Volume 142 — Tax Court Reports

P, a domestic corporation, is the parent of numerous wholly owned subsidiaries including L, a Bermudian corporation. P conducted its business through stores owned and operated by its subsidiaries. Held: P's subsidiaries' payments to L are deductible, pursuant to I.R.C. sec. 162, as insurance expenses.

Petitioners seek judicial review of Letters 3477 denying their claim for interest suspension under I.R.C. sec. 6404(g) and stating that the determinations… Held: The Court has jurisdiction under I.R.C. sec. 6404(h) to review denials of interest suspension under I.R.C. sec. 6404(g). Held, further, the Letters 3477 were final determinations for purposes of I.R.C. sec. 6404(h) even though petitioners' concurrent claims for abatement under I.R.C. sec. 6404(e) were still pending.

Corporation C and partnerships S and V develop large, planned residential communities. Held: The subject matter of the contracts consists of the home and the larger development, including amenities and other common improvements. Held, further, C, S, and V are permitted to report income and losses from sales of homes in their planned developments using their interpretation of the completed contract method of accounting.

During its taxable year 2005, P, an S corporation, maintained an employee stock ownership plan. R determined that 2005 was a "nonallocation year" within the meaning of I.R.C. sec. 409(p)(3)(A) with respect to that plan and that I.R.C. sec. 4979A imposes a Federal excise tax on P for that taxable year. Held: I.R.C. sec. 4979A(a) imposes a Federal excise tax on P for its taxable year 2005. Held, further, the period of limitations under I.R.C. sec. 4979A(e)(2)(D) for assessing that tax has expired.

P-H received two monetary awards for bringing qui tam complaints filed under the False Claims Act (FCA), 31 U.S.C. sec. 3730 (2006). Held: A qui tam award is not the result of a sale or exchange as required under I.R.C. sec. 1221(b)(3). Held, further, a qui tam award is ordinary income and is therefore not a capital asset under I.R.C. sec. 1221(a). Held, further, the information P-H provided to the Government was not his property and therefore was not a capital asset.

Prior to marrying P, P's husband had a child with TDW. Held: Sec. 1.152-4(e)(1)(ii), Income Tax Regs., provides that for taxable years starting after July 2, 2008, a court order or decree or a separation agreement may not serve as a written declaration.

For 2004 through 2006 Ps reported charitable contributions that flowed to them from a partnership and an LLC, both of which were treated as partnerships for tax purposes. Held: North Dakota State law limits the duration of an easement to not more than 99 years, thus precluding a North Dakota conservation easement from qualifying as granted in perpetuity under I.R.C. sec. 170(h)(2)(C) and (5)(A).

For 2005-09, P, a professional gambler who bet on horse races, deducted his net wagering losses (either incurred during the year or carried over from prior years) in contravention of I.R.C. sec.… Held: Because takeout represents the track's share of a parimutuel betting pool and the expenses discharged therefrom are obligations imposed on the track, not the bettors, P is not entitled to deduct a pro rata share of all or any portion thereof. 2.

T is a trust that owned rental real-estate properties and engaged in other real-estate activities. Held: A trust can qualify for the I.R.C. sec. 469(c)(7) exception. A trust is capable of performing personal services within the meaning of I.R.C. sec. 469(c)(7). Services performed by individual trustees on behalf of the trust may be considered personal services performed by the trust.

R rejected P's OIC for P's trust fund recovery penalties for the periods ending March 31 and September 30, 2000, and P's income tax liability for her 2008 tax year. P appealed R's rejection, and R assigned Appeals Officer S to review P's OIC. R also filed an NFTL for P's tax liabilities in issue and issued a Letter 3172. P requested a CDP hearing pursuant to I.R.C. sec. 6320, and R assigned Appeals Officer K to conduct P's CDP hearing. After Appeals Officer S had initiated review of P's OIC, R transferred P's CDP case from Appeals Officer K to Appeals Officer S. Appeals Officer S sustained R's rejection of P's OIC and sustained R's filing of the NFTL. P petitioned for review, contending that the CDP hearing was improper because Appeals Officer S was not an impartial officer pursuant to I.R.C. sec 6320(b)(3). Held: Appeals Officer S was not an impartial officer pursuant to I.R.C. sec. 6320(b)(3) and sec. 301.6320-1(d)(2), Proced. & Admin. Regs. Held, further, P is entitled to a new CDP hearing before an impartial Appeals Officer.

In 1987, the United States and France entered into a Totalization Agreement to coordinate benefits under their respective social security systems. Held: Taxes are paid to a foreign country in accordance with the terms of a totalization agreement if those taxes are covered by, or within the scope of, the totalization agreement. 2.

