Volume 113 — Tax Court Reports

P's wholly owned domestic subsidiary, D, participated in a debt-equity-swap transaction in which D exchanged an interest in Mexican U.S.-dollar-denominated debt for stock in D's Mexican subsidiary. Held: Pursuant to sec. 367(a), I.R.C., and sec. 1.367(a)- 1T(b)(3)(i), Temporary Income Tax Regs., 51 Fed. Reg. 17939, P did not recognize any gain.

P reported the date-of-death fair market values of the stock of S and W as $ 181.50 and $ 485, respectively, per share. Held: under the doctrine of equitable recoupment, P is entitled to a credit for the income tax overpaid by M on the gain recognized on the sales of the shares due to the lower values reported on the estate tax return. Estate of Bartels v. Commissioner, 106 T.C. 430 (1996); Estate of Mueller v. Commissioner, 101 T.C. 551 (1993), followed.

P is a nonprofit corporation. Its sole activity is    participating as co-general partner with a for-profit    corporation in a partnership that is general partner of an    operating partnership that owns and operates an ambulatory    surgery center. Held: On the facts involved herein, P has ceded    effective control over the operations of the partnerships and    the surgery center to private parties, conferring impermissible    private benefit. P is therefore not operated exclusively for    exempt purposes within the meaning of sec. 501(c)(3), I.R.C.    1986.

P, a tax attorney, was the president and sole shareholder of six corporations. P prepared his own Forms W-2 for 1989 and 1990 from these corporations. Held: P had an underpayment of tax for 1989 and 1990. See sec. 6664(a), I.R.C.; sec. 1.6664-2, Income Tax Regs. Held, further, P is liable for the fraud penalty for 1989 and 1990. Held, further, the periods of limitation on assessment for 1989 and 1990 did not expire.

P was an independent agent for an insurance brokerage firm and a part-time minister. Held: although a portion of P's residence was used exclusively and regularly in his two activities, the residence was not his principal place of business. Accordingly, the home office expenses are not deductible. See sec. 280A(c)(1)(A), I.R.C.; Commissioner v. Soliman, 506 U.S. 168, 175-177, 121 L. Ed. 2d 634, 113 S. Ct. 701 (1993). 2.

C, P's wholly owned S corporation, leased trucks under master lease agreements (master leases). For each truck, C and the lessor agreed to a base rent dependent on the lessor's cost of the truck. Held: Pursuant to sec. 7701(h)(1), I.R.C., the TRAC contained in the master leases will not be taken into consideration in deciding whether the leasetransactions are entitled to lease treatment. HELD, FURTHER, the lease transactions are entitled to be treated as leases.

On Oct. 17, 1991, a Form 1040 was submitted by an attorney, A, on behalf of P for the taxable year 1990, which would have been timely. Held: Because the Form 1040 submitted on behalf of P was not signed as required by sec. 1.6012-1(a)(5), Income Tax Regs., it did not constitute a valid return. HELD, FURTHER, sec. 1.6012-1(a)(5), Income Tax Regs., is valid. HELD, FURTHER, P is liable for the addition to tax under sec. 6651(a)(1), I.R.C., for 1990.

On Aug. 13, 1998, R mailed a final determination letter to Ps denying their request for abatement of interest for the taxable year 1978. Held: This case will be dismissed for lack of jurisdiction on the ground that the petition was not filed with the Court within the 180-day period prescribed in sec. 6404(g)(1), I.R.C.

P is a corporation which provides medical services and is a sponsor of a qualified deferred compensation plan (the plan). S, G, and E were petitioner's owners and employees. Held: P may deduct the portion of litigation costs incurred in connection with the plan under sec. 162. Section 404 limits deductions for contributions to a plan but does not preclude P from deducting its payment of these plan expenses. See sec. 1.404(a)-3(d), Income Tax Regs.

P and his former wife claimed losses from a tax shelter partnership on their 1980 Federal income tax return. In April 1984, R issued a notice of deficiency denying those losses. Held: R's failure to abate interest was not an abuse of discretion.

Ps, H and W, were divorced in 1988. Pursuant to their 1989 property settlement, H transferred to W his promissory note for $ 1,500,000. Held: Sec. 1041 applies to the 1992 transfer of property, from H to W, that resolved a dispute that arose from their property settlement. 2. HELD, FURTHER, W's 1992 gross income includes $ 308,906 relating to the value of property transferred to her to discharge certain debts. 3.

P, a U.S. citizen, resided in Germany and the United Kingdom during his 1995 tax year. Held: The U.S.-Germany treaty and the U.S.-United Kingdom treaty interpreted -- P is not entitled to relief from the AMT under either treaty. HELD, FURTHER, the U.S.-Germany treaty recognizes and does not prohibit the sec. 59, I.R.C., limit as double taxation.

P's subsidiary, D, a domestic corporation, is a credit card bank, issuing private label credit cards to customers of P. F1 is a controlled… Held: The CDs are U.S. property within the meaning of sec. 956(b)(1), I.R.C., and not deposits with persons carrying on the banking business within the meaning of sec. 956(b)(2)(A), I.R.C. HELD, FURTHER, the CDs are attributed to F1 pursuant to sec. 1.956-1T(b)(4), Temporary Income Tax Regs., 53 Fed. Reg. 22163, 22165 (June 14, 1988).

