Volume 134 — Tax Court Reports

P wife signed a Form 900, Tax Collection Waiver, containing a waiver extending the 10-year period of limitations on collection for the… Held: Adler v. Commissioner, 85 T.C. 535 (1985), which delineates the parties' respective burdens of production and proof regarding the 3-year period of limitations on assessment under sec. 6501(c)(4), I.R.C., also applies to cases involving the 10-year period of limitations on collection under sec. 6502(a)(1), I.R.C. Held, further, P wife…

P requested a PLR from R. R informed P that he would be issuing a PLR adverse to P's interests. P declined to withdraw the request for a PLR. Held: This Court's jurisdiction is limited to making a determination with respect to whether certain terms in the PLR are required to be deleted before publication. Therefore, we will grant R's motion for summary judgment in part.

P included on his return as "Other income" $ 5.25 million of an $ 8.75 million "qui tam" payment P was awarded pursuant to a Federal False Claims Act action. He did not report the remaining $ 3.5 million, which was subtracted from the recovery by P's attorneys as attorney's fees. P then omitted the $ 5.25 million net proceeds of the qui tam payment from the taxable income of $ 793 he reported on his return. P disclosed the $ 3.5 million attorney's fee payment on Form 8275, Disclosure Statement, attached to his return. P contends that none of the $ 8.75 million qui tam payment is includable in his gross income because it was a nontaxable share of the U.S. Government's recovery. R contends that the entire qui tam payment, including the portion paid to P's attorneys as their fee, is includable in P's gross income. Held, the entire $ 8.75 million qui tam payment awarded to P is includable in P's gross income. Roco v. Commissioner, 121 T.C. 160 (2003), followed. Held, further, P substantiated the payment of the attorney's fees in issue. Held, further, P is entitled to deduct the attorney's fees as a miscellaneous itemized deduction. Held, further, P is subject to an accuracy-related penalty pursuant to sec. 6662, I.R.C., because P's exclusion of the $ 8.75 million qui tam payment from his gross income resulted in a substantial understatement of income tax. Held, further, so much of P's understatement as relates to his failure to include in gross income the $ 3.5 million attorney's fee payment is reduced for purposes of the accuracy-related penalty, pursuant to sec. 6662(d)(2)(B), I.R.C., since P adequately disclosed his position on Form 8275 and had a reasonable basis for that position. Held, further, P is not entitled to further reduction of the accuracy-related penalty, as relates to the $ 5.25 million net proceeds of the qui tam payment, since, pursuant to sec. 6662(d)(2)(B), I.R.C., P did not have substantial authority or make an adequate disclosure or have a reasonable basis for his position, and pursuant to sec. 6664(c), I.R.C., P did not have reasonable cause for his position or act in good faith.

In 1997, P, born a genetic male, was diagnosed with gender identity disorder, a condition recognized in medical reference texts, in… Held: P's gender identity disorder is a disease within the meaning of sec. 213(d)(1)(A) and (9)(B), I.R.C. Held, further, P's hormone therapy and sex reassignment surgery were for the * * * treatment * * * of and [treated] disease within the meaning of sec. 213(d)(1)(A) and (9)(B), I.R.C., respectively, and consequently the procedures are…

Vitro, a Mexican corporation, charged P -- one of its U.S. subsidiaries -- a fee to guarantee P's debts. Held: The guaranty fees are analogous to payments for a service and therefore are not U.S. source income. Under sec. 1.861-4, Income Tax Regs., the source of the service is where the service is performed. Because the guaranty was provided from Mexico, fees for the guaranty are Mexican source income.

A profit-sharing plan of Ps' wholly owned S corporation bought a life insurance policy on Ps' lives with funds rolled over from H's IRA. Held: Pursuant to sec. 1.402(a)-1(a)(2), Income Tax Regs., as in effect before amendment in 2005, the value of the insurance policy is determined by reference to its entire cash value, which allows no reduction for surrender charges.

