Volume 140 — Tax Court Reports

In 2004 Ps contributed a conservation easement on 184.627 acres of a golf course to a qualified organization. Held: I.R.C. sec. 170(h)(2)(C) precludes the deduction because Ps did not donate an interest in real property subject to a use restriction granted in perpetuity.

B and its subsidiaries are an affiliated group (Ps). Ps engaged in a Structured Trust Advantaged Repackaged Securities transaction (STARS transaction). Held: The STARS transaction lacked economic substance and is disregarded for Federal tax purposes. Held, further, because the STARS transaction lacked economic substance, Ps are not entitled to the claimed foreign tax credits, the claimed expense deductions or the foreign-source income treatment.

In 2007 P and her daughters moved from San Francisco to Canada and became permanent residents of Canada. P continued to own a home and maintained a post office box in San Francisco. Held: Pursuant to I.R.C. sec. 6213(a), P's petition was timely filed within the 150-day period.

R issued a notice of final partnership administrative adjustment (FPAA) determining adjustments to income on multiple grounds. Held: A taxpayer may not avoid application of the gross valuation misstatement penalty merely by conceding on grounds unrelated to valuation or basis. We will deny P's motion for partial summary judgment.

D owned undivided fractional interests in 64 works of contemporary art. 1. Held: In valuing certain of those fractional interests, pursuant to I.R.C. sec. 2703(a)(2) we disregard D's agreement by which he waived his right to institute a partition action with respect to some of the works of art and thereby relinquished an important use of his fractional interests in those works. 2.

P, a professional golfer and a resident of Switzerland, entered into an endorsement agreement with sponsor T. P agreed to allow T to use his image, name, and voice (image… Held: The payments made by T are allocated 65% to royalties and 35% to personal services. Held, further, any royalty income to P is exempt from taxation in the United States under the Swiss Tax Treaty. However, none of his U.S. source personal service income is exempt from taxation in the United States.

P moved for interlocutory appeal pursuant to I.R.C. sec. 7482(a)(2)(A) of an order dismissing for lack of jurisdiction, on account of an… Held: P's contention that the period in which to file a petition for review of a collection action determination under I.R.C. sec. 6330 affecting the underlying tax liability is the 90-day period provided in I.R.C. sec. 6213 rather than the 30-day period provided in I.R.C. sec. 6330(d)(1) does not demonstrate a substantial ground for…

P filed a petition for review pursuant to I.R.C. sec. 6330 in response to R's determination to proceed with collection. P sought a collection alternative of a partial payment installment agreement with a monthly payment of $3,000. The Internal Revenue Manual provides guidance for determining how much a taxpayer should be able to pay in a partial payment installment agreement and how much should be set aside for the taxpayer's necessary living expenses. The Internal Revenue Manual provides that in a partial payment installment agreement a taxpayer is allowed only necessary expenses; conditional expenses are not allowed. In computing the necessary expenses, P included tithing to his Church and expenses for his children's college. P claims that both tithing and his children's college expenses are necessary expenses. Held: It was not an abuse of discretion for R to classify P's tithing as a conditional expense under the Internal Revenue Manual. Held, further, classifying P's tithing as a conditional expense does not violate P's rights under the Free Exercise Clause of the First Amendment. Held, further, classifying P's tithing as a conditional expense was not a violation of the Religious Freedom Restoration Act of 1993. Held, further, it was not an abuse of discretion for R to classify P's children's college expenses as a conditional expense under the Internal Revenue Manual. Held, further, R's determination is sustained.

R mailed to P, as W's tax matters partner (TMP), a notice of final partnership administrative adjustment (FPAA) for W's 2007 taxable year. Held: The second FPAA is invalid (and thus disregarded) because I.R.C. sec. 6223(f) precluded R from properly mailing the second FPAA to P. The Court lacks jurisdiction to decide this case because the petition was not filed timely as to the first FPAA.

P was divorced from his wife, and their 2003 "Judgment of Absolute Divorce" provided that his ex-wife would have primary residential custody of their three minor children. The judgment provided that the dependency exemption deductions for the three children would be divided between the two ex-spouses according to various conditions but did not provide that the ex-wife must execute in P's favor a Form 8332, "Release of Claim to Exemption for Child of Divorced or Separated Parents". The children resided with P's ex-wife for more than half of 2009, and P's ex-wife did not execute in P's favor any Form 8332 or equivalent document for any year. For 2009 P timely filed a Federal income tax return on which he claimed dependency exemption deductions and the child tax credit for two of the children, consistent with his understanding of the terms of the judgment, but he did not attach any Form 8332 to his return. He also claimed head-of-household filing status. His ex-wife, the custodial parent, timely filed a Federal income tax return for 2009 on which she also claimed two dependency exemption deductions, so that one child was claimed on both parents' returns. R allowed to P the dependency exemption deduction for one of the children but disallowed his claim for the dependency exemption deduction for the child who had also been claimed by the custodial parent. At trial P contended he is entitled to a dependency exemption deduction for all three children. Held: Since the custodial parent did not execute, and P could not and did not attach to his return, any Form 8332 or equivalent release, P is not entitled under I.R.C. sec. 152(e)(2)(A) to claim the dependency exemption deduction or the child tax credit. Held, further: Where both the custodial parent and the noncustodial parent have claimed for the same year a dependency exemption deduction for the same child, a declaration signed by the custodial parent after the period of limitations for assessments has expired as to the custodial parent could not qualify under I.R.C. sec. 152(e)(2)(A), and therefore there is no reason to grant P's request to leave the record open so that he may obtain and proffer such a declaration. Held, further: P is not entitled to head-of-household filing status under I.R.C. sec. 2(b)(1) nor to the child tax credit under I.R.C. sec. 24.

