Volume 146 — Tax Court Numbered Opinion

In 2004 P, a German citizen, made an installment sale of his stock in a U.S. corporation, and in 2010, the year in issue, he received equal monthly payments pursuant to a promissory note executed in… Held: P expatriated on Nov. 20, 2010, when he formally abandoned his status as an LPR. Held, further, P is liable for tax on gains attributable to the 11 monthly installment payments that were made during 2010 before his expatriation date.

P is a single-member LLC that operates a franchise business. Held: The original notices of determination did not embody a determination to sustain, and therefore were invalid with respect to, the NFTL filing for P's December 31, 2010, Form 941 liability.

Ps claimed above-the-line deductions under I.R.C. sec. 62 on their 2008, 2009, and 2010 tax returns for expenses related to H's position as a public official. R examined Ps' 2008, 2009, and 2010 returns and determined that while H was entitled to certain deductions for expenses, he could deduct them only as unreimbursed employee business expenses, which would not reduce Ps' tax liability. R also determined that Ps were liable for accuracy-related penalties under I.R.C. sec. 6662(a). Held: Under I.R.C. sec. 62(a)(2)(C), a "fee based" public official is an official who receives fees directly from members of the public in compensation for services provided. H, a state-court judge, is a public official but did not personally retain any of the money paid as fees to him. Therefore, he is not a public official compensated on a fee basis, and can deduct his unreimbursed employee business expenses only below the line. Held, further, Ps are not liable for 20% accuracy-related penalties under I.R.C. sec. 6662(a).

In an effort to collect P's unpaid liabilities, R issued P a Notice of Federal Tax Lien Filing and Your Right to a Hearing (NFTL Notice). The NFTL Notice was sent by certified mail to P at an address in Bowie, Maryland (Maryland address). At all relevant times, the Maryland address was P's last known address. P timely requested a collection due process (CDP) hearing, showing as his address an address in Washington, D.C. (Washington address). The CDP hearing was held, and R determined that P was not entitled to relief. R then sent P by certified mail a Notice of Determination (Notice) denying relief. The Notice was mailed to P at the Washington address and was returned to R as undeliverable. Without changing the date listed on the Notice, R's office remailed it to P by regular mail to the Maryland address. P received the Notice and petitioned this Court within 30 days of the date on which he actually received the Notice and also of the date on which the Notice was remailed to him. "[T]his Court's jurisdiction under [I.R.C.] sections 6320 and 6330 depends on the issuance of a valid notice of determination and the filing of a timely petition for review." Weber v. Commissioner, 122 T.C. 258, 261 (2004). R contends that we lack jurisdiction because the Notice originally sent to P was not mailed to his "last known address" and was therefore invalid. 1. Held: The Notice as originally mailed to P at his Washington address, which was returned to R as undeliverable, was invalid and did not start the 30-day period for petitioning this Court. 2. Held, further, the Notice as subsequently remailed to P at his Maryland address was valid because it was actually received by P without prejudicial delay, that is, in time to file a timely petition in this Court. 3. Held, further, even though the date listed on the Notice was earlier than the date of mailing, the critical date for the running of the 30-day period is not the date listed on the Notice, but the subsequent date on which the notice was mailed to or actually received by P.

P filed Form 211, Application for Award for Original Information, with the IRS Whistleblower Office with respect to TP1. Held: The term additional amounts as used in I.R.C. sec. 7623(b)(5)(B) means the civil penalties set forth in c. 68, subch. A, of the Internal Revenue Code, captioned Additions to the Tax and Additional Amounts. 2.

In June 2003 Ps rolled over their tax-deferred retirement funds into newly formed individual retirement accounts (IRAs), caused the IRAs to acquire the initial stock of a newly formed C corporation… Held: Ps' guaranties of the loan were prohibited transactions under I.R.C. sec. 4975(c)(1)(B), and the IRAs' assets were deemed distributed to Ps on Jan. 1, 2003. Peek v. Commissioner, 140 T.C. 216 (2013), followed.

Decedent (D) and some family members owned DPI, a closely held real property management corporation. Held: E's charitable contribution is less than the date-of-death fair market value of the bequeathed property because numerous events occurred after D's death that changed the nature and reduced the value of the property that was actually transferred to F. Held, further, R properly allocated the proportionate share of additional estate tax…

Between 2002 and 2004, PH misappropriated funds from a business associate, DH. Held: The evidence presented shows that, contrary to the revenue agent's analysis, PH repaid to DH during 2003 more than the amount the revenue agent determined PH to have misappropriated from DH in that year.

