Volume 137 — Tax Court Reports

D's physician diagnosed her as suffering from dementia and determined that, because of her diminished capacity, she required assistance and supervision 24 hours a day for medical reasons, as well as for her safety. D's brother, her attorney-in-fact, hired caregivers to provide the necessary assistance. During 2007, the year at issue, D paid $760 to D's physicians and the New York University Hospital Center for medical care provided to D, $5,566 to D's caregivers for supplies, and $49,580 to D's caregivers for their services. Held: D paid $760 in 2007 to her physicians and the New York University Hospital Center for the diagnosis, cure, mitigation, treatment, or prevention of disease, and that amount was paid for medical care as defined in sec. 213(d)(1)(A), I.R.C., and was not reimbursed by insurance or otherwise. Held, further, P has not established that the $5,566 paid to D's caregivers for supplies was paid for medical care as defined in sec. 213(d)(1), I.R.C. Held, further, D was certified by her physician, a licensed health care practitioner, as requiring substantial supervision to protect her from threats to her health and safety because of her severe cognitive impairment, and therefore she was a chronically ill individual as defined in sec. 7702B(c)(2)(A), I.R.C. Held, further, the services provided to D by her caregivers were necessary maintenance and personal care services that she required because of her diminished capacity; were provided pursuant to a plan of care prescribed by a licensed health care practitioner; and therefore are qualified long-term care services as defined in sec. 7702B(c), I.R.C. Held, further, further, the $49,580 paid to D's caregivers for their qualified long-term care services was an amount paid for medical care as defined in sec. 213(d)(1)(C), I.R.C.

R determined sec. 4973, I.R.C., excise tax deficiencies and additions to tax under sec. 6651(a)(1), I.R.C., for Ps' 2002 through 2006 tax years. The determinations stem from R's assertion that P-H made excess contributions to his Roth individual retirement account. Held: Ps are liable for the excise tax deficiencies and additions to tax to the extent decided herein.

Ps were shareholders in a wholly owned S corporation (S) engaged in providing wireless cellular service. Held: We apply the plain language of sec. 168, I.R.C., in interpreting classification issues of first impression. The plain language of Rev. Proc. 87-56, 1987-2 C.B. 674, the revenue procedure in effect for the years at issue, is unambiguous as it applies to S's wireless cellular assets.

On Jan. 29, 2009, P filed with R a claim for a whistleblower award under sec. 7623(b)(4), I.R.C., implicating a public corporation and its CEO. Held: In accordance with our decision in Cooper v. Commissioner, 135 T.C. 70 (2010), each Whistleblower Office letter that denies a whistleblower claim is a determination within the meaning of sec. 7623(b)(4), I.R.C. Held, further: R must prove by direct evidence the date and fact of mailing of the determination to the whistleblower.

Ps were shareholders in a wholly owned S corporation (S) engaged in providing wireless cellular service. Held: Ps were not sufficiently at risk for sec. 465, I.R.C., purposes when stock of a related corporation was pledged. 2. Held, further, the mere grant of a license by the FCC is not sufficient for an activity to qualify as an active trade or business under sec. 197, I.R.C.

R denied losses claimed by Ps, tax matters or other participating partners on behalf of purported partnerships, relating to distressed consumer receivables acquired from a Brazilian retailer in bankruptcy reorganization. R adjusted partnership items, attributing a zero basis to the receivables in lieu of the claimed carryover basis in the full face amount of the receivables. R determined accuracy-related penalties under sec. 6662(h), I.R.C., for gross valuation misstatements of inside bases. Held: Ps failed to establish that the distressed consumer receivables had any tax basis upon transfer from the Brazilian company. Held, further, the purported contribution of the receivables by the Brazilian company to a nominal partnership and the subsequent redemption of the Brazilian company's partnership interest are properly treated as a single transaction and recharacterized as a sale of the receivables. Held, further, Ps did not substantiate the amount paid for the receivables, and therefore the receivables have a zero basis for Federal tax purposes following their transfer. Held, further, Ps were unable to demonstrate good faith and reasonable cause, and therefore the accuracy-related penalties are sustained.

