Volume 144 — Tax Court Reports

To qualify as a bank under I.R.C. section 581, a taxpayer must meet three distinct requirements. Held: P during 2007 and 2008 did not qualify as a bank within the meaning of I.R.C. section 581 because it did not display the essential characteristics of a bank as that term is commonly understood and because a substantial part of its business did not consist of receiving bank deposits or making bank loans. 2.

P is a domestic corporation operating as an airline, and its foreign branches remunerate its foreign flight attendants to staff P's South American routes. Held: R made a determination which provides a basis for our jurisdiction to determine whether P is entitled to relief under RA '78 sec. 530 with respect to remuneration paid to P's foreign flight attendants by its foreign branches. Held, further, R's motion for partial summary judgment will be denied.

R filed an NFTL and sent P a notice of lien filing and a notice of intent to levy with respect to trust fund recovery penalties assessed against P for all periods of 2007 and 2008. Held: R's motion for summary judgment will be denied because the issue of whether the Letter 1153 was properly issued to P by personal service remains a genuine dispute as to a material fact for trial.

P received large sums of money in exchange for undergoing procedures to donate her eggs to infertile couples. Held: Compensation for pain and suffering resulting from the consensual performance of a service contract is not damages under I.R.C. section 104(a)(2) and must be included in gross income.

D was a U.S. citizen who built his own company in the United States to both manufacture and distribute surge suppression devices. Held: The proper test for determining USVI residency for the years at issue is the facts and circumstances test of Vento v. Dir. of V.I. Bureau of Internal Revenue, 715 F.3d 455, 467, 58 V.I. 753 (3d Cir. 2013). Held, further, Forms 1040 that D filed with the VIBIR met his Federal tax filing obligations.

Decedent's (D) will directed that the residue of her estate, which included income in respect of a decedent, be left to charity. Held: I.R.C. sec. 642(c)(2) provides that any part of the gross income of an estate, which pursuant to the terms of the will is permanently set aside during the taxable year for a purpose specified in I.R.C. sec. 170(c), shall be allowed as a deduction to the estate.

P received a Notice of Determination Concerning Worker Classification and corresponding employment tax liabilities on its own behalf and other such notices as successor in interest to various… Held: On the facts before us, P was not a successor in interest under Texas law. Held, further, we do not adopt a Federal common law standard of successor in interest. Held, further, P's workers were employees.

Ps received targeted economic development payments from the state of New York. New York calls these payments credits and treats them as refunds for overpayments of state tax. Held: The state-law label of the credits as overpayments of past tax is not controlling for Federal tax purposes. Because the EZ Investment Credit and the EZ Wage Credit do not depend on past tax payments, they are not refunds of past overpayments but rather are like direct subsidies.

R determined a deficiency in P's Federal income tax and additions to tax under I.R.C. sec. 6651(a)(1) and (2). Included in R's deficiency determination is additional tax under I.R.C. sec. 72(t). Held: P was required to file a return for 2009. Held, further, P failed to report wage income. Held, further, P failed to report a deemed taxable distribution from his retirement account.

Ps invested in a Son-of-BOSS transaction through a partnership that was subject to the partnership provisions of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. Held: In determining whether to grant leave to file a motion out of time, we may consider the merits of the underlying motion. Held, further, the deductibility of professional fees paid and claimed as a deduction at the partner level is a factual affected item that is subject to deficiency procedures.

C and his wife and related individuals owned appreciated real estate through an S corporation (S). Held: The step transaction doctrine applies to the transactions at issue. Collapsing the steps, S distributed the appreciated real estate to its shareholders and should have recognized gain under I.R.C. sec. 311(b).

