Volume 141 — Tax Court Reports

JH is primarily in the business of selling life insurance policies, annuities, long-term care insurance, and other retirement services. Held: JH's principal place of business is Boston, Massachusetts. Held, further, R failed to prove that the three LILO and four SILO test transactions lack economic substance. Held, further, the substance of the three LILO test transactions is not consistent with their form.

P was established as a nonprofit corporation under the laws of Illinois. Held: P's down-payment assistance program was not operated for a charitable purpose, and P engaged in substantial commercial activities that did not further an exempt purpose. Therefore, P is not an organization described in I.R.C. sec. 501(c)(3).

Ps were criminally prosecuted for failure to file individual income tax returns for 1992-95. Held: Ps are not entitled to a credit under I.R.C. sec. 31(a) for the $91,223 Tryco remitted to the IRS in 1999-2000 because funds in that amount were not actually * * * withheld at the source by Tryco from Ps' wages during 1992-95. Seesec. 1.31-1(a), Income Tax Regs. 2.

In 2005, S, a purported partnership, set up Illinois common law business trusts Main Trust and Sub-Trust. S then transferred distressed Brazilian consumer receivables to Main Trust. Held: E is not a direct or indirect partner in S.

R determined that royalty payments from P to its controlled foreign corporation (CFC) were not arm's length under I.R.C. sec. 482. P and R then entered into a closing agreement under I.R.C. sec. 7121 making primary adjustments regarding the royalty payments. The primary adjustments increased P's income and required P to conform its accounts with secondary adjustments. P accomplished the secondary adjustments by electing to establish accounts receivable under Rev. Proc. 99-32, 1999-2 C.B. 296, rather than treat the secondary adjustments as deemed capital contributions. P had previously repatriated funds from its CFC in transactions unrelated to the royalty payments or adjustments. P claimed a corresponding one-time dividends received deduction under I.R.C. sec. 965. The deduction was subject to certain limitations, including a reduction for an increased related party indebtedness between P and its CFC. P claimed the deduction before agreeing to the primary adjustments or establishing the accounts receivable. R determined that the accounts receivable that were deemed established during the testing period constituted an increase in related party indebtedness and disallowed a corresponding amount of the deduction. R issued a deficiency notice. P filed a petition for redetermination. P contends that the reduction for related party indebtedness applies only to transactions intended to finance dividends. P also asserts that the parties agreed in a closing agreement that P avoids any Federal income tax consequences from establishing the accounts receivable. P also contends that the accounts receivable do not constitute related party indebtedness. Held: The related party debt rule under I.R.C. sec. 965(b)(3) does not apply only to increased indebtedness resulting from intentionally abusive transactions. Held, further, the election under Rev. Proc. 99-32, supra, allows P to avoid the Federal income tax consequences of a deemed capital contribution. The repayment is treated as a return of principal and interest for all Federal income tax purposes. Held, further, the accounts receivable are deemed established during the testing period and qualify as increased related party indebtedness.

The issue before us concerns a dispute over the Rule 155 computation of the underpayment for purposes of applying the I.R.C. sec. 6662(a) accuracy-related penalty. Held: Respondent properly computed petitioner's underpayment for purposes of I.R.C. sec. 6662(a).

P failed to file Federal income tax returns timely for years 1987 through 2001. P subsequently submitted delinquent returns but failed to fully satisfy the outstanding tax liabilities. Held: this Court has jurisdiction to determine whether R abused his discretion in sustaining the final notice of intent to levy. Held, further, R cannot be required to reopen an OIC based on doubt as to collectibility that R returned to P years before the collection hearing commenced.

P entered into a binding gift agreement with her daughters under which P gave her daughters cash and securities and in exchange the… Held: Because the value of the obligation assumed by the daughters is not barred as a matter of law from being consideration in money or money's worth within the meaning of I.R.C. sec. 2512(b), the fair market value of P's taxable gift may be determined with reference to the daughters' assumption of the potential I.R.C. sec. 2035(b) estate…

R disallowed a deduction P claimed under I.R.C. sec. 199 of $1,515,992 for the 2006 tax year and $151,047 for the short 2007 tax year. Held: P did not have the benefits and burdens of ownership of the direct advertising materials and is not entitled to the I.R.C. sec. 199 deduction.

P-W sued E, her employer, for employment discrimination under California's Fair Employment and Housing Act (FEHA), claiming, among other things, that she was entitled to compensatory damages for,… Held: None of the settlement payment P-W received is excludable from Ps' gross income under I.R.C. sec. 104(a)(1) because P-W did not obtain the requisite approval from the WCAB required by the State's workers' compensation laws.

P was a founding member of the popular Isley Brothers singing group, which for many years generated substantial income from personal appearances and record sales. Held: I.R.C. sec. 7122(a) barred Appeals' unilateral acceptance of P's OIC. 2. Held, further, C's advice was properly requested and furnished to the Appeals officer pursuant to I.R.C. sec. 7122(b).

Ps filed a joint income tax return for 2008 improperly claiming three refundable credits: an earned income credit, an additional child tax credit, and a recovery rebate credit. Held: When determining the amount shown as tax on the return under I.R.C. sec. 6664(a)(1)(A), the earned income credit, additional child tax credit, and recovery rebate credit are taken into account but do not reduce the amount shown as tax below zero.

P, a corporation, is a reseller and licensed wholesale dealer of cigarettes in New York. Held: R correctly determined P's gross receipts for each of the years in issue on the basis of the entire sale price of the cigarettes it sold, including that part of the sale price attributable to the cost of the cigarette tax stamps.

On its Federal income tax return for the taxable year ending Mar. 31, 2005 (TYE 2005), P, an accrual method taxpayer, implemented a… Held: Because neither the required performances nor the payment due dates with respect to the majority of the accelerated deductions occurred before the close of P's TYE 2005, P failed to satisfy the first requirement of the all events test of I.R.C. sec. 461; i.e., P failed to prove that all of the events had occurred to establish the…

Holdings was a limited liability company formed on Sept. 7, 2006, and classified as a partnership for Federal income tax purposes. Held: The 2% interest is a partnership capital interest, not a partnership profits interest. Rev. Proc. 93-27, 1993-2 C.B. 343, and Rev. Proc. 2001-43, 2001-2 C.B.191, are inapplicable because they apply only to partnership profits interests.

P's wholly owned S corporation, V, claimed deductions for unpaid obligations, both principal and interest, owed into the Tobacco Master Settlement Agreement (MSA) fund, which is a qualified… Held: V is not entitled to deductions for unpaid MSA obligations, because economic performance does not occur until the obligations are actually paid. Seesec. 1.468B-3(c)(1), Income Tax Regs.

P is the successor in interest to G. G was contractually obligated to purchase, and in 1999 did purchase, securities from S and T for $98.6 million. Held: the securities are intangible property comprising rights that G had in the management, profits, and assets of S and T. Those rights were terminated when G surrendered the securities.

Ps exchanged property for ostensibly restricted stock of a newly formed S corporation (S). Held: The term discharged for cause, as used in section 1.83-3(c)(2), does not necessarily have the same meaning the parties have given that term in their private agreements but refers to termination for serious misconduct which, like criminal misconduct, is highly unlikely to occur. 2.

During 2008 P's former wife (W) submitted withdrawal requests bearing what purported to be P's signatures to two companies administering IRAs P owned. Held: P is not a payee or distributee within the meaning of I.R.C. sec. 408(d)(1). Held, further, P is not liable for the I.R.C. sec. 72(t) additional tax on early distributions from qualified retirement plans. Held, further, P's proper filing status for 2008 is married filing separately.