Volume 143 — Tax Court Reports

I.R.C. section 162(f) denies a deduction for "any fine or similar penalty paid to a government for the violation of any law." Section 1.162-21(a), Income Tax Regs., provides that the term "government" includes a "corporation or other entity serving as an agency or instrumentality" of a domestic or foreign government. In 2008 P, a U.S. corporation, paid a fine to the Commission of the European Community (Commission) for participating in a pricefixing cartel that violated the competition provisions of European Community (EC) law. P subsequently claimed a deduction for this payment on its 2008 Federal income tax return. R disallowed the claimed deduction under I.R.C. section 162(f), contending that the Commission is an instrumentality of the government of a foreign country within the meaning of section 1.162-21(a), Income Tax Regs. 1. Held: The phrase "government of a foreign country," as used in section 1.162-21(a), Income Tax Regs., may refer both to the government of a single foreign country and to the governments of two or more foreign countries. 2. Held, further, the Commission is an entity serving as an instrumentality of the EC member states within the meaning of section 1.162-21(a)(2) and (3), Income Tax Regs. 3. Held, further, P's claimed deduction for the fine paid to the Commission was properly disallowed under I.R.C. section 162(f).

After R assessed trust fund recovery penalties against him, P requested a partial pay installment agreement. Held: I.R.C. sec. 6331(k)(2) did not preclude R from issuing the Letters CP 90 after P submitted his offer for an installment agreement. Held, further, R's determination not to rescind the Letters CP 90 was not an abuse of discretion under relevant provisions of the Internal Revenue Manual.

LLC1 contributed a successor member interest in a second LLC (LLC2) to University. Held: further, Estate of Gribauskas v. Commissioner, 116 T.C. 142 (2001), rev'd and remanded, 342 F.3d 85 (2d Cir. 2003), distinguished on ground that successor member interest involved right to receive a capital asset in the future and not a stream of fixed payments. Held, further, we will deny R's motion.

Ps invested in a Son-of-BOSS transaction through a partnership that was subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, 96 Stat. 324. Held: The partnership items did not convert to nonpartnership items under I.R.C. sec. 6223(e)(2) because the partnership proceeding was ongoing at the time the IRS mailed the FPAA.

R disallowed Ps' deduction for contributions to their IRAs, which Ps claim are deductible because the limitations on deductibility either do not apply or are unconstitutional. Held: Ps are not entitled to a deduction for IRA contributions because P-W is an active participant in an employer-sponsored retirement plan and Ps' combined modified adjusted gross income is above the phaseout ceiling. 2.

R issued a notice of deficiency concerning Ps' Federal income tax for taxable years 2006 to 2009. Held: The Home Concrete decision does not affect our prior cases holding that gross income includes only gains from the sale of investments, not amounts realized from such sales.

R assessed a penalty under I.R.C. sec. 6707A. R issued a notice of intent to levy to collect this penalty. P requested a collection due process hearing, challenging the collection action. While the hearing was pending Congress retroactively changed the manner in which I.R.C. sec. 6707A penalties are calculated. P requested that R recalculate the penalty using the amount of tax shown on subsequent amended returns. R decided the penalty should not be changed, and P appealed this decision. The IRS Appeals Office agreed that the penalty amount should not be changed, and R issued a notice of determination sustaining the collection action. P believes that the appropriate penalty calculation should use the actual tax due, not the tax shown on the return on which he was obliged but failed to disclose the reportable transaction. P seeks to change the penalty from the current amount assessed, $100,000, to the minimum under the statute, $5,000. Held: We have jurisdiction to consider the penalty. Held, further, the penalty is calculated by reference to the amount of tax shown on the return with respect to which the taxpayer had a disclosure obligation.

R issued a final notice of intent to levy to estate (E) to collect unpaid estate tax. Held: The person entitled to the rights and protections set forth in I.R.C. sec. 6330 is the taxpayer liable for unpaid Federal tax. Held, further, under I.R.C. sec. 6330(d), this Court lacks jurisdiction over a petition filed by a party who is neither the taxpayer nor an authorized representative of the taxpayer.

R requests that Ps produce electronically stored information contained on two backup storage tapes or, alternatively, the tapes themselves (or copies thereof). Held: Ps may use predictive coding in responding to R's request.

In 1997 P-H, an inventor, transferred several patents to T, a corporation. Ps own 24% of the outstanding stock of T. P-W's sister and Ps' friend own the remaining stock. Held: P-H did not transfer all substantial rights in the subject patents to T within the meaning of I.R.C. sec. 1235(a) because P-H controlled T during the years at issue. See Charlson v. United States, 525 F.2d 1046, 1053, 208 Ct. Cl. 296 (Ct. Cl. 1975).

