Volume 121 — Tax Court Reports

In 1996, P's wholly owned S corporation filed a petition for bankruptcy reorganization. Held: The filing of a bankruptcy petition for reorganization neither terminates an S corporation's tax status nor creates a separate taxable entity. P is liable for tax on the income of the S corporation. Held, further, P failed to follow the procedures necessary to claim low-income housing tax credits.

P filed a petition for levy action under sec. 6330(d), I.R.C., disputing R's notice of determination concerning collection action with respect to his 1991 tax liability on the ground that he was not… Held: P is entitled, pursuant to sec. 7521(a)( 1), I.R.C., to make an audio recording of his sec. 6330 hearing with the Internal Revenue Service Appeals Office.

On Jan. 30, 1991, the Court entered a decision in docket    No. 8407-87 redetermining Ps' joint tax liabilities for 1980 and    1981. In June 1991, R assessed the taxes, additions to tax, and    increased interest as set forth in the above-referenced    decision. Ps' joint tax liability for 1980 was fully paid as of    May 4, 1992. A portion of Ps' joint tax liability for 1981    remained unpaid as of the dates the petitions were filed in    these cases.      On Dec. 2, 1991, Ps filed a joint Federal income tax return    for 1990 reporting tax due. No remittance was made with this    return. Ps submitted a delinquent joint return for 1992, and R    made adjustments to this return. R subsequently assessed taxes    and penalties due from Ps for 1990 and 1992.      On Jan. 7, 2000, the United States brought an action    against Ps in Federal District Court to reduce to judgment their    unpaid assessments for 1981, 1990, and 1992. Ps raised only    frivolous arguments in this proceeding. Both Ps executed the    pertinent documents filed in the District Court action. Neither    P asserted in the District Court action an entitlement to relief    from joint and several liability pursuant to sec. 6015, I.R.C.    On Aug. 11, 2000, the District Court granted the Government's    motion for summary judgment and entered a judgment against Ps in    the amounts of the unpaid assessments for 1981, 1990, and 1992.    The District Court's judgment was affirmed on appeal and became    final. In 2001, Ps filed separate elections with R claiming relief    from joint and several liability under sec. 6015, I.R.C. R did    not respond to Ps' elections. Ps then filed with the Court    separate petitions for determination of relief from joint and    several liability for 1980, 1981, 1990, and 1992. R filed a    motion for summary judgment in each case.      Held: R's motions for summary judgment are granted    in that Ps cannot claim relief under sec. 6015, I.R.C. , for 1980    inasmuch as their joint tax liability for that year was fully    paid prior to the effective date of sec. 6015, I.R.C.    Held, further, R's motion for summary judgment as    to P-H is granted as to the taxable years 1981, 1990, and 1992    in that P-H "participated meaningfully" in the District    Court collection action, and, therefore, P-H's claims are barred    under the doctrine of res judicata as delineated in sec.    6015(g)(2), I.R.C. Held, further, R's motion for    summary judgment as to P-W is denied as to the taxable years    1981, 1990, and 1992 in that the question whether P-W    "participated meaningfully" in the District Court    collection action presents a material issue of fact.

In 1990, H and D, husband and wife, established a living trust. Held: Trust assets worth approximately $ 617,317 at D's date of death are includable in the gross estate on account of absence of a disclaimer qualified within the meaning of sec. 2518, I.R.C. Held, further, no charitable deduction is allowable with respect to distributions to the American Cancer Society, Yale University School of Law, or…

P and H filed joint returns for 1982, 1983, 1984, 1988, and 1989. Adjustments to partnership deductions and NOL deductions resulted in tax deficiencies for 1982, 1983, and 1984. Held: P is not entitled to relief under sec. 6015(b), I.R.C., for 1982, 1983, and 1984 because the NOL deductions are P's tax items and because she has not established that in signing the returns she had no reason to know that there were understatements attributable to H's partnership deductions.

P is a C corporation owned equally by O and her husband. Held: further, the disputed amounts are wages. Held, further, P is not entitled to relief under section 530 of the Revenue Act of 1978 Pub. L. 95-600, 92 Stat. 2763, 2885. Held, further, P is liable for the additions to tax determined by R under secs. 6651(a) and 6656, I.R.C., to the extent stated herein.

P did not file Federal income tax returns for the years 1993, 1994, and 1995. Held: We have jurisdiction in this levy proceeding to determine whether P's unpaid liabilities were discharged in bankruptcy. Washington v. Commissioner, 120 T.C. 114 (2003), followed. Held, further: P's unpaid liabilities were not discharged in the ch. 7 bankruptcy proceeding.

P was chartered by an act of Congress in 1970 and was    originally exempt from Federal income taxation. Pursuant to the    Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, sec. 177,    98 Stat. 709, P became subject to Federal income taxation,    effective Jan. 1, 1985. For its taxable years 1985 through 1990,    P claims entitlement to amortize intangibles using a fair market    value basis as of Jan. 1, 1985. P's claim that it is entitled to    use fair market value as its adjusted basis for amortization is    based on the provisions of DEFRA that specifically apply only to    P. R determined that P's adjusted basis for amortizing any    intangibles is the regular adjusted cost basis of those assets    as of Jan. 1, 1985.      Held: Under sec. 167(g), I.R.C. , the basis for    amortization of property is the adjusted basis provided in sec.   1011, I.R.C., for the purpose of determining gain on the sale or    other disposition of property. The adjusted basis provided in   sec. 1011, I.R.C., is generally based on cost. However, DEFRA   sec. 177(d)(2)(A)(ii) modifies the application of sec. 1011,    I.R.C., by providing specific rules for determining the adjusted    basis of property held by P on Jan. 1, 1985. Under DEFRA sec.    177(d)(2)(A)(ii), the adjusted basis of any asset held by P on    Jan. 1, 1985 (with the exception of tangible depreciable    property) shall, for purposes of determining any gain, be equal    to the higher of the regular adjusted cost basis as provided in   sec. 1011, I.R.C., or the fair market value of such asset as of    Jan. 1, 1985. P's adjusted basis as of Jan. 1, 1985, for    purposes of amortization, is the higher of the regular adjusted    cost basis or fair market value on Jan. 1, 1985.

