Articles

November 1st, 2023

October Federal Tax Updates

Posted in: Tax Law    Tagged: David S. De Jong

INDIVIDUALS

In In Re:  Lambert, 132 AFTR2d 2023-6108, a Georgia Bankruptcy Court found that the issuance of Form 1099-C did not establish cancellation of a debt inasmuch as the form is an administrative reporting requirement upon occurrence of an “identifiable event” whether or not there is an actual discharge; however, the Court determined that the filing was erroneous and that the creditor must amend or rescind to allow the debtor to avoid a taxable event.

In Henaire v. Commissioner, TC Memo 2023-131, the Tax Court denied an exclusion for income earned abroad in Australia and for the housing allowance, the taxpayer not meeting the criteria for either and having previously waived the exclusion in a Closing Agreement.

In Mill Road 36 Henry LLC v. Commissioner, TC Memo 2023-129, the Tax Court allowed a deduction for a conservation easement but, because the contributing members used the land for business purposes, the deduction was limited to the LLC’s basis in the land as sales proceeds would have generated ordinary income. 

In Harrell v. Commissioner, TC Summary Opinion 2023-31, the Tax Court agreed with IRS in denying pre-2018 employee business expenses of a transportation manager who had sketchy records and whose testimony was general in nature and did not confirm the lack of employer reimbursement.

In Christensen v. United States, 132 AFTR2d 2023-________, the Court of Federal Claims held that the US-France tax treaty requires the US to credit taxes paid in France against the Net Investment Income (Medicare) tax (the same result is likely re:  other treaties).

In Information Release 2023-185, IRS warned against art donation deductions where the value is inflated by promoters and specific appraisers value the works at substantially more than the original purchase price.

RETIREMENT AND ESTATE PLANNING

In Estate of Caan v. Commissioner, 161 TC No. 6, the Tax Court determined that the taxpayer did not do a proper rollover in changing trustees as proceeds from liquidation of a partnership interest were not deposited into the new IRA until after the 60-day rollover period and came from three different distributions.

BUSINESS

In Amundsen v. Commissioner, TC Summary Opinion 2023-30, a CPA who claimed approximately $67,000 in gross receipts but $2,000 more as cost of goods sold with no other expenses, was able to substantiate only about $6,000 of total expenses and, as a result of the disallowance, received a penalty for substantial understatement of income tax. 

In In Re:  Vital Pharmaceuticals, 132 AFTR2d 2023-6114, a Florida Bankruptcy Court concluded that an S election is property of a bankruptcy estate and cannot be terminated by the individual shareholder to cause payment of taxes at the corporate level to the detriment of the corporation and the benefit to the stockholder.

In Kraske v. Commissioner, TC Memo 2023-128, the Tax Court determined that a cloud consulting engineer working 50 hours per week as an employee was not filing a Schedule C for a purported carbon based computing company with the intention of making a profit, the Court finding that only a single factor favored the taxpayer as opposed to the IRS.

PROCEDURE

In Lee v. United States, 132 AFTR2d 2023-________, the Eleventh Circuit Court of Appeals agreed with a Florida Federal District Court that the US Supreme Court’s 1985 decision in Boyle, making a taxpayer responsible for late filed returns even when the accountant erred in nonfiling, also applies to electronically filed returns. 

In Rosselli v. Commissioner, in a Bench Opinion, the Tax Court acquiesced in late filing and late payment penalties where the taxpayer stated he was relying on losses from a Schedule K-1 not received (because the company was raided by the FBI and found to be a Ponzi scheme).

In United States v. Griggs, 132 AFTR2d 2023-6113, the Fifth Circuit Court of Appeals sustained a Texas jury verdict involving a tax preparer’s own returns and affirmed a criminal conviction based on a pattern of underreporting large sources of income for a period of years.

In Kurotaki v. United States, 132 AFTR2d 2023-6138, a Hawaii Federal District Court determined that a US green card holder who lived in Japan and spoke no English did not willfully fail to file FBAR reports as his accountant mistranslated the English instructions into Japanese such that he believed that the filing was only required by US resident taxpayers.

In United States v. Kelly, 132 AFTR2d 2023-________, a Michigan Federal District Court ordered an anesthesiologist to repatriate foreign assets to pay FBAR penalties because he had insufficient assets in the US to pay the liability.

In United States v. Byers, 132 AFTR2d 2023-________, a Minnesota Federal District Court permitted the forced sale of a principal residence by IRS, rejecting the claim of the non-owner spouse as to a homestead or inchoate marital right in the property which would have given the spouse a portion of the proceeds. 

In Long v. Commissioner, TC Memo 2023-130, the Tax Court concluded that IRS abused its discretion in closing a CDP proceeding just two days after drafting a denial of an Offer in Compromise and without considering an Installment Agreement alternative.

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