June 1st, 2022
May Federal Tax Update
Author: David S. De Jong
In Caldwell v. Commissioner, TC Memo 2022-51, the Tax Court concluded that long term disability premiums were paid by the taxpayer’s employer in pre-tax dollars and, accordingly, benefits which went unreported were taxable.
In Rice v. Commissioner, the Tax Court in a Bench Opinion concluded that an individual discharged from the Army due to physical limitations could not exclude retirement pay as it was based on age and service and not his physical discharge.
In Ibrahim v. Commissioner, TC Summary Opinion 2022-7, the Tax Court denied a pre-2019 alimony deduction for payments to a former wife to assist in relocation and legal fees where the agreement specifically stated that neither party shall pay maintenance to the other party; in any event, the payments would not have ceased on death of the recipient as was required for the deduction.
In Albrecht v. Commissioner, TC Memo 2022-53, the Tax Court disallowed donations of jewelry and other artifacts to a museum where a gift agreement stated that the transfer was irrevocable unless otherwise provided in a separately stated document, the Court noting that the language contemplated the possibility of a side agreement although none was given to IRS.
In Harrison v. Commissioner, TC Summary Opinion 2022-6, the Tax Court denied pre-2018 employee business expenses for upgrading from economy to business class where the employer would only reimburse the lower fare; however, the denial related more to the inability to show the purpose of the travel farther than the upgrade itself; in Major v. Commissioner, the Tax Court in a Bench Opinion denied an employee business expense deduction where the taxpayer could not prove that the expenses would not be reimbursed, declining to reach out to the employer for proof due to an alleged court order prohibiting such contact.
In Notice 2022-28, IRS indicated that it would not tax employees who forego leave in consideration for the employer making cash payments to charitable organizations for Ukraine relief through 2022; the employer may claim such payments as a business expense or charitable expense.
RETIREMENT AND ESTATE PLANNING
In In Re: Moore, 129 AFTR2d 2022-1790, an Ohio Bankruptcy Court held that an IRA continues to be exempt in bankruptcy even after the owner takes a distribution for personal need as there is no prohibited transaction by the distribution to him and the subsequent use of funds.
In Rogerson v. Commissioner, TC Memo 2022-49, the Tax Court agreed with IRS that a corporation whose activities were nonpassive could not look to prior years after it reorganized into multiple entities, holding that the spunoff leasing activities were necessarily passive.
In Genecure, LLC v. Commissioner, TC Memo 2022-52, the Tax Court denied most deductions of a drug research company for lack of substantiation coupled with testimony lacking credibility.
In Seaview Trading LLC v. Commissioner, 129 AFTR2d 2022-1757, a divided Ninth Circuit Court of Appeals reversed the Tax Court and found that an LLC taxed as a partnership filed a return when it was provided on request to an IRS agent where the original filed return was never received; the dissenting judge would have disallowed the filing in that it was not sent to the prescribed location.
In United States v. Goldner, 129 AFTR2d 2022-________, a Pennsylvania Federal District Court allowed evidence of nonpayment of many years of back taxes to be admitted as evidence of willfulness regarding alleged evasion of subsequent year taxes.
In Evert v. Commissioner, TC Memo 2022-48, the Tax Court found that the taxpayer did not extend the statute of limitations for assessment under duress where he and the Appeals Officer gave conflicting testimony, the Court believing that no conversation even took place between the parties.
In Hammock v. Commissioner, in a Bench Opinion, the Tax Court declined to allow the taxpayer to dispute responsibility for payroll taxes at a CDP hearing based on no prior opportunity to argue the merits where IRS showed that the certified mail was hand delivered to the actual address of the taxpayer who did not file a timely protest (but the IRS notice was attached to a late filed protest).
In Podlucky v. Commissioner, TC Memo 2022-45, the Tax Court denied innocent spouse relief to a wife who had been convicted of tax-related offenses including evasion where she had signed at least 100 checks for the benefit of herself and her husband and had received quantities of “luxury jewelry.”
In Optimal Wireless, LLC v. Internal Revenue Service, 129 AFTR2d 2022-________, a District of Columbia Federal District Court concluded that the individual shared responsibility obligation for health insurance, since repealed, is a tax such that no injunction against payment can occur; in In Re: Szczyporski, 129 AFTR2d 2022-1784, the Third Circuit Court of Appeals reached the same result regarding bankruptcy priorities.
A Government Accountability Office report indicated that the IRS audit rate of individual tax returns has declined to 0.25 percent, down from 0.9 percent a decade ago and even further from earlier years.