P filed a petition seeking relief from joint and several liability under sec. 6015, I.R.C. R contends that P is barred, under sec. 6015(g)(2), I.R.C., from seeking relief because P was involved and… Held: P did not participate meaningfully in the prior deficiency proceeding. P is therefore not barred under sec. 6015(g)(2), I.R.C., from claiming relief from joint and several liability.

P is a tax-exempt labor organization described in I.R.C. sec. 501(c)(5). In its FYE Aug. 31, 2001, 2002, and 2003, P published two magazines at an expense of about $7 million, and it distributed those magazines to dues-paying members and to a very few non-member paying subscribers. P's literature and that of its State and local affiliates stated that members received the magazines as a benefit of membership and stated an amount of dues that paid for the magazines. Members who declined the magazines did not pay a smaller amount of dues. P made most but not all of the content of the magazines available for free over the Internet to the general public. P published paid advertising in the magazines, by which it earned approximately $1 million in net profit each year. On its returns P reported negligible circulation income, resulting in a substantial claimed loss on its circulation activity. P used that loss to fully offset its taxable advertising profit. Therefore, P reported that it owed no unrelated business income tax (UBIT). Held: Under 26 C.F.R. sec. 1.512(a)-1(f)(3)(iii), Income Tax Regs., which requires an allocation of membership dues to circulation income "[w]here the right to receive an exempt organization periodical is associated with membership or similar status in the organization", the "right to receive" must be a legal right. Under this regulation, P was required to allocate a portion of members' dues to circulation income.

P filed a petition for review pursuant to sec. 6330, I.R.C., in response to R's determination to proceed with collection actions. P sought a collection alternative and submitted an offer-in-compromise. R rejected the offer, concluding that the entire amount due was collectible after R found that a 75-percent discount of P's accounts receivable was inappropriate in valuing P's assets and the offer-in-compromise. Held: R's determination is sustained.

Ps participated in a transaction promoted by KPMG, LLP (KPMG), that was the same as or substantially similar to a tax avoidance transaction described in Notice 2000-44, 2000-2 C.B. 255. Held: The period to file a QAR terminated before Ps filed the amended return. Held, further, Ps' tax underpayment was not attributable to a gross valuation misstatement. Ps are therefore not liable for the gross valuation penalty.

P-H's corporation reduced P-H's paycheck by amounts that were not remitted to the Government. Held: This Court has jurisdiction to redetermine the applicability of sec. 6663, I.R.C., penalties for fraud resulting from overstated withholding tax credits. Held, further, an underpayment includes a taxpayer's overstated credits for withholding under the rule in Feller v. Commissioner, 135 T.C. 497 (2010).

P entered into a contract for deed to purchase a house in 2008, took possession of the house in 2008, and claimed the first-time homebuyer tax credit pursuant to I.R.C. sec. 36 on… Held: Pursuant to Texas property law, the contract for deed granted P equitable title to the house, and P therefore has purchased the house under I.R.C. sec. 36. Held, further, I.R.C. sec. 36 requires a prospective analysis, asking whether a taxpayer will occupy a house as a principal residence.

E was never appointed executrix over D's estate by a State probate court, but she signed D's estate's Federal estate tax return as executor. R determined a deficiency in estate tax and a sec. 6662(a), I.R.C., accuracy-related penalty and issued a notice of deficiency listing E as executor. E filed a petition with this Court for redetermination. E subsequently filed a motion to dismiss for lack of subject matter jurisdiction, arguing this Court lacked jurisdiction because she was never appointed executrix by a State probate court and accordingly the notice of deficiency had been sent to the wrong person. R objected, arguing that because E was in possession of property of D, she was a statutory executor within the purview of sec. 2203, I.R.C., and the proper person to receive the notice of deficiency. Held: E is a statutory executor within the purview of sec. 2203, I.R.C. R properly issued E a notice of deficiency. E timely petitioned this Court, and therefore this Court has jurisdiction.