R moved to dismiss the proceeding for lack of jurisdiction because petitioner's corporate powers were suspended at the time the petition was filed. Held: The notice was not invalid. The motion to dismiss will be granted.

In 2001 Ps established traditional IRAs. Held: Each of Ps' personal guaranties of the FP Corp. loan was an indirect extension of credit to the IRAs, which is a prohibited transaction; and under I.R.C. sec. 408(e), the accounts that held the FP Corp. stock ceased to be IRAs. Held, further, the gains realized on the sale of the FP Corp. stock are included in Ps' income.

P is a Delaware corporation, wholly owned by T, an Indian tribe. Held: P, as a State-chartered corporation, is a separate and distinct entity from T and is not exempt from the corporate income tax.

P, a U.S. citizen, was a permanent resident of the U.S.Virgin Islands during 2002, 2003, and 2004. Held: Forms 1040 P filed with the VIBIR for 2002, 2003, and 2004 met P's Federal tax filing obligations. Held, further, the period of limitations commenced when P filed his returns with the VIBIR, and the period of limitations expired before R's mailing of the notice of deficiency.

In 1998, P was a foreign insurance company that elected under I.R.C. sec. 953(d) to be treated as a domestic corporation for U.S. Federal income tax purposes. Held: The three-year period of limitations under I.R.C. sec. 6501(a) remains open as to 2003 because P's Form 990 was not a valid return in that it was not signed by one of P's corporate officers.

During 2006 and 2007 P-H received payments under the U.S. Department of Agriculture Conservation Reserve Program (CRP). Respondent determined that P-H was liable for self-employment tax under I.R.C. sec. 1401 on the CRP payments. P-H claims that the CRP payments are not includible in his self-employment income because he was neither engaged in nor derived the CRP payments from operation of a trade or business. Alternatively, P-H claims that the CRP payments are excluded from the calculation of his net earnings from self-employment under I.R.C. sec. 1402(a)(1) because the CRP payments constituted "rentals from real estate". Held: P-H's CRP payments are includible in his self-employment income under I.R.C. sec. 1401 because he was engaged in a trade or business during the years in issue and there was a nexus between his trade or business and the CRP payments he received. Held, further, P-H's CRP payments are not "rentals from real estate" within the meaning of I.R.C. sec. 1402(a)(1). Wuebker v. Commissioner, 110 T.C. 431 (1998), rev'd, 205 F.3d 897 (6th Cir. 2000), is overruled.

Petitioner husband ("P-H") contributed cash and a conservation easement to N, a charitable organization. Before the contribution, N at P-H's request issued to P-H a side letter which promised that, in the event R disallows Ps' charitable contribution deductions, N "will promptly refund your entire cash endowment contribution and join with you to immediately remove the facade conservation easement from the property's title". Ps claimed charitable contribution deductions for the cash and easement donations. R contends the side letter made those contributions conditional gifts that are not deductible under I.R.C. sec. 170, since the likelihood that N would be divested of the cash and easement was not negligible. Held: Ps' charitable contribution deductions are not allowed because at the time of P-H's contributions, the possibility that the deductions would be disallowed and, as a result, that N would return the contributions was not "so remote as to be negligible", under 26 C.F.R. secs. 1.170A-1(e), 1.170A-7(a)(3), and 1.170A-14(g)(3), Income Tax Regs.

P and R entered into two advance pricing agreements (APAs) establishing a transfer pricing methodology for covered transactions between P and its subsidiaries. Held: We have jurisdiction to review the cancellations of the APAs because they are administrative determinations necessary to determine the merits of the deficiency determinations. Held, further, an APA cancellation is reviewed for abuse of discretion.

P-H is the sole shareholder of TWC, a subch. C corporation. Held: P-H did not receive a constructive dividend equal to TWC's forgone profit from services that TWC provided during the building of Ps' home because the transactions did not result in the distribution of current or accumulated earnings and profits.