In 2004 P and her husband litigated three consolidated cases before the Court concerning their 1996, 1997, and 1998 tax years. P's attorney raised the issue of relief from joint and several liability under sec. 6015, I.R.C., in the petition for 1996 but not 1997 or 1998. The request did not invoke any specific subsection of sec. 6015, I.R.C. P then withdrew her claim for relief from joint and several liability in the stipulation of facts for the consolidated cases. P's husband died after the opinion in the consolidated cases was filed but before decisions were entered. After decisions were entered, P filed an administrative claim for relief from joint and several liability with R for 1996, 1997, and 1998. R determined P did not qualify for relief under sec. 6015(b), (c), or (f), I.R.C., and that P's claim was barred by sec. 6015(g)(2), I.R.C., regardless. Held: Sec. 6015(g)(2), I.R.C., applies because the Court entered final decisions for 1996, 1997, and 1998. Held, further: P did not participate meaningfully in the prior proceeding. Held, further: Relief from joint and several liability was raised only in the pleadings for 1996. Therefore, for 1997 and 1998 sec. 6015, I.R.C., relief from joint and several liability was not an issue in the prior proceeding. Held, further: Relief from joint and several liability under sec. 6015(b) and (f), I.R.C., for 1996 was an issue in the prior proceeding. Held, further: For purposes of sec. 6015(g)(2), I.R.C., an election under sec. 6015(c), I.R.C., shall not be deemed to have been an issue in a prior proceeding where the requesting spouse's original request for relief under sec. 6015, I.R.C., did not specifically invoke sec. 6015(c), I.R.C., and the requesting spouse was ineligible to make an election under sec. 6015(c), I.R.C., at the time because the requesting spouse's husband was alive. Accordingly, an election under sec. 6015(c), I.R.C., for 1996 was not an issue in the prior proceeding. Held, further: Sec. 6015(g)(2), I.R.C., bars P from claiming relief from joint and several liability for 1996 under sec. 6015(b) and (f), I.R.C. Held, further: The exception in sec. 6015(g)(2), I.R.C., applies to, and P is not barred from electing, relief from joint and several liability under sec. 6015(c), I.R.C., for 1996 and relief from joint and several liability under sec. 6015(b), (c), and (f), I.R.C., for 1997 and 1998.

P's only activity is land surveying in Tennessee. P does not employ any licensed engineers, is not associated with any firm that employs licensed engineers, and does not provide any services that State law requires to be performed only by a licensed engineer. Pursuant to sec. 1.448-1T(e)(4)(i), Temporary Income Tax Regs., 52 Fed. Reg. 22768 (June 16, 1987) (the temporary regulation), engineering includes surveying and mapping. R determined that P's land surveying constitutes the performance of services in the field of engineering pursuant to the temporary regulation and that, therefore, P is a qualified personal service corporation as defined in sec. 448(d)(2), I.R.C., subject to a flat 35-percent income tax rate under sec. 11(b)(2), I.R.C. P asserts that the temporary regulation is invalid or, if valid, means that surveying and mapping services, if performed by an engineer, would qualify as services in the qualifying field of engineering and does not apply in P's situation. P asserts, citing Grutman-Mazler Engg. Inc. v. Commissioner, T.C. Memo. 2008-140, and Alron Eng'g & Testing Corp. v. Commissioner, T.C. Memo. 2000-335, that the Court should look to State law to decide whether surveying is in the field of engineering. P contends that land surveying in Tennessee can be performed only by a licensed land surveyor and that P is not licensed to perform any activity which State law requires to be performed by a licensed engineer. 1. Held: Whether a service is performed in a qualifying field under sec. 448(d)(2), I.R.C., is to be decided by examining all relevant indicia and is not controlled by State licensing laws. See Rainbow Tax Serv., Inc. v. Commissioner, 128 T.C. 42, 46-47 (2007). 2. Held, further, the temporary regulation is supported by the legislative history, by the ordinary meaning of the term "civil engineering", which encompasses surveying, Webster's Third New International Dictionary 413 (2002), and by other indicia that surveying is regarded as within the field of engineering; it is valid under Natl. Muffler Dealers Association v. United States, 440 U.S. 472, 99 S. Ct. 1304, 59 L. Ed. 2d 519 (1979) (it implements the congressional mandate in a reasonable manner), and under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-843, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984) (it is not arbitrary, capricious, or manifestly contrary to the statute). 3. Held, further, P's land surveying is a service performed in the field of engineering under sec. 448(d)(2), I.R.C., and P is subject to the flat 35-percent income tax rate under sec. 11(b)(2), I.R.C.

In 2003, Ps transferred a facade easement and cash to a qualified organization. With respect to the facade easement contribution, Ps claimed a charitable contribution deduction in 2003 and a corresponding carryover deduction in 2004; with respect to the cash contribution, Ps claimed a charitable contribution deduction in 2003. R disallowed the deductions, which led to deficiencies. R also determined accuracy-related penalties under sec. 6662, I.R.C. R has moved for summary judgment. Ps object. 1. Held: With respect to the facade easement contribution, Ps have failed to raise any genuine issue of material fact regarding their compliance with sec. 1.170A-14(g)(6)(ii), Income Tax Regs. Because the facade easement contribution fails to satisfy the requirement in that provision, the interest in property conveyed by the facade easement was not protected in perpetuity. Thus, the facade easement contribution was not a qualified conservation contribution under sec. 170(h), I.R.C., see sec. 170(h)(2)(C), (5)(A), I.R.C., and Ps are not entitled to any deduction therefor, see sec. 170(f)(3), I.R.C. 2. Held, further, Ps have raised genuine issues of material fact with respect to the cash contribution and the accuracy-related penalties under sec. 6662(a), I.R.C.