R issued notices of transferee liability to Ps to collect L's unpaid Federal income tax pursuant to I.R.C. sec. 6901. R argues that the following two-step analysis applies in determining whether Ps are liable for L's unpaid tax: (1) applying doctrines pertinent to interpreting the Internal Revenue Code, determine whether the form of the subject transactions should be disregarded in favor of deciding, on the basis of the substance of the transactions, whether Ps are transferees for purposes of I.R.C. sec. 6901 and (2) apply State law to the transactions resulting from the first step. Held: Following our report in Swords Trust v. Commissioner, 142 T.C. 317 (2014), R's two-step analysis is rejected; additional reasons are stated. Held, further, transferee liability is established under the Nebraska Uniform Fraudulent Transfer Act (UFTA) because L's transfer was constructively fraudulent as to R and the transfer was made for the benefit of Ps. Held, further, unmatured tax liabilities are "claims" within the meaning of that term as defined in UFTA. Held, further, Ps, for whose benefit the transfer was made, are transferees within the meaning of I.R.C. sec. 6901.

P petitioned the Court under I.R.C. sec. 6015(e)(1) to review R's final determination denying P relief from joint liability under I.R.C. sec. 6015. This type of action is known as a "stand alone" case because the only issue is whether the taxpayer is entitled to relief from joint liability. P now moves the Court to allow her to withdraw the petition and to dismiss the case. Held: The Court has discretion to allow P to withdraw the petition because the petition did not invoke the Court's jurisdiction to redetermine a deficiency or otherwise implicate a provision such as I.R.C. sec. 7459(d) that requires the Court to enter a decision upon the dismissal of a case. Wagner v. Commissioner, 118 T.C. 330 (2002), followed. Vetrano v. Commissioner, 116 T.C. 272 (2001), is distinguished because the petition in that case invoked the Court's jurisdiction under I.R.C. sec. 6213 to redetermine a deficiency and required that the Court enter a decision. Held, further, the Court will order the petition withdrawn and the case dismissed.

P-H, a retired Los Angeles Police Department detective, failed to report as gross income payments that, on his retirement, he received from the department cashing out his unused vacation time and… Held: The leave payments were not received under a workmen's compensation act as compensation for personal injuries or sickness and, therefore, no portion is excludable under I.R.C. sec. 104(a)(1).

P-H was arrested for participating in a conspiracy to launder money. Held: TRHCA sec. 406(b) does not endow the Whistleblower Office with exclusive authority to investigate the individual or entity that is the subject of an application for an award.

Lessor (Ps) constructed a commercial building and entered into a 10-year lease with Lessee (L). Held: The $1 million payment is rental income to Ps. Held, further, I.R.C. sec. 467(b)(1)(A) provides that the amount of rent under any sec. 467 agreement shall be determined by allocating rents in accordance with the agreement.

P, a U.S. citizen, established a grantor trust that purchased "private placement" variable life insurance policies insuring the lives of two elderly relatives. P and various family members were the beneficiaries of these policies. The premiums paid for the policies, less various expenses, were placed in separate accounts whose assets inured exclusively to the benefit of the policies. The money in the separate accounts was used to purchase investments in startup companies with which P was intimately familiar and in which he otherwise invested personally and through private-equity funds he managed. P effectively dictated both the companies in which the separate accounts would invest and all actions taken with respect to these investments. R concluded that P retained sufficient control and incidents of ownership over the assets in the separate accounts to be treated as their owner for Federal income tax purposes under the "investor control" doctrine. SeeRev. Rul. 77-85, 1977-1 C.B. 12. The powers P retained included the power to direct investments; the power to vote shares and exercise other options with respect to these securities; the power to extract cash at will from the separate accounts; and the power in other ways to derive "effective benefit" from the investments in the separate accounts. See Griffiths v. Commissioner, 308 U.S. 355, 358, 60 S. Ct. 277, 84 L. Ed. 319, 1940-1 C.B. 136 (1939). 1. Held: The IRS revenue rulings enunciating the "investor control" doctrine are entitled to deference and weight under Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 161, 89 L. Ed. 124 (1944). 2. Held, further, P was the owner of the assets in the separate accounts for Federal income tax purposes and was taxable on the income earned on those assets during the taxable years in issue. 3. Held, further, P is not liable for the accuracy-related penalties under I.R.C. sec. 6662(a) because he relied in good faith on professional advice from competent tax professionals.