November 1st, 2022
October Federal Tax Update
Champions Retreat Golf Founders, LLC v. Commissioner, TC Memo 2022-106, the Tax Court determined that the value of an easement on property with a golf course and capable of sustaining residential housing was in excess of $7.8 million, rejecting the IRS value at $20,000, based on the prohibition of further subdivision of the property and the restriction on future construction of additional buildings and structures; the taxpayer had utilized an original valuation at over $10 million.
In Bionica, Inc. v. Commissioner, the Tax Court found in a Bench Opinion that a $100,000 payment labeled in the records of the company as “medical sales” was not a contribution to capital as there was no corroborating testimony from the owner that it represented anything other than revenue.
In Yaguda v. Commissioner, TC Summary Opinion 2022-21, a husband, wife and minor daughter were found liable for taxes on their distributive share of S corporation income during a bankruptcy proceeding where no distributions were made; the Court noted that a corporation, unlike an individual, is not treated as a new taxpayer during the bankruptcy.
In Clark Raymond & Co. PLLC v. Commissioner, TC Memo 2022-105, the Tax Court disagreed with IRS and found value in clients “distributed” by a CPA firm that broke up; however, it disagreed with a special allocation to the departing members as the LLC failed to maintain capital accounts.
In Scott v. United States, 130 AFTR2d 2022-________, the Eleventh Circuit Court of Appeals sustained a Florida jury’s finding that a daughter who was “accounting manager” for her father’s HVAC company with discretionary authority and signature ability was liable for the trust portion of unpaid payroll taxes.
In News Release 2022-183, IRS warned employers about claiming the Employee Retention Credit when they may not qualify, with eligibility limited to those who sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings during 2020 or the first three quarters of 2021, those who experienced a significant decline in gross receipts during 2020 or during the first three quarters of 2021 or those qualified as a “recovery startup business” for the third and fourth quarters of 2021.
In IRS Fact Sheet 2022-38, IRS set forth the major factors for an activity being considered a business rather than a hobby including whether the activity was conducted like a business, whether the taxpayer changed operations to improve profitability, whether the taxpayer or advisors had expertise, whether the activity was a main source of income, whether the taxpayer made or expected to make a profit, whether profitable years have been significant or de minimis, whether losses are normal or beyond the taxpayer’s control and whether the activity has elements of personal pleasure or recreation.
In United States v. Walz, 130 AFTR2d 2022-________, a Florida Federal District Court concluded that IRS filed suit against the taxpayer two days before the tenth anniversary of the assessment of liability; the taxpayer unsuccessfully argued that the statute expired more than three months earlier when he signed the consent to the audit adjustments but it is the Certificate of Assessment that is controlling.
In Bacigalupi v. Commissioner, in a Bench Opinion, the Tax Court granted equitable innocent spouse relief to an individual stretched financially to meet household expenses when her stockbroker husband had controlled the family finances and put money into a secret account.