Volume 138 — Tax Court Reports

P petitioned for review of R's denial of innocent spouse relief under I.R.C. sec. 6015(f), and R created a separate account for each spouse in order to pursue collection from I (P's former husband)… Held: Under State law P owned a 50% share of the funds held in the joint bank account, and she is not precluded from a refund under I.R.C. sec. 6015(g)(1) of her share of levied funds.

C, an accrual-basis partnership, entered into a turnkey contract under which it paid $5,172,666 by cash and note in December 1999 for the… Held: For purposes of I.R.C. sec. 461(i)(2)(A), drilling of the well commences when there is actual penetration of the ground surface in the act of drilling for purposes of spudding a well. Mere site preparation is insufficient. Under this special timing rule, C did not satisfy the economic performance requirement of I.R.C. sec. 461(h).

P used specialized but highway-legal trucks (known as "tractors") and "belly-dump" trailers in its business. P's tractors operated most economically off highway. P's tractors and trailers were modified for heavy use, but no legal or technical obstacles prevented P from driving either tractors or trailers on highways. P's tractors could pull trailers other than the belly-dump trailers; likewise, P's trailers could be moved by vehicles other than P's tractors. Approximately 40 percent of P's tractors' mileage during the years in question occurred off highway. For tax years ending January 31, 2005, and January 31, 2006, P claimed credits under I.R.C. secs. 34(a)(3) and 6427(l)(1), for its tractors' "nontaxable use", under the "off-highway business use" exception of I.R.C. sec. 6427(l)(2). R disallowed P's credits. P stipulates that its tractors and trailers are "highway vehicles" under I.R.C. sec. 6421 per sec. 48.4061(a)-1(d)(1), Manufacturers & Retailers Excise Tax Regs., but argues that the "special-design" and "substantial impair[ment]" exception of sec. 48.4061(a)-1(d)(2)(ii), Manufacturers & Retailers Excise Tax Regs., applies, making them off-highway vehicles and the fuel they use off-highway creditable. Held: The tractors and trailers are not analyzed together for purposes of interpreting the term "vehicle". The plain language of sec. 48.4061(a)-1(d)(1), Manufacturers & Retailers Excise Tax Regs., and the fact that the tractors and trailers could each perform their designed functions paired with other vehicles indicate that tractors and trailers are each a distinct "vehicle" for purposes of the credit. Held, further, the tractors are not specially designed for off-highway use because, while "heavy duty" modifications allowed them to work off highway, they were in most respects identical to unmodified tractors used on highway and were not designed to transport a particular type of load. Held, further, the tractors are not substantially impaired with respect to on-highway use because they could fit and operate on a highway at regular highway speeds. Held, further, for tax year ending January 31, 2005, P's tractors do not qualify for the "off-highway transportation" exception in sec. 48.4061(a)-1(d)(2)(ii), Manufacturers & Retailers Excise Tax Regs. Held, further, for tax year ending January 31, 2006, I.R.C. sec. 7701(a)(48)defines "highway vehicle" even more narrowly such that P's tractors do not constitute off-highway vehicles.

Ps sold their house on June 6, 2007, and purchased another house on July 28, 2009. Ps, pursuant to I.R.C. sec. 36, claimed a first-time homebuyer credit relating to their new house. Held: Ps owned a present interest in a principal residence within three years prior to the date of purchase of the new house and, thus, are not eligible for a first-time homebuyer credit.

P and W filed a joint return for 2006. R issued a notice of deficiency, and P and W filed a petition asking this Court to redetermine that deficiency. They elected to have the case proceed under small tax case procedures pursuant to I.R.C. sec. 7463. P signed the petition and all other filings. P and W moved for summary judgment; R cross-moved for summary judgment; and P and W opposed on various grounds, including P's entitlement to innocent spouse relief from joint liability under I.R.C. sec. 6015. At a calendar call before the Court, P spoke for himself and W. The parties withdrew their cross-motions and submitted a stipulated decision document by which P and W conceded the deficiency in full. The Court entered decision accordingly in November 2009. While the deficiency suit was pending, P had filed a Form 8857, "Request for Innocent Spouse Relief", for 2006. In May 2010 R denied the request for relief, and P timely filed a petition challenging that denial. R moved for summary judgment on grounds of res judicata arising from the entry of decision in the prior deficiency case. Held: Res judicata bars the relitigation of a liability determined in a small tax case under I.R.C. sec. 7463. Held, further, res judicata precludes P's attempted litigation of his I.R.C. sec. 6015(f) claim for the year that was the subject of the prior deficiency case. I.R.C. sec. 6015(g)(2) does not prevent the operation of res judicata, since P's claim for relief was an issue in the prior case, and he did participate meaningfully in the prior case.

