Volume 132 — Tax Court Reports

Ps are shareholders in X, an S corporation. X is the sole shareholder of QSub Bank, a sec. 1361(b)(3)(B), I.R.C., qualified subch. S subsidiary bank. Held: In calculating taxable income, pursuant to sec. 1361(b)(3)(A), I.R.C., and sec. 1.1361-4(a)(3), Income Tax Regs., Ps must, pursuant to sec. 291(a)(3), I.R.C., reduce interest expense deductions relating to QSub Bank's QTEOs.

Company T, a member of P's affiliated group, contracted to build barges for two established customers; pursuant to an interim financing arrangement, part of the purchase price was deferred until 18… Held: the full contract price of the barges delivered in 2002 must be accrued that year; accrual is not postponed by the purchasers' assertion of rights to withhold deferred payments under common law claims of offset.

P sought relief from joint liability for unpaid taxes under sec. 6015, I.R.C. R sent her a notice of determination denying relief, but at a time before Congress gave the Tax Court jurisdiction to… Held: We are not barred from reviewing the District Court's order.Held, further: Sec. 6015, I.R.C., sets a jurisdictional time limit which may not be equitably tolled. The Tax Court has no jurisdiction to review P's petition.

Ps-S purchased an approximate $ 1.64 billion of securities from F in October 2001 and simultaneously transferred the securities back to… Held: The transaction is not a securities lending arrangement subject to sec. 1058, I.R.C., because the ability of Ps-S to cause F to transfer the identical securities to Ps-S on only three of the approximate 450 days during the transaction period reduced their opportunity for gain * * * in the transferred securities under sec. 1058(b)(3),…

Ps' cases were three of the Kersting tax shelter test cases that were included in Dixon v. Commissioner, T.C. Memo. 1991-614 (Dixon II), vacated and remanded sub nom. Held: Reasonable attorneys' fees are incurred, and may therefore be awarded, under sec. 6673(a)(2), I.R.C., when they reflect efforts by attorneys on behalf of their clients to resist or rectify the unreasonable and vexatious conduct of opposing attorneys. 2.

P transferred appreciated real property to a qualified intermediary, which sold the property and used the proceeds to purchase from a person… Held: P has failed to prove the absence of a principal purpose of Federal income tax avoidance; P's exchange with the qualified intermediary is part of a transaction structured to avoid the purposes of sec. 1031(f), I.R.C., governing like-kind exchanges between related persons, and, under sec. 1031(f)(4), I.R.C., the nonrecognition…

Single member LLC failed to pay employment taxes for several periods. Notices of lien and of intent to levy were sent to B, sole member of LLC. Held: Collection may proceed against B. Littriello v. United States, 484 F.3d 372 (6th Cir. 2007), and McNamee v. Dept. of the Treasury, 488 F.3d 100 (2d Cir. 2007), followed.

P sought relief under sec. 6015(f), I.R.C., from joint income tax liability for 1999. R denied relief on the basis that P did not request relief within 2 years of R's first collection action. Held: Sec. 1.6015-5(b)(1), Income Tax Regs., is an invalid interpretation of sec. 6015(f), I.R.C., and further proceedings are required to determine the validity of P's claim for relief.

P is the parent of a consolidated group of corporations and a wholly owned subsidiary S. During 2001 S sold substantially all of its assets, realizing a gain of about $ 10 million. Held: The transaction S entered into lacked economic substance and is disregarded. Held, further, the legal fees are not deductible by P. Held, further, S is liable for sec. 6662, I.R.C., penalties.

R mailed P a notice of intent to levy and notice of the right to a hearing pursuant to sec. 6330, I.R.C. (notice of intent to levy), on June 4, 2004. Held: Actual receipt of the notice of intent to levy or of the notice of the right to request relief from joint and several liability is not required for the 2-year period in which to request relief under sec. 6015(b) and (c), I.R.C., to begin.

P applied for relief from joint and several liability for additional tax under sec. 72(t), I.R.C., related to a distribution her husband received from… Held: In determining whether P is entitled to equitable relief under sec. 6015(f), I.R.C., we apply a de novo standard of review, not an abuse of discretion standard of review. Held, further: P is entitled to equitable relief under sec. 6015(f), I.R.C. Held, further: P is entitled to equitable reliefunder sec. 6015(f), I.R.C.

SF was a wholly owned subsidiary of parent P. P spun SF off into a stand-alone entity. Held: SF is entitled to a deduction of $ 65 million for the termination fee.

P corporation provided skilled and unskilled laborers for casual employment (temporary laborers) to more than 250 client companies. Held: P is collaterally estopped from denying its responsibility for paying the employment taxes. 2. Held, further, P is the statutory employer of temporary laborers under sec. 3401(d)(1), I.R.C., and therefore is liable for paying the employment taxes. 3. Held, further, P is liable for fraud penalties under sec. 6663(a), I.R.C. 4.

P is majority owner and principal officer of C, which failed to pay employment taxes. Held: A taxpayer must receive a sec. 6672, I.R.C., notice of intent to assess a trust fund recovery penalty to have otherwise [had] an opportunity to dispute that tax liability under sec. 6330(c)(2)(B), I.R.C. P did not receive R's notice of intent to assess sec. 6672, I.R.C., penalties and did not otherwise have an opportunity to dispute…

In 2002 P-W elected to receive a series of substantially equal periodic payments from her individual retirement account (IRA) that qualified for a statutory exception to the 10-percent additional tax… Held: A distribution for higher education expenses is not a modification of P-W's election to receive a series of substantially equal periodic payments.

Ps allege they overpaid their Federal income tax for 2003 on account of adjustments from a TEFRA partnership. Held: The amended return did not qualify as a partner AAR because the return neither met the requirements for a partner AAR nor substantially complied with those requirements. Accordingly, the adjustments remain partnership items.

R has moved to compel production of documents. Held: Ps have the burden of proving the preliminary facts necessary to establish the FATP privilege; R has the burden of proving the preliminary facts necessary to establish the exception. 2.

R issued Ps a notice of deficiency (NOD) for 1999 that contained determinations related to an entity subject to the unified audit and litigation procedures of the Tax Equity and Fiscal Responsibility… Held: R did not issue the NOD prematurely because R issued the NOD to Ps during Ps' 3-year period of limitations, without issuing an FPAA to IV during the 3-year period of limitations applicable to IV.

Ps owned interests in L.L.P.s, L.L.C.s, and tenancies in common. Held: Because Ps did not hold their interests in the L.L.P.s or L.L.C.s as limited partners, these interests are not subject to the rule of sec. 469(h)(2), I.R.C.Held, further, because Ps' interests in the tenancies in common are not interests in limited partnerships, these interests also are not subject to the rule of sec. 469(h)(2),…