Ps, citizens of Mexico and permanent residents of the United States, were the sole shareholders of E, a controlled foreign corporation. Pursuant to secs. 951(a)(1)(B) and 956, I.R.C., they included in their gross income amounts of E's earnings that were invested in U.S. property. Ps characterized these inclusions as qualified dividend income subject to preferential income tax rates under sec. 1(h)(11), I.R.C. R recharacterized these amounts as ordinary income subject to nonpreferential income tax rates. Held: Inclusions in gross income as required under secs. 951(a)(1)(B) and 956, I.R.C., do not constitute qualified dividend income under sec. 1(h)(11), I.R.C.

P, a former senior executive of X, filed a claim for a whistleblower award under sec. 7623(b), I.R.C., alleging that X had underpaid its taxes. Held: Summary judgment may properly be rendered even though a motion for a protective order is pending and discovery has not commenced. Held, further, because P failed to meet the threshold requirements for a whistleblower award, R's motion for summary judgment will be granted.

R assessed trust fund recovery penalties against Ps (P-C and P-N). R did not issue Ps Forms 3552, Notice of Tax Due on Federal Tax Return, within 60 days of the assessments. R filed a notice of Federal tax lien (NFTL) on P-C's property. R then issued a CDP lien notice to P-C and a CDP levy notice to P-N. R issued Ps Forms 3552 after issuing the CDP notices. Ps argue that R's determinations to proceed with collection were an abuse of discretion because R had not complied with the requirement of sec. 6303(a), I.R.C., that notice and demand be given within 60 days of assessment. Held: The CDP levy notice issued to P-N satisfies the requirements of sec. 6303, I.R.C. Held, further, R's determination to proceed with levy against P-N was not an abuse of discretion. Held, further, the filing of the NFTL against P-C was premature. Held, further, R's determination to sustain the NFTL filing against P-C was an abuse of discretion.

On the basis of a final decision in a partnership-level proceeding for RJT Investments X, LLC, which had made all partnership allocations for its tax year ended Dec. 31, 2001, to P-H, R determined an income tax deficiency and an accuracy-related penalty for Ps' 2001 tax year. Immediately after issuing a notice of deficiency to Ps, R directly assessed the deficiency and penalty amounts determined in that notice. R has since acknowledged errors in these deficiency and penalty amounts and has made corresponding assessment abatements. Nonetheless, R argues that the notice of deficiency is invalid and that the Court lacks jurisdiction over the case because the changes to Ps' 2001 tax liability shown on the notice are computational adjustments that are not subject to deficiency procedures. Ps have conceded the amount of the deficiency but urge us to follow Petaluma FX Partners, LLC v. Commissioner, 591 F.3d 649, 389 U.S. App. D.C. 64 (D.C. Cir. 2010), affg. in part, revg. in part and remanding in part 131 T.C. 84 (2008), and hold that the accuracy-related penalty does not relate to an adjustment to a partnership item and can be assessed only following deficiency procedures. Held: Computing Ps' income tax deficiency arising from the adjustments finalized in the partnership-level proceeding in RJT Invs. X, LLC v. Commissioner, docket No. 11769-05 (June 6, 2006), affd. 491 F.3d 732 (8th Cir. 2007), does not require any partner-level determinations, and assessing or collecting this deficiency is not subject to deficiency procedures. Held, further, that the errors in the notice of deficiency do not constitute a "determination" under sec. 6212(a), I.R.C. Held, further, that the accuracy-related penalty may be directly assessed and is not subject to deficiency procedures, notwithstanding the need for partner-level determinations. Held, further, that the notice of deficiency is invalid and the Court lacks jurisdiction over this case. R's motion to dismiss for lack of jurisdiction will be granted.