The stipulated decision in this Son of BOSS TEFRA partnership-level case, entered by the Court Dec. 1, 2009, was agreed to by R and the… Held: The motion to revise the stipulated decision will be denied; the jurisdictional limitations established in Petaluma II were based on a concession by the Government that does not apply in the case at hand; the applicability of the accuracy-related penalties determined by the stipulated decision in the case at hand is sustained by the…

P is a corporation exempt from tax under I.R.C. sec. 501(c)(3) since the inception of that rule in 1954. P had paid unrelated business income tax for 1952, 1953, 1954, 2000, and 2001. Held: P has, at all times, been exempt from tax under I.R.C. subtit. A and is not liable for the excise tax imposed by I.R.C. sec. 4980(a). Held, further: We lack jurisdiction to award P a refund of its overpayment of excise tax.

R determined that Ps, co-owners of two residences, were together limited in deducting interest on $1 million of acquisition indebtedness and $100,000 of home equity indebtedness, under I.R.C. sec.… Held: The limitations of I.R.C. sec. 163(h) apply to the aggregate indebtedness on up to two residences, and co-owners not married to each other may not deduct more than a proportionate share of interest on $1.1 million.

Ps owned two houses during the years at issue. They lived in one of those houses (on LaCasse Drive) and worked (but did not live) in the other house (on Emil Avenue). Held: Ps cannot exclude the payments received to provide foster care under I.R.C. sec. 131 because they did not live in the house in which they provided lodging for the developmentally disabled adults.

In 1999 P exercised nonqualified stock options (NQOs) previously issued to him by E, his recent employer, and simultaneously sold the option stock, receiving from E the sale proceeds, less the… Held: P is not entitled to a credit under I.R.C. sec. 31 for any payment after 1999 by E or a successor of E of the taxes associated with P's 1999 NQO exercise because no payment was made by E or a successor to E of the nonwithheld taxes related to the 1999 exercise. 2.

Claiming to be a bona fide resident of the U.S.Virgin Islands (Virgin Islands) and claiming he was qualified for the gross income tax exclusion provided by I.R.C. sec. 932(c)(4), P, a U.S. citizen,… Held: The procedural rules of TEFRA do not herein apply in that (1) NASCO did not file a partnership return with the IRS, and (2) NASCO is not classified as a partnership for purposes of TEFRA. Held, further, P's motion to dismiss for lack of jurisdiction will be denied.

R simultaneously issued notices of final partnership administrative adjustment (FPAAs) to two lower tier, or source partnerships, and… Held: Under the analysis and reasoning articulated in GAF Corp. & Subs. v. Commissioner, 114 T.C. 519 (2000), as applied to a tiered partnership structure, the FPAA issued to the interim partnership, which represents only the impact of the adjustments shown on the FPAAs issued to the two source partnerships and which was issued before the…

R issued and mailed to P a notice of determination concerning collection actions under I.R.C. secs. 6320 and/or 6330, with respect to unpaid income taxes for 1992, 1993, 1994, and 1995, on Oct. 16,… Held: We lack jurisdiction under I.R.C. sec. 6330(d)to review the determination concerning the collection actions because the petition was not filed within 30 days of the determination as required by I.R.C. sec. 6330(d)(1). 2.

P filed a motion for reconsideration of our Memorandum Opinion Estate of Turner v. Commissioner, T.C. Memo. 2011-209 (Estate of Turner I). Held: D's estate is not entitled to claim the marital deduction with respect to the FLP interest or the assets attributable to the FLP interest that D gave as gifts during his lifetime.

P-H received disability retirement payments relating to injuries suffered in the course of his employment. The payment amount was determined, in part, by reference to P-H's length of service. Held: Pursuant to I.R.C. sec. 104(a)(1), the portion of P-H's disability retirement payments determined by reference to his length of service is not excludable from income. Seesec. 1.104-1(b), Income Tax Regs. Held, further, Ps are not liable for an accuracy-related penalty.

In 2003 P contributed a conservation easement over 180 acres of unimproved land to a qualified organization. The purchase of the unimproved land was seller financed. Held: The so-remote-as-to-be-negligible standard of sec. 1.170A-14(g)(3), Income Tax Regs., does not apply to determine whether P satisfied the requirements of sec. 1.170A-14(g)(2), Income Tax Regs.

P, a citizen of the Federal Republic of Germany and a resident alien of the United States, was employed in the United States by the Federal Republic of Germany, Office of Defense Administration,… Held: P's wages are not exempt from taxation under I.R.C. sec. 893(a). Held, further, P does not benefit from the provisions of the NATO SOFA.