R sent P a 30-day letter proposing a deficiency in excess of $ 100,000 for P's tax year ended Jan. 31, 1994. Held: The Court has jurisdiction under sec. 7481(c), I.R.C., to redetermine interest because P paid the deficiency plus interest claimed by R, filed the motion within 1 year of the date the Court's decision became final, and the deficiency and interest were assessed under sec. 6215, I.R.C. Held, further : Under sec. 6621(c), I.R.C., and…

Petitioner (P) sued the New York University Medical Center (NYUMC) in a qui tam action under the False Claims Act, 31 U.S.C. secs. 3729-3733 (2000). Held: The $ 1,568,087 payment is includable in P's gross income for 1997. Held , further, P is liable for the accuracy- related penalty under sec. 6662(a), I.R.C., for 1997.

P was a publicly held U.S. corporation and, after its acquisition by a foreign corporation (S) through a reverse subsidiary merger, was… Held: P is entitled to amortization deductions for its payments for the loan commitment and legal fees because, by virtue of its merger with S's subsidiary, the costs were incurred on P's behalf and eventually paid by P. In 1990, prior to S's acquisition of P, certain executives of P who were disqualified individuals within the meaning of…

L and K are the biological parents of M, who was born in 1986. L and K have never been married to each other. Held: A dependency exemption deduction is allowed for a parent who provides over half of a child's support during the taxable year.

P was originally exempt from Federal income taxation. However, on Jan. 1, 1985, P became subject to taxation under the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, sec. 177, 98 Stat. 709. Held: The benefit attributable to P's below-market financing as of Jan. 1, 1985, can, as a matter of law, constitute an intangible asset which could be amortized if P establishes a fair market value and a limited useful life.

P owned 80-percent interests in an S corporation (CL) and a C corporation (J). CL is an accrual method, calendar year taxpayer. J is a cash method, fiscal year taxpayer with a July 31 yearend. On each of its 1996 and 1997 Federal income tax returns, CL deducted an amount owed to J for services which J rendered to CL during the corresponding year.

P was originally exempt from Federal income taxation. However, on Jan. 1, 1985, P became subject to taxation under the Deficit Reduction Act of 1984 (DEFRA), Pub. L. 98-369, sec. 177, 98 Stat. 709. Held: Sec. 166(a), I.R.C., provides a deduction for bad debts. Sec. 1.166-6(a)(2), Income Tax Regs., provides: Accrued interest may be included as part of the deduction allowable under this paragraph, but only if it has previously been returned as income.

By Final Notice of Determination dated Nov. 6, 2001, R    determined that P was not entitled to relief from joint and    several liability relating to 1989 because the request was,    pursuant to sec. 6015, I.R.C., filed more than 2 years after R's    first collection activity against P. On Feb. 1, 2002, P filed,    pursuant to sec. 6015(e)(1), I.R.C., a petition seeking review    of R's determination. On Mar. 10, 2003, P filed a Motion for    Partial Summary Judgment and on Mar. 31, 2003, R filed a Notice    of Objection and Cross-Motion for Summary Judgment. The issue in    both parties' motions is whether R's application of P's    overpayment, relating to 1998, as a credit against P's 1989 tax    liability is, pursuant to sec. 6015, I.R.C., a collection    activity that bars P's request for relief relating to 1989.      Held: R's offset of P's overpayment is, pursuant to   sec. 6015, I.R.C., a collection activity.      Held, further, P's Motion for Partial Summary    Judgment is denied.      Held, further, R's Cross-Motion for Summary    Judgment is granted. There is no genuine issue as to whether P    is entitled to relief from joint and several liability relating    to 1989 because P's election was, pursuant to sec. 6015, I.R.C.,    filed more than 2 years after R's first collection activity    against P.

Certain factual issues common to these consolidated cases    have been submitted for voluntary binding arbitration pursuant    to Rule 124. The arbitration agreement requires the parties to    submit certain information to the arbitrator by a prescribed    deadline and gives the arbitrator discretionary authority to    request additional information. Ps made a timely submission of    information to the arbitrator and another untimely submission to    which R waived any objection on condition that Ps submit no    additional information. Ps have moved to delay entering the    arbitrator's findings in the record on the ground that the    arbitrator failed to request and consider certain additional    information that they consider essential to their case.    Held: Absent good cause, we shall not set aside the terms    of an arbitration agreement. Ps' motion is denied.

On May 2, 2003, R made jeopardy assessments of deficiencies that R determined in P's taxes for 1995 through 1999. Held: Under sec. 7429(b)(1), I.R.C., the taxpayer's proceeding for judicial review must be commenced within 90 days after the earlier of the day the Commissioner notifies the taxpayer of the Commissioner's determination under sec. 7429(a)(3), I.R.C., or the 16th day after the request for review under sec. 7429(a)(2), I.R.C., was made.

P has been continuously incarcerated since June 17, 1988. Held: R's adjustments to income and disallowance of deductions and dependency exemptions claimed by P are sustained. 2. Held, further, R's imposition of the 10-percent additional tax under sec. 72(t)(1), I.R.C., is sustained. 3.