HELD: No credit is allowed against civil fraud additions to tax for a criminal fine imposed under sec. 7201, I.R.C., and 18 U.S.C. secs. 371, 3622, and 3623 (Supp. II, 1984). Held: No credit is allowed against civil fraud additions to tax for a criminal fine imposed under sec. 7201, I.R.C., and 18 U.S.C. secs. 371, 3622, and 3623 (Supp. II, 1984).

The tax matters partner, intervenor, has moved to file    amendment to petition, which would add to the petition the    affirmative defense of equitable recoupment. R objects on    various grounds. We agree with R that equitable recoupment is    not a partnership item and that granting the motion would    suprise and substantially disadvantage R. The motion will be    denied.      HELD: Equitable recoupment is not a partnership item; HELD,    FURTHER, R would be surprised and substantially disadvantaged    were we to grant the motion.

P was convicted of tax fraud. P seeks an abatement of interest under sec. 6404(e), I.R.C., for the period during which a criminal investigation and prosecution took place. Held: R's decision not to proceed with the civil case while the criminal investigation and prosecution were pending is not a ministerial act, and, accordingly, sec. 6404(e)(1)(A), I.R.C., is not applicable. Therefore, R's determination disallowing P's request for abatement of interest is sustained.

In a prearranged transaction designed to eliminate typical market risks, P purchased and immediately resold American Depository Receipts (ADR's) of a foreign corporation on the floor of the NYSE. Held: The transaction lacked economic substance, and the foreign tax credit claimed by P will be disallowed. HELD FURTHER: An accuracy-related penalty will be imposed due to petitioner's negligence.

P, a lawyer, retired from the practice of law in 1993. Held: Ps are entitled to deduct the entire cost of the Policy in the year of termination of P's business.

P's subsidiary, L, writes cancelable accident and health (CA&H) insurance. Held: L is a life insurance company under sec. 816(a), I.R.C.; its accrued unpaid losses on CA&H insurance are not unpaid losses for purposes of sec. 816(c), I.R.C.

P has moved to dismiss this case for lack of jurisdiction    on the ground that the Notice of Determination Concerning Worker    Classification Under Section 7436 is invalid for failure to    identify by name the individuals determined by respondent to be    employees. HELD: The notice is not invalid, and P's motion is    denied.

P entered into a leveraged corporate-owned life insurance (COLI) program in which it purchased life insurance on approximately 36,000 of its employees and systematically borrowed against the cash… Held: P's broad-based leveraged COLI program lacked economic substance and business purpose (other than tax reduction) and is therefore a sham for tax purposes.

In 1984, P was part of a controlled group of corporations. Held: Sec. 1.267(f)-1T(c)(6), Temporary Income Tax Regs., supra, is valid.

P, an accrual method taxpayer, made expenditures during the 1993 taxable year for licenses and insurance which had an effective period extending into 1994. Held: On the facts, P, as a taxpayer utilizing the accrual method, is not entitled to currently deduct costs benefiting future tax periods in the year of payment. R's determination of a deficiency is sustained.

HELD: Petroleum revenue tax paid by      petitioners to the United Kingdom was not      paid in exchange for specific economic      benefits and constitutes a creditable foreign      tax under sec. 901, I.R.C.

H, a U.K. corporation, paid a dividend to P, its U.S. parent. Held: Pursuant to Article 23(c)(1) of the U.S.- U.K. Convention, the payor of the ACT is the corporation that pays the dividend and corresponding ACT and not the corporation that uses the corresponding U.K. credit against its U.K. tax liability.

P, a professional service corporation, specializes in the treatment of cancer through chemotherapy. Held: The inherent nature of P's business is that of a service provider, P's use of the drugs is subordinate to the provision of its services, and P uses the drugs as an indispensable and inseparable part of the rendering of its services; thus, the drugs are not merchandise under sec. 1.471-1, Income Tax Regs., and P properly used the cash…

HELD: $ 1,927,396 in costs of certain improvements to cable television systems does not qualify for investment tax credit under the supply or service transition rule of sec. 204(a)(3) of the Tax… Held: $ 1,927,396 in costs of certain improvements to cable television systems does not qualify for investment tax credit under the supply or service transition rule of sec. 204(a)(3) of the Tax Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, 2149.

P and L each own 50 percent of the stock in W, an S corporation engaged in the business of farming. P and his wife borrowed funds from L and his wife. Held: Pursuant to sec. 465(a), I.R.C., P is not at risk with respect to the loan.

In 1993, Ps and their children formed two family limited partnerships (KFLP and KILP). Held: Ps transferred limited partnership interests to the GRAT's in both form and substance. HELD FURTHER: Pursuant to sec. 25.2512-1, Gift Tax Regs., the value of the limited partnership interests is equal to the price that a hypothetical willing buyer would pay to a willing seller for the limited partnership interests.

P was the personal representative of D's estate. During administration of the estate, P received information indicating possible income tax liabilities of the estate. Held: A fiduciary who reasonably and in good faith relies on an attorney's legal advice that there are no debts due to the United States before paying other claims has not knowingly disregarded debts of the United States. P is not liable for the income tax liabilities of the estate under 31 U.S.C. sec. 3713(b).