In this case brought under I.R.C. sec. 7436, P seeks our determination of the proper classification of P's workers for employment tax purposes and certain related issues. Held: The April 15, 2011, letter was a determination relating to the classification of P's workers for employment tax purposes. Held, further, the determination related to matters specified in I.R.C. sec. 7436(a) over which we have jurisdiction.

In anticipation of Ps' affirmative defenses to accuracy-related penalties (e.g., reasonable cause and good faith), R moves (1) to compel… Held: By putting the LLCs' legal knowledge and understanding into contention in order to establish a good-faith and state-of-mind defenses, Ps forfeit the LLCs' privilege protecting attorney-client communications relevant to the content and the formation of their legal knowledge, understanding, and beliefs; an order directing production…

P filed a petition for review pursuant to I.R.C. sec. 6330 in response to R's determination to proceed with collection by means of levy. Held: It was not an abuse of discretion for R to determine to proceed with a levy in lieu of or in addition to an attempt to invade the T in order to satisfy P's income tax liability. Held, further, R is not required to grant P's request to collect involuntary payments from a certain source.

I.R.C. sec. 901(a) permits a U.S. citizen or resident to claim a credit against her Federal income tax liability for income taxes paid to a foreign country. Held: this Court has jurisdiction to determine, at a minimum, whether the statutory provision alleged to divest it of jurisdiction applies, that is, whether the U.K. taxes paid by petitioner have been refunded in whole or in part within the meaning of I.R.C. sec. 905(c)(1)(C).

Ps granted to a qualified organization facade easements on two historic homes they owned. Held: Ps failed to prove their easements had any value and consequently were not entitled to claim related charitable contribution deductions. Held, further, Ps adequately substantiated a portion of the basis increase they claimed on the home they sold and were entitled to reduce their capital gain by the substantiated amount.

P sold his primary residence in 2006 pursuant to an installment sale agreement. The buyers' indebtedness was secured by the residence. Pursuant to I.R.C. sec. 121, P excluded $500,000 in gain on the sale. In 2009 the buyers defaulted on the deed and P reacquired the property. In a notice of deficiency to P, R determined that P was required to recognize long-term capital gain on the reacquisition of the property, including the $500,000 that P had previously excluded from gain. Held: P is required to recognize long-term capital gain on the reacquisition of the property, pursuant to I.R.C. sec. 1038, including gain previously excluded under I.R.C. sec. 121.

Ps owned interests in bona fide partnerships that were subject to the tax audit and litigation procedures of I.R.C. secs. 6221-6234. Held: Gain or loss on the disposition of a bona fide partnership interest is an affected item that requires partner-level determinations if the amount of that gain or loss could be affected by a partner-level determination.

R issued notices of transferee liability to Ps to collect D's unpaid Federal income tax pursuant to I.R.C. sec. 6901. Held: I.R.C. sec. 6901 requires that the Court apply State (rather than Federal) law to determine whether a transaction is recast under a substance over form (or similar) doctrine.

Ps are in the residential land development business and develop land in and adjacent to Las Vegas, Nevada. Held: Ps' bulk sale and custom lot contracts are long-term construction contracts. Held, further, Ps' contracts are not home construction contracts within the meaning of I.R.C. sec. 460(e), and Ps may not report gain and loss from these contracts using the completed contract method of accounting.

Whistleblower W reported a tax fraud scheme, involving W's employer and related entities, to the Government. Held: The Court has jurisdiction to review R's whistleblower claim award determinations where W has alleged that W provided information to R before and after the effective date of I.R.C. sec. 7623(b).

I.R.C. sec. 893 excludes from gross income and exempts from taxation income received by an employee of a foreign government or international organization if certain conditions are met. Held: I.R.C. sec. 893 does not apply to wages P-W received from the Mission during 2004-09 because she had previously executed a valid waiver of rights, privileges, exemptions, and immunities. 2.

In 1993 R mailed notices of deficiency regarding Ps' 1987 and 1990 tax years. In 1995 Ps filed petitions with the Court. Held: As a general rule, the finality of a Tax Court decision is absolute; the recognized exceptions are when there has been a fraud on the Court or when the decision was void because the Court did not have jurisdiction to enter the decision.

On several occasions the U.S. Postal Service (Postal Service) attempted, albeit unsuccessfully, to deliver to P a notice of deficiency that R had mailed to him by certified mail, return receipt… Held: P may not decline to retrieve his Postal Service mail, when he was reasonably able and had multiple opportunities to do so, and thereafter successfully contend that he did not receive for purposes of I.R.C. sec. 6330(c)(2)(B) a notice of deficiency.