In 2005-2007 P, a non-U.S. citizen, was an employee of the Embassy of the United Arab Emirates (UAE) in Washington, D.C., performing for that embassy services of a sort that are performed by employees of the U.S. Embassy in the UAE. The UAE does not impose an income tax, so employees of the U.S. Embassy in the UAE incur no income tax; but the U.S. Department of State did not certify this fact (pursuant to I.R.C. sec. 893(b)) until 2008. For 2005-2007 P filed tax returns reporting his embassy wages as income. R issued a notice of deficiency for those years based on adjustments unrelated to the embassy wages. P filed a petition in which he contends that the embassy wages are exempt from income tax under I.R.C. sec. 893. The parties agree that P satisfied the three requirements for exemption from income tax under I.R.C. sec. 893(a). Held: I.R.C. sec. 893 does not require, as a condition of a claim of exemption by an employee of a foreign government, the U.S. Department of State's certification of reciprocal exemption by the foreign country under I.R.C. sec. 893(b). Because P satisfied the three requirements of I.R.C. sec. 893(a), his wages from working for the UAE embassy from 2005-2007 are exempt from income tax.

R filed a motion to vacate the Court's prior decision and a motion to reconsider the Court's prior opinion. Held: R's motions to reconsider and to vacate will be denied.

P-H is a 10-percent shareholder in S, an S corporation. Held: Under sec. 1256, I.R.C., the major foreign currency call option is not a foreign currency contract as defined in sec. 1256(b)(2) and (g)(2), I.R.C., and the marked-to-market provisions of sec. 1256, I.R.C., do not apply to enable S to recognize the loss on the assignment of the major foreign currency option to the charity.

For many years P has lived with and cared for his father in Florida. In 2003 P's father, who was insolvent and had substantial unpaid income tax liabilities, transferred to P, for little or no consideration, the condominium in which they both resided. The IRS had previously determined, for purposes of calculating his reasonable collection potential, that P's father had zero net equity value in the condominium. After the transfer R determined that pursuant to sec. 6901, I.R.C., P has transferee liability equal to the condominium's fair market value as of the date of the transfer. R contends that the transfer was constructively fraudulent under Florida's Uniform Fraudulent Transfer Act (FUFTA), which applies to certain transfers of "assets", defined in Fla. Stat. Ann. sec. 726.102(2)(b) (West 2000) to exclude property that is "generally exempt under nonbankruptcy law". P asserts and R does not deny that under Florida law the condominium was his father's exempt homestead property. Consequently, P argues, because the condominium was "generally exempt under nonbankruptcy law", it is not an "asset" for purposes of the FUFTA and its transfer to P is not avoidable under the FUFTA. Held: As to the United States, homestead property is not "generally exempt under nonbankruptcy law" within the meaning of the FUFTA because it is reachable by the United States through judicial process to enforce collection of unpaid income tax liabilities; the condominium constitutes an "asset" for purposes of R's claim under the FUFTA. Held, further, the care that P provided for his father did not constitute "reasonably equivalent value" for the condominium within the meaning of the FUFTA, and the transfer was constructively fraudulent thereunder. Held, further, R is not equitably estopped from asserting transferee liability under sec. 6901, I.R.C., by virtue of having previously determined that the condominium had zero net equity value as to P's father for purposes of calculating his reasonable collection potential.

R issued a notice of intent to levy on P's pension income to collect P's unpaid Federal income tax for 2001. P timely requested a hearing under sec. 6330, I.R.C. At the hearing P argued: (1) His liability for the unpaid 2001 Federal income tax was discharged in his 2005 bankruptcy; (2) the notice of intent to levy was invalid because his pension was not yet in payout status; and (3) a prior notice of levy for a similar amount of unpaid tax was issued and later released. R's Office of Appeals determined that the proposed levy could proceed. P contends the Appeals Office abused its discretion. Held: The sec. 6321, I.R.C., lien that attached to P's interest in his pension was not discharged by his 2005 bankruptcy because his interest in his pension was excluded from his bankruptcy estate pursuant to 11 U.S.C. sec. 541 (2006). Held, further, although P's discharge in bankruptcy relieved him of personal liability for the unpaid 2001 Federal income tax, the discharge does not prevent R from collecting P's unpaid 2001 Federal income tax in rem by levy on P's pension income, notwithstanding R's failure to file a valid notice of Federal tax lien with respect to the 2001 Federal income tax liability. Held, further, although R may not enforce a levy on P's interest in his pension until the pension enters payout status, R's notice of intent to levy is not invalid merely because it was mailed to P 9 months before P's pension entered payout status. Held, further, R's release of a prior levy does not release the sec. 6321, I.R.C., lien that R held with respect to P's interest in his pension. Held, further, R's Office of Appeals verified that the requirements of any applicable law and administrative procedure had been satisfied and considered all of P's arguments. However, because the Appeals Office assumed that P's wage income would continue after P started receiving his pension without any support in the administrative record for the assumption, we shall exercise our discretion to remand this case to the Appeals Office for further proceedings.