Volume 133 — Tax Court Reports

R issued P a notice of final partnership administrative adjustment (FPAA) after expiration of the 3-year period of limitations under… Held: P's motion for summary judgment will be denied because the partnership and the partners omitted gross income by failing to separately compute foreign currency gain and loss pursuant to sec. 988, I.R.C., and the 6-year limitations period under sec. 6501(e), I.R.C., applies; and R's FPAA asserts alternative theories that would make the…

P transferred cash and publicly traded securities to LLC, a New York limited liability company, in exchange for a 100-percent interest in LLC. Held: For purpose of application of the Federal gift tax, the transfers are to be valued as transfers of interests in LLC, and LLC is not disregarded under the check-the-box regulations to treat the transfers as transfers of a proportionate share of assets owned by LLC.

P owned the stock of four corporations: TT, CT, St. Botolph, and Sixty-Five Bedford. The four corporations held assets with high fair market values and low adjusted bases. Held: Res judicata does not bar the instant action because the cause of action in the earlier deficiency cases is not the same as the cause of action in the instant transferee liability action.

R issued D a proposed assessment regarding sec. 6672, I.R.C., trust fund recovery penalties (trust penalties). D filed a protest in response to R's proposed assessment. Held: A lien in favor of the United States attached to D's property on the date of assessment and before D's death. 2. Held, further, pursuant to sec. 6320(a), I.R.C., and sec. 301.6323(f)-1(d), Proced. & Admin. Regs., the lien notice and the NFTL issued solely to D are valid. 3.

P filed a corporate tax return for 2001 reporting a net operating loss (NOL). Held: Res judicata does not bar P from claiming NOL carrybacks to 1999 and 2000, despite the prior deficiency case involving those years, because the statutory scheme for NOL carrybacks includes I.R.C. sec. 6511(d)(2)(B)(i), which allows a refund attributable to an NOL carryback notwithstanding the operation of any * * * rule of law,…

In this partnership-level proceeding involving a so-called Son-of-BOSS transaction, P has moved to compel R to produce redacted copies of all tax opinions collected by… Held: Because the materials that P seeks to discover are not relevant and do not appear reasonably calculated to lead to discovery of admissible evidence, and because the materials are nondisclosable return information as defined under sec. 6103(b)(2), I.R.C., P's motions to compel production will be denied.

Decedent (D) and his wife were born and married in Uganda and were citizens of the United Kingdom. In 1972, they were exiled from Uganda and moved to Belgium. Held: The shares were not community property, because Belgian conflict of laws rules would apply English law to the marital regime. Under English law, the shares were property of D. 2. Held, further, the estate has not established reasonable cause for late filing of the return.

P's subsidiaries, COB and FSB, issued Visa and MasterCard credit cards. Among the various revenues received from the credit card business, COB and FSB earned interchange. Held: Interchange is not a fee for any service other than the lending of money. The issue price of a credit card loan is the price paid for the loan, which is the amount withdrawn from COB's and FSB's account and deposited with the merchant's bank.

R determined that P is ineligible for S corporation status in 2003 because its shareholder was a Roth individual retirement account (Roth IRA). Held: The Roth IRA is not an eligible S corporation shareholder. P is taxable as a C corporation for 2003.

R assessed return preparer penalties of $ 35,000 under sec. 6694(b), I.R.C., against P in June 1995 for taxable years 1989, 1990, and 1991. Held: R's determination to sustain the levy for 1989 was an abuse of discretion because the facts show that petitioner has overpaid his tax liability for that year according to the terms of the settlement agreement.

For each of the taxable years ended Oct. 31, 1997 through 2001, the total income that P, a consolidated group of corporations, reported… Held: In determining the alternative research credit under sec. 41(c)(4), I.R.C., and thus the credit to which P is entitled under sec. 41(a), I.R.C., P is required to include in the calculation under sec. 41(c)(1)(B), I.R.C., of its average annual gross receipts for the 4 taxable years preceding the taxable year at issue the amounts for…

To collect P's 1997, 1998, 1999, and 2002 unpaid income tax liabilities and additions to tax discharged in P's 2005 bankruptcy filing, R served a notice of jeopardy levy on the Los Angeles County… Held: P cannot raise third-party claims in a lien or levy case. Held, further, jeopardy levy is proper here where funds belong to P's prebankruptcy estate and are subject to a prebankruptcy lien filed by R.

P develops and uses production molds to manufacture automotive parts for its customers. Held: The production molds P sold to its customers are not assets of a character subject to the allowance for depreciation for purposes of secs. 41(b)(2)(C), I.R.C., and 174(c), I.R.C. P properly included the costs of the production molds it purchased from third-party toolmakers and sold to its customers as the cost of supplies for…

P entered into a cost-sharing arrangement with S, its foreign subsidiary, to develop and manufacture storage management software products. Held: R's determinations are arbitrary, capricious, and unreasonable. 2. Held, further, P's comparable uncontrolled transaction method, with appropriate adjustments, is the best method to determine the requisite buy-in payment.

From 1927 until 1993, Mr. B was an employee, officer, or director of E (an insurance company) and was a major contributor to E's… Held: Because Mr. B's transfer of E stock to BLP in exchange for a partnership interest therein constituted a bona fide sale for an adequate and full consideration in money or money's worth within the meaning of sec. 2036(a),I.R.C., the value of Mr. B's gross estate does not include the value of the transferred E stock apportionable to his…

R issued P a notice of intent to levy to collect P's unpaid Federal income taxes for 2002. Held: Sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs., require release of a levy that creates an economic hardship regardless of the taxpayer's noncompliance with filing required returns. 2.

Husband (H) and wife (D) established a revocable inter vivos trust. Held: The amounts of gift tax paid by the recipients of the QTIP remainder are includable in D's gross estate under sec. 2035(b), I.R.C.

R issued Ps a notice of deficiency that determined deficiencies in income tax and accuracy-related penalties for 2003, 2004, 2005, and 2006 under secs. 6662, I.R.C., and 6662A, I.R.C. R subsequently… Held: This Court lacks jurisdiction to redetermine sec. 6707A, I.R.C., penalties in a deficiency proceeding.

In 2001 two partners of partnership P borrowed Treasury securities and sold them in the open market; i.e., a short sale. Held: Sec. 6501(c)(10), I.R.C., is effective for tax years with respect to which the period for assessing a deficiency did not expire before Oct. 22, 2004.