P-H's LLC faced various risks. P-H formed SMS as a "captive insurance company", and in 2009 and 2010 LLC paid SMS premiums for coverage of the risks by SMS. LLC deducted the premiums, and the deductions were passed through to Ps' tax returns. After audit, the IRS disallowed the deductions and stated in the notice of deficiency (NOD): "You did not establish that the amount shown was (a) insurance expense, and (b) paid". Ps filed a petition in the Tax Court disputing the NOD, and R filed an answer that did not make any affirmative allegations as to the disallowed insurance expense deductions. After the case was stricken from a trial calendar and continued generally, R moved for leave to amend his answer to assert "that a) Petitioners' use, through solely controlled flow-through entities, of a micro-captive insurance arrangement in 2009 and 2010 lacked economic substance; and b) Amounts paid as premiums through the micro-captive arrangement were neither ordinary nor necessary" and to allege facts in support of those assertions. Ps oppose the motion for leave, citing Mayo Foundation for Med. & Educ. Research v. United States, 562 U.S. 44, 55, 131 S. Ct. 704, 178 L. Ed. 2d 588 (2011), and arguing that "the Administrative Procedure Act and Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80, 63 S. Ct. 454, 87 L. Ed. 626 (1943) bar Respondent from raising new grounds to support his final agency action beyond those grounds originally stated in the notice of final agency action." Held: Chenery may restrict a reviewing court from relying on reasons not considered by an agency in its determinations, but only as to matters that Congress has exclusively entrusted to the administrative agency, whereas Congress has expressly authorized the Tax Court to redetermine tax liabilities in a deficiency case. The enactment of the APA did not disturb the regime for deficiency litigation that Congress had previously enacted. Therefore, in a deficiency case, R may plead grounds not in the NOD. This allowance is not at odds with the uniform approach to judicial review of administrative action that is called for in Mayo Foundation. Held, further, where no trial date has been set and ample time remains for discovery, no prejudice results to P from R's being allowed to add to his answer "new matter" (in this instance, lack of economic substance). Held, further, the answer does not otherwise assert "new matter" under Rule 142(a)(1).

In 2006 D's revocable trust, T, entered into two split-dollar life insurance arrangements with three distinct trusts. Held: Because the only economic benefit conferred upon the trusts was current life insurance protection, the economic benefit regime applies.

Before his marriage to P, H was married to W. In 1998 H exercised employer-granted incentive stock options that resulted in alternative minimum tax (AMT) liability, which H reported on a 1998 tax… Held: P is not entitled to use the AMT credit to offset her individual income tax liability for 2009.

In Alterman Trust v. Commissioner, T.C. Memo. 2015-231, we held that R failed to meet his burden of proof to establish that P was liable under I.R.C. sec. 6901 as a transferee for Alterman Corp.'s 2003 income tax liability. P, a trust whose case was consolidated with other cases for purposes of that opinion, has moved for an award of administrative and litigation costs under I.R.C. sec. 7430. Generally, individual taxpayers seeking costs must have a net worth of $2 million or less at the time the civil action was filed, as required by 28 U.S.C. sec. 2412(d)(2)(B). I.R.C. sec. 7430(c)(4)(A)(ii). For a trust, that limit applies as of the last day of the taxable year involved in the proceeding. I.R.C. sec. 7430(c)(4)(D)(i)(II). For this transferee liability case, P argues that its net worth should be determined in either 2009 or 2010, as of the date R issued the notice of liability or the date it filed its petition, respectively. The notice of liability states that the taxable year involved in the proceeding ended Dec. 31, 2003. P concedes that its net worth exceeded $2 million as of the close of 2003. Held: When applying the net worth requirement of 28 U.S.C. sec. 2412(d)(2)(B), I.R.C. sec. 7430(c)(4)(D)(i)(II) modifies the general rule and requires that a trust's net worth "shall be determined as of the last day of the taxable year involved in the proceeding." Held, further, the last day of the taxable year involved in the proceeding is Dec. 31, 2003, as stated in the notice of liability. Held, further, because P's net worth exceeded $2 million as of Dec. 31, 2003, it has not met the requirements under I.R.C. sec. 7430, and its motion for an award of administrative and litigation costs will be denied.

R mailed P a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330. Held: The 30-day filing period prescribed by I.R.C. sec. 6330(d)(1) is jurisdictional and equitable tolling does not apply. 2.