While P worked for the Federal Government, he participated in the Civil Service Retirement System (CSRS). After P retired, he received a letter explaining that he could elect to increase his CSRS retirement annuity by remitting a fixed sum. P remitted the funds to CSRS. Because P did not have sufficient funds in his bank account, he borrowed a portion of the fixed sum. P paid off the loan and replenished his bank account by making withdrawals from his traditional individual retirement account (IRA). P did not report any of the amounts he withdrew from his IRA as taxable income. P contends that he engaged in a tax-free rollover. R contends that rollover contributions cannot be made to CSRS. Held: Because CSRS did not accept his remittance as a rollover, P must include his withdrawals in his taxable income for the year at issue.

In 2004, P, a German citizen, made an installment sale of his stock in a U.S. corporation, and he received payments in 2004-09 (years in issue) pursuant to a promissory note… Held: Because he did not formally abandon his LPR status pursuant to sec. 301.7701(b)-1(b)(1) and (3), Proced. & Admin. Regs., until 2010, P remained an LPR during the years in issue, taxable by the United States on his worldwide income, including the gain on his 2004 installment sale of stock. 2.

R filed a motion for reconsideration of findings or opinion in Law Office of John H. Eggertsen P.C. v. Commissioner, 142 T.C. 110 (Feb. 12, 2014)… Held: Upon reconsideration of the statute of limitations issue in Eggertsen I, I.R.C. sec. 6501, not I.R.C. sec. 4979A(e)(2)(D), controls resolution of that issue because P did not file Form 5330 or any other document that qualifies as a return for I.R.C. sec. 4979A(a) excise tax purposes within the meaning of I.R.C. sec. 6501(a).

Ps filed with R's Whistleblower Office (W) a claim for a whistleblower award under I.R.C. sec. 7623(b). Held: The 2013 letter constitutes a determination for purposes of I.R.C. sec. 7623(b)(4). R's motion to dismiss for lack of jurisdiction will be denied.

P filed with R's Whistleblower Office (W) an application for a whistleblower award under I.R.C. sec. 7623. Held: The Nov. 7, 2012, letter was a determination and this Court has jurisdiction with respect to the matter. Held, further, the fact that R continued to consider P's application after sending the Nov. 7, 2012, letter does not terminate this Court's jurisdiction.

P timely filed a Form 12153, Request for a Collection Due Process or Equivalent Hearing, with attachments, in response to a final notice of… Held: The Tax Court has jurisdiction to review the Commissioner's determination as to whether a taxpayer who has sought judicial review under sec. 6330(d)(1) has raised an issue other than issues that have been identified by the Secretary as frivolous or that reflect a desire to delay or impede the administration of Federal tax laws.

P, an affiliated group consisting of a qualified personal service corporation A, the parent corporation, and a corporation that is not a qualified personal service corporation, filed consolidated Federal income tax returns for 2006 and 2007. P reported consolidated taxable income for 2006 and 2007, all of which was attributable to A. On the basis that the affiliated group, as a single entity, was not a qualified personal service corporation, P paid tax on the consolidated taxable income of the affiliated group at graduated rates set forth in I.R.C. sec. 11(b)(1). On the basis that each affiliate's status as a qualified personal service corporation is to be examined separately, R determined that the consolidated taxable income of the affiliated group was subject to the I.R.C. sec. 11(b)(2) flat 35% tax rate applicable to qualified personal service corporations. Held: Graduated rates set forth in I.R.C. sec. 11(b)(1) should be used to compute the amount of tax to be imposed on the consolidated taxable income of an affiliated group consisting of a qualified personal service corporation and an entity that is not a qualified personal service corporation where the group, as a single entity, is not a personal service corporation.

Brazilian retailers purportedly contributed distressed consumer receivables to a limited liability company, S, treated as a partnership for… Held: The Brazilian retailers did not intend to enter into a partnership for Federal income tax purposes. Held, further, S had a cost basis, not a carryover basis, in the receivables. Held, further, the transactions in issue lacked economic substance. Held, further, the trading companies are not entitled to I.R.C. sec. 166 deductions.

Ps failed to file returns for 2003-06 and 2008 (years in issue). Held: P-H is liable for the income tax deficiencies that R determined for the years in issue and set forth on the SFRs, as revised by the amendments to answer. 2.

R collected $844,746 of tax from the target as a result of an audit performed in response to P's whistleblower claim. Held: The $2 million requirement is an affirmative defense and is not jurisdictional. We will deny R's motion and allow time for R to file an appropriate motion for leave to amend the answer.

Ps, domestic corporations, each established a retirement plan and received a favorable determination letter from the IRS regarding the plans' qualified status under I.R.C. sec. 401(a). Held: R's motion for summary judgment will be denied because genuine disputes of material fact remain.