Volume 111 — Tax Court Reports

Company C (C), an automobile parts remanufacturer required to take inventories pursuant to sec. 471, 1Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in… Held: Respondent did not abuse respondent's discretion in determining that C's LIFO method does not clearly reflect income because it is contrary to the requirements of sec. 472 and the regulations thereunder and that therefore C's election to use that method should be terminated.

ESTATE OF EMANUEL TROMPETER, DECEASED, ROBIN CAROL TROMPETER GONZALEZ AND JANET ILENE TROMPETER POLACHEK, CO-EXECUTORS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent *This opinion supplements our Memorandum Opinion in Estate of Trompeter v. Commissioner, T.C. Memo 1998-35. E, an estate, is subject to the fraud penalty of sec. 6663(a), I.R.C. R computes this penalty based on E's underpayment as determined by taking into account only the deductions which were included on E's Federal estate tax return. E computes its underpayment by also taking into account deductions for expenses, such as professional fees and deficiency interest, which arose after the filing of E's return. HELD: E's underpayment is determined by taking into account all deductible expenses, including those paid or incurred after the filing of the return.

Decedent (D) executed a power of attorney appointing her son (S) attorney-in-fact. Prior to D's death, S drew six checks against D's checking account payable to himself, his wife, his brother, his nieces, and two other individuals. These checks were neither accepted, nor paid, by the drawee bank until after D's death. Petitioner argues that these checks represent completed gifts of funds in D's checking account that are not includable in D's gross estate. HELD: D maintained dominion and control over the amounts in her checking account against which the checks were written until her death. Accordingly, the checks were not completed gifts during her lifetime. HELD, FURTHER: These noncharitable gifts are not deemed to be complete under the theory that the payment of the checks after D's death relates back to the date of delivery prior to D's death. Estate of Metzger v. Commissioner, 100 T.C. 204 (1993), affd. 38 F.3d 118 (4th Cir. 1994), distinguished. Thus, the funds represented by the checks written on D's bank account and not paid until after her death are includable in her gross estate. Secs. 2031, 2033, I.R.C.; Estate of Gagliardi v. Commissioner, 89 T.C. 1207 (1987).

INTEL CORPORATION AND CONSOLIDATED SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent *This supplements Intel Corp. v. Commissioner, 100 T.C. 616 (1993), affd. 67 F.3d 1445 (9th… Held: for the years at issue, sec. 904(c), I.R.C. 1954, does not prevent interest from being imposed on the deficiency without reduction by a foreign tax carryback from a subsequent year.

I. P is the successor in interest to an affiliated group of corporations whose parent corporation is United Banks of Colorado, Inc. (the UBC affiliated group and UBC, respectively). Held: P may not allocate the cost of constructing the Atrium to the bases of the adjoining properties because the basic purpose of the Atrium was not the enhancement of the adjoining properties so as to induce sales of those properties.

In July 1990, J, a corporation, transferred to petitioner, its sole shareholder, real property situated in California (the Alhambra property) without receiving a reasonably equivalent value in… Held: Respondent has established that the Alhambra property was fraudulently conveyed under California law. 2. HELD, FURTHER, respondent is not bound by the limitations period in California's UFTA. United States v. Summerlin, supra, applied. 3.

Pursuant to sec. 6224(c)(2), I.R.C., Ps request consistent settlement terms of partnership items with earlier settlement agreements that include… Held: A settlement agreement that includes concessions of partnership and nonpartnership items is not subject to the consistent settlement provisions under sec. 301.6224(c)-3T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 6787 (Mar. 5, 1987). HELD, FURTHER: Sec. 301.6224(c)-3T, Temporary Proced. & Admin. Regs., supra, is valid.

P is a bank that uses the cash method of accounting. During 1989, P made short-term loans to customers. The principal and interest on the loans were payable at maturity. Held: Sec. 1281(a)(2), I.R.C., does not require a bank to accrue interest on short-term loans made in the ordinary course of its business. Security Bank Minn. v. Commissioner, 98 T.C. 33 (1992), affd. 994 F.2d 432 (8th Cir. 1993).

