November 1st, 2024
October Federal Tax Updates
Posted in: Tax Law Tagged: David S. De Jong
Author: David S. De Jong
INDIVIDUALS
In Warren v. Commissioner, TC Summary Opinion 2024-20, the Tax Court declined to classify an engineer as a “real estate professional” as he worked as an employee on a full time basis and claimed “only” 1,628 hours of time spent on real estate activity, the Court noting that he could not win his case even if the facts were accurate.
In Tang v. Commissioner, TC Summary Opinion 2024-23, the Tax Court disallowed an IRS employee’s claim on her own return of over $106,000 allegedly paid in cash for medical services in China despite a receipt and Chinese to English translation, finding altered loan documents; the Court also disallowed $21,000 in alleged charitable donations to an organization that the taxpayer helped create, the Court finding that funds were moved between accounts of the taxpayer but were not shown as actually received by the organization.
In Lucas v. Commissioner, TC Summary Opinion 2024-22, the Tax Court disallowed a $50,000 donation to Goodwill as well as a $35,000 donation of 20 books to another organization for lack of substantiation and compliance with the requirements on donations of property.
In JL Minerals LLC v. Commissioner, TC Memo 2024-93, the Tax Court valued a conservation easement of 65 acres in Georgia at $93,700 and not the $1.674 million which was claimed by the company, the Court noting that the cash flow figures were “simply an exercise in imagination.” and the results “laughable.”
IRS Commissioner Danny Werfel announced that a correction is coming in the near future to the issue of the improper parent filing ahead of the entitled parent to claim the child tax credit.
RETIREMENT AND ESTATE PLANNING
IRS Commissioner Danny Werfel announced that IRS will no longer automatically penalize the late filing of form 3520 Part IV, reporting gifts and bequests from foreign sources but will first consider reasonable cause explanations.
BUSINESS
In Surk LLC v. Commissioner, TC Memo 2024-99, the Tax Court required a partnership – taxed entity to decrease its outside basis in a lower tier partnership by losses improperly claimed in closed years no longer subject to adjustment.
In Patients Mutual Assistance Collective Corporation v. Commissioner, TC Memo 2024-98, the Tax Court once again ruled that business expenses other than cost of goods sold were not deductible in the case of a licensed medical marijuana dispensary as marijuana remains a controlled substance under federal law, the Court finding the law to be constitutional.
In Calienes v. Commissioner, in a Bench Opinion the Tax Court found that a couple who worked full time and claimed to have four side businesses each with losses, despite producing a “deluge of receipts”, could not show that they actually intended to make a profit from the activities, could not show the purpose of the receipts and could not explain why some “expenses” appeared to be personal in nature.
In Wright v. Commissioner, TC Memo 2024-100, the Tax Court concluded that sophisticated currency option trading lacked a profit motive as the couple could not have profited without the tax considerations.
PROCEDURE
Final Regulations under Code Section 6011 establish syndicated conservation easement transactions as “reportable transactions” with penalties for failure to disclose; an original attempt in 2016 to establish such syndications as listed transactions was thrown out by the courts for failure to follow the Administrative Procedures Act.
In Johnson v. Commissioner, TC Memo 2024-94, the Tax Court agreed with the IRS denial of a whistleblower award where the initial determination of liability was reversed on administrative appeal.
In United States v. Marley, 134 AFTR2d 2024 – ____, a Texas Federal District Court ordered a tax preparer who lost electronic filing privileges but began using other EFINs to file fraudulent returns to pay the government $733,700 representing an approximation of fees that she had charged.
In Jenner v. Commissioner, 163 TC No. 7, the Tax Court confirmed that FBAR penalties, although enforced by IRS, are not taxes and as a result CDP appeal rights do not apply.
In Vensure HR v. United States, 134 AFTR2d 2024 – ___, the Federal Circuit Court of Appeals reversed the Court of Federal Claims and held that the failure to include a power of attorney with a claim for refund which was signed by the attorney does not invalidate the refund claim.
In Chief Counsel Advice 202441013, IRS confirmed that the failure to file penalty is applicable notwithstanding that IRS prepared a Substitute for Return which is disregarded for purpose of the penalty.
In Franco v. Commissioner, TC Summary Opinion 2024-21, the Tax Court denied equitable innocent spouse relief to a wife still married to her husband where she failed to establish economic hardship, had reason to know of the unreported income at least as to several items attributable to her, was involved in household financial decisions, had a history of filing inaccurate returns and could not substantiate alleged abuse by her husband.
