred to his new wife upon marriage a 50 percent interest in his management company plus cash for building a house; he justified the transfer based on his first wife having gotten a 50 percent of assets upon divorce.
In Whittaker v. Commissioner, TC Memo 2023-59, the Tax Court concluded that IRS abused its discretion in rejecting a $1,629 Offer in Compromise where the couple neared retirement age and their finances were hurt by COVID.
In TIGTA Report Number 2023-IE-R004, IRS announced that first names of employees will be removed from Internal Revenue Service correspondence for their protection.