In 2007 P filed a Federal income tax return for 2006 reporting an overpayment and electing to have it applied to his 2007 estimated income tax. However, in 2007 R determined that P was liable for an I.R.C. sec. 6672 penalty (attributable to unpaid trust fund taxes of C) and applied P's 2006 income tax overpayment to that penalty liability instead. In 2008 the balance of C's trust fund tax liability was satisfied by third-party payments. When P thereafter filed his 2007 Federal income tax return in 2008, he claimed a credit thereon for the overpaid 2006 income tax, thereby reporting a 2007 income tax overpayment, and elected to have that asserted 2007 overpayment applied to his 2008 estimated income tax. The IRS notified P that it adjusted his 2007 credits downward to eliminate the claimed 2006 income tax overpayment, thereby eliminating any overpayment for 2007, and yielding a balance due. When P filed his 2008 Federal income tax return in 2009, he nonetheless claimed a credit thereon for overpaid 2007 income tax (which consisted solely of the previously disallowed credit elect overpayment from 2006). The IRS notified P that it adjusted his 2008 credits downward to eliminate the claimed 2007 income tax overpayment, yielding a balance due greater than he had reported. When P did not pay the balance due for 2008, R issued to P a notice of proposed levy, and P requested a hearing under I.R.C. sec. 6330(b). At the hearing P contended that his I.R.C. sec. 6672 penalty was overpaid and that his 2008 liability would be satisfied if that overpayment were applied to his 2008 liability. R determined to proceed with the levy to collect P's 2008 Federal income tax liability. Held: P is not entitled to apply a credit elect overpayment from 2007 toward his 2008 income tax liability, because after application of his 2006 income tax overpayment to his I.R.C. sec. 6672 penalty liability, he had no 2006 overpayment available for crediting to 2007 and therefore no 2007 overpayment available for crediting to 2008. Held, further, in a hearing under I.R.C. sec. 6330 concerning collection of P's unpaid 2008 income tax liability, we do not have jurisdiction to adjudicate P's claim of an I.R.C. sec. 6672 penalty overpayment.

After P filed his petitions in this Court seeking review of R's collection actions pursuant to I.R.C. sec. 6330(d), he filed a petition in bankruptcy court. Held: The automatic stay pursuant to 11 U.S.C. sec. 362(a)(8) does not prevent the granting of P's motions to dismiss the petitions for review of collection actions filed pursuant to I.R.C. sec. 6330(d) in this Court.

R determined that for 2007 P failed to report income of $11,691 from the Los Angeles County Employees Retirement Association received on account of a divorce agreement, treated like a qualified domestic relations order, awarding her a portion of her former husband's disability pay. P argues that either: (1) the $11,691 is excluded from her income under I.R.C. sec. 104(a)(1) because I.R.C. sec. 402(e)(1)(A) provides that an alternate payee, pursuant to I.R.C. sec. 414(p), who is the former spouse of the participant shall be treated as the distributee of any distribution or payment made to the alternate payee under a qualified domestic relations order, or (2) she steps into the shoes of her former spouse and therefore should receive the same tax treatment on the payments. Held: P may not exclude the $11,691 from income under I.R.C. sec. 104(a)(1).

P obtained a $1 million mortgage to help finance her purchase of a home. Although she was married, P paid the mortgage only with her own funds during 2007. Held: Under I.R.C. sec. 163(h)(3)(B)(ii) and (C)(ii) P is entitled to a deduction for interest paid on only $500,000 of home acquisition indebtedness plus interest paid on only $50,000 of home equity indebtedness. Held, further, P is liable for an accuracy-related penalty under I.R.C. sec. 6662(a).

Ps were the only shareholders in an S corporation (S). S purchased a residential property, which Ps used as their principal residence. Ps claimed the first-time homebuyer credit under I.R.C. sec. 36. Held: S is not an individual for the purpose of I.R.C. sec. 36.

At the end of May 2006, Ps purchased property in Vienna, Virginia (Vienna property), with the intention to demolish the house situated thereon (house) and construct a new one on the site. Their realtor told them about the Fairfax County Fire and Rescue Department (FCFRD) Acquired Structures Program, where a property owner allows FCFRD to conduct live fire training exercises on his or her property. As part of the exercises, FCFRD destroys, by burning, the designated building on the owner's property. Within a few weeks of purchasing the Vienna property, Ps contacted FCFRD and obtained information about the requirements for participating in the program. After Ps obtained a demolition permit and completed all of the other requirements, they executed documents granting FCFRD the right to conduct training exercises on the Vienna property and to destroy the house by burning during the exercises. During October 2006, FCFRD, along with six other fire departments, used the Vienna property to conduct live fire training exercises, during which the house was destroyed. On their 2006 Federal income tax return, Ps reported a noncash charitable contribution of $339,504 on Schedule A, Itemized Deductions, for the donation of the house to FCFRD. R disallowed the deduction Ps claimed for 2006 and asserts that Ps' donation to FCFRD was a contribution of a partial interest in property, a deduction for which is denied by I.R.C. sec. 170(f)(3). Held: A landowner's grant to a fire department of the right to conduct training exercises on his property and destroy a building thereon during the exercises is a mere license that permits the fire department to do an act which without such a grant would be illegal and which conveys no interest in the property to the fire department. Held, further, taxpayers who grant a fire department the right to conduct training exercises on their property and destroy a building thereon during the exercises do not donate any ownership interest in property to the fire department, and I.R.C. sec. 170(f) (3) denies them a charitable contribution deduction for the donation of the use of their property regardless of the value of that use. Held, further, Ps donated only the use of the Vienna property and the house to FCFRD, a partial interest in the property, and pursuant to I.R.C. sec. 170(f)(3)are not entitled to the $92,865 noncash charitable contribution deduction claimed on their 2006 income tax return under I.R.C. sec. 170(a). Held, further, Ps acted with reasonable cause and in good faith and are accordingly not liable for any accuracy-related penalty under I.R.C. sec. 6662(a) or (h).