Ps rented a building to a personal service corporation for use in a business activity in which P materially participated. Held: R complied with the notice and comment requirements of the APA, id., when R prescribed sec. 1.469-4(a), Income Tax Regs., and neither that section nor sec. 1.469-2(f)(6), Income Tax Regs., is invalid due to a lack of compliance with those requirements.

P, a bank holding company, leased a mainframe computer from ICC, a finance corporation, for a 5-year term. Less than 1 year later, P decided that the computer was no longer adequate for its needs. Held: The $ 2.5 million rollover charge P incurred is not currently deductible in the year of termination of the first lease but must be capitalized and amortized over the 5-year term of the second lease.

Ps owned investment real property subject to a recourse mortgage. Upon default, the property was acquired by the lender at a foreclosure sale. Held: P's amount realized at the foreclosure sale is the property's fair market value. HELD, FURTHER: Bifurcated analysis used to determine income tax consequences of amount realized and income from cancellation of indebtedness. HELD, FURTHER: Ps are not liable for accuracy-related penalty determined by R.

In December 1989, following P's retirement, P began receiving annual distributions from his individual retirement account (IRA). Held: P modified the series of substantially equal periodic payments by receiving the $ 6,776 from his IRA in November 1993 prior to the close of the 5-year period beginning on the date of the first distribution in December 1989, and is therefore subject to the 10-percent recapture tax on all distributions received prior to attaining age…

W, a corporation, sued X for breach of contract and misrepresentation for failing to complete the installation of a computer system and sought damages for lost profits. Held: The settlement of the lawsuit between the S corporations and X did not constitute a sale or exchange pursuant to sec. 1222, I.R.C., and thus the settlement proceeds received by the S corporations and passed through to P constitute ordinary income.

In a decision which has become final, this Court determined that P had an overpayment of Federal income tax for the taxable year 1987, due to a foreign tax carryback… Held: this Court has jurisdiction over P's motion to redetermine interest. HELD, FURTHER, the exercise of such jurisdiction is mandatory, and, thus, P's motion to withdraw is denied. HELD, FURTHER, P's motion to redetermine interest is denied. Intel Corp. & Consol. Subs. v. Commissioner, 111 T.C. 90 (1998).

The MEBA Plan, a collectively bargained, multiemployer pension plan, provided notice in an employee publication that the MEBA Plan was going to apply to the IRS for an advance determination that it… Held: P, as a retired employee of a collectively bargained plan, is not an interested party for purposes of sec. 7476(b)(1), I.R.C. 1986, where the plan amendments do not result in a plan termination.

P is the common parent of an affiliated group of corporations (the group) that included L during the period from 1984 to 1993. Held: The expenses in issue do not qualify for the 10-year carryback provided in sec. 172(b)(1)(C), I.R.C., because the expenses do not qualify as specified liability losses (SLL's) within the meaning of sec. 172(f), I.R.C. The expenses do not qualify as SLL's within the meaning of sec. 172(f), I.R.C., because they were not taken into…

Ps sued the manufacturer of an agricultural chemical, claiming tortious injury to their nursery business. Held: Whether damages received on account of injury to business reputation are on account of personal injuries within the meaning of sec. 104(a)(2), I.R.C., is a question of fact.

Ps (TBS and Tracinda) and others engaged in a series of complex commercial transactions that closed simultaneously. Held: The form chosen by Ps was not a fiction that failed to reflect the substance of the transaction. Esmark, Inc. v. Commissioner, 90 T.C. 171 (1988), affd. 886 F.2d 1318 (7th Cir. 1989), followed. Consequently, sec. 311, I.R.C., has no application to this transaction.

H and W owned four residential properties located in State O. One of the properties was H and W's family residence. The other three were not. Held: To be excluded from gross income under sec. 131(a), I.R.C., the payments must be paid for care provided in the foster care provider's home ( sec. 131(b)(1)(B), I.R.C.). A house or other dwelling is the foster care provider's home, only if the foster care provider resides there.

HELD: Under the facts of this case, direct transfer of a portion of funds invested in an annuity contract into another annuity contract qualifies as a nontaxable exchange under sec. 1035, I.R.C.… Held: Under the facts of this case, direct transfer of a portion of funds invested in an annuity contract into another annuity contract qualifies as a nontaxable exchange under sec. 1035, I.R.C. Other issues also decided.