Volume 128 — Tax Court Reports

P began operating a horse boarding and training facility for profit in 1998. P has continued carrying on these activities through the date of trial. Held: Sec. 195(a), I.R.C., does not require the expenses of P's sec. 212, I.R.C., activity to be capitalized as startup expenditures. The expenses paid or incurred in the sec. 212, I.R.C., activity are deductible.

Pursuant to sec. 6330(d), I.R.C., Ps filed a petition challenging R's determination to proceed with collection. Ps elected to have this case conducted under the small tax case procedures authorized by sec. 7463, I.R.C. The unpaid income tax involved is for the 1997-2003 years. The unpaid tax for any single year does not exceed $ 50,000, but the total tax for all years exceeds $ 150,000. Held: Sec. 7463(f)(2), I.R.C., provides that a sec. 6330, I.R.C., collection case petitioned to this Court is eligible to be conducted under the small tax case procedures "in the case of * * * a determination in which the unpaid tax does not exceed $ 50,000." The total unpaid tax in this case with respect to which R determined to take collection action exceeds $ 50,000, and, therefore, the case is not eligible to be conducted under the small tax case procedures provided in sec. 7463, I.R.C.

P and her two young children lived together in 2002 until her arrest on June 5. P continued to support her children after her arrest until July 2, but P was confined in jail for the rest of the year. Held: P is eligible for the EIC for 2002. P's absence due to being held in jail after her arrest does not prevent her from qualifying for the EIC.

P's returns for the years at issue were false and fraudulent due to the fraudulent intent of the return preparer. Held: The limitations period is indefinitely extended under sec. 6501(c)(1), I.R.C., if a return is fraudulent, regardless of whether the fraud was committed by the taxpayer or the taxpayer's preparer.

Petitioner employed individuals to provide tax return preparation and bookkeeping services. Held: Petitioner's tax return preparation and bookkeeping services constitute accounting services for purposes of sec. 448(d)(2), I.R.C., and petitioner is therefore subject to the sec. 11(b)(2), I.R.C., flat 35-percent tax rate applicable to qualified personal service corporations.

P filed his 2002 income tax return late. P included payment for the reported tax due with his return. R assessed additions to tax under sec. 6651(a)(1) and (2), I.R.C., for late filing and late payment. P requested an abatement of the additions to tax, which was ultimately denied after a hearing before R's Appeals Office. R then initiated a collection action, and P now seeks review of his liability for additions to tax under sec. 6330, I.R.C. R moves for summary judgment pursuant to sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs. R argues that P had an opportunity to dispute the underlying liability in a conference with R's Appeals Office and thus cannot properly raise the underlying liability again in a sec. 6330, I.R.C., collection review proceeding. Held: Sec. 301.6330-1(e)(3), Q&A-E2, Proced. & Admin. Regs., is valid. Held, further, because P had a conference with R's Appeals Office, he is precluded from disputing the assessed additions to tax again in his sec. 6330, I.R.C., action.

P, a wholesale food purchasing cooperative, holds one or more food shows a year at which member stores and vendors selling to P meet. Held: P is not collaterally estopped from challenging R's adjustments by our report in Affiliated Foods, Inc. v. Commissioner, T.C. Memo 1996-505, affd. in part, revd. in part and remanded 154 F.3d 527 (5th Cir. 1998). 2. Held, further, the payments that R charges P with making to member stores are properly characterized as trade discounts.

Ps depreciated trellising, drip irrigation systems, and a well as farm machinery or equipment, in connection with their farming activity of growing wine grapes. Held: The trellising was properly classified as farm machinery or equipment, and the irrigation systems and well should be classified as land improvements.

R determined a deficiency with respect to the joint return that P and I filed for 2002. Held: The automatic stay imposed by 11 U.S.C. sec. 362(a)(8) applies only to Tax Court proceedings that affect the tax liability of the debtor.

The estate elected to pay its tax in installments under sec. 6166(a)(1), I.R.C. (the election). Held: We have jurisdiction under sec. 7479, I.R.C., to review R's determination. Nothing in the statute or its legislative history restricts our review of R's denial of the election. R has failed to rebut the strong presumption that an action of an administrative agency is subject to judicial review.

P participated in a compensated work therapy program administered by the U.S. Department of Veterans Affairs (VA) and, on account thereof, received a distribution of $ 16,393 from the VA Special… Held: The distribution is a tax-exempt veterans' benefit.

P is a nonprofit corporation. Its sole activity involves renting out its two parcels of debt-financed commercial real estate and distributing the profits to a sec. 501(c)(3), I.R.C., organization. Held: Because R's initial, misdirected adverse determination letter was ineffective for purposes of triggering the 90-day period under sec. 7428(b)(3), I.R.C., P's petition was timely.

X and Y entered into a private placement agreement, pursuant to which X would serve as the placement agent for the sale of Y's preferred stock. Y did not adhere to the agreement. Held: R's determination is in error because the warrants were not transferred in connection with the performance of services. Held, further, the warrants had an ascertainable fair market value on the date of grant in 1995 and are therefore taxable in that year.

P provided counseling and other caregiving services (collectively, caregiving services) to its members, who were individuals with debilitating diseases. Held: Sec. 280E, I.R.C., precludes P from deducting its expenses attributable to its provision of medical marijuana.

G-5 filed its partnership return for 2000 on Oct. 4, 2001. Held: Secs. 6229(a) and 6501(a), I.R.C., do not preclude R from issuing the FPAA and adjusting partnership items for 2000.

In 2004, R sent a notice of deficiency to one of P's partners for his 2000 taxable year. Because the item which R adjusted was an affected item under section 6231(a)(5), I.R.C., R also issued a notice of final partnership administrative adjustment (FPAA) to P for its 1999 taxable year, which was the year in which P claimed the item on its taxes. Both parties agree that the statute of limitations for assessing additional tax on the 1999 taxable year had already expired. P argues that if R is barred from assessing additional tax for 1999, he is also barred from issuing an FPAA for 1999. R claims that an FPAA can be issued at any time as long as at least one partner can still be assessed additional tax in relation to either an affected item or a partnership item (as defined by section 6231(a)(3), I.R.C.). P moved for summary judgment. Held: Sections 6501(a) and 6229(a), I.R.C., do not preclude R from issuing an FPAA for P's 1999 taxable year.

A Notice of Final Partnership Administrative Adjustment (FPAA) for the year 1998 was sent in 2005, determining that the basis of property sold by P was overstated. Held: The overstatement of basis is not an omission of gross income for purposes of sec. 6501(e)(1)(A), I.R.C.Colony, Inc. v. Commissioner, 357 U.S. 28, 78 S. Ct. 1033, 2 L. Ed. 2d 1119, 1958-2 C.B. 1005 (1958), followed.