Volume 148 — Tax Court Numbered Opinion

P claimed a refundable credit under I.R.C. sec. 36B on his 2014 income tax return. Held: When determining whether a notice of deficiency is valid, we review the notice objectively to determine whether it is adequate to inform a reasonable taxpayer that the Commissioner has determined a deficiency. If that test is satisfied the notice of deficiency is valid, and we do not look beyond the notice.

Ps filed a motion to disqualify all Tax Court Judges and to declare unconstitutional I.R.C. sec. 7443(f), which authorizes the President to remove Tax Court Judges after notice and opportunity for… Held: Under the Rule of Necessity, it is proper for a Tax Court Judge to rule on Ps' contention that I.R.C. sec. 7443(f) is unconstitutional. Held, further, Presidential authority to remove Tax Court Judges for cause does not violate separation of powers principles.

This case arose out of Ps' participation in a distressed asset debt tax shelter. Held: I.R.C. sec. 7443(f) does not violate the Constitution and we do not need to recuse ourselves on that basis. Held, further, accuracy-related penalties under I.R.C. sec. 6662A do not violate the Eighth Amendment.

P petitioned under I.R.C. sec. 7623(b)(4) for review of R's denial of her claim for a whistleblower award. P subsequently moved for voluntary dismissal of her case, to which R has not objected. Held: Because R will suffer no prejudice from dismissal of this case, we will apply the principles of Wagner v. Commissioner, 118 T.C. 330 (2002), and grant P's motion.

On a Form 1040X, Amended U.S. Individual Income Tax return, for 2010, filed in April 2016, P claimed a charitable contribution deduction of $338,080 for… Held: P failed to satisfy the statutory substantiation requirements because he did not include with his amended 2010 return a contemporaneous written acknowledgment that complied with I.R.C. sec. 170(f)(12)(B). 2. Held, further, P is not entitled to the charitable contribution deduction claimed on his amended 2010 return.

Ps are nonresident aliens. In 2012 they were full-time students at foreign universities when they participated in the U.S. Department of… Held: Ps may not deduct their expenses for airfare and meals and entertainment paid in connection with their participation in the SWTP because they were not away from home in the pursuit of a trade or business for purposes of I.R.C. sec. 162(a)(2). Hantzis v. Commissioner, 638 F.2d 248 (1st Cir. 1981), rev'gT.C. Memo. 1979-299, followed.

P has moved to proceed anonymously in this whistleblower action involving P's claim that a taxpayer avoided a tax liability in excess of $3 billion. P believes that, if P's identity were disclosed, P would be at risk of retaliation, physical harm, social and professional stigma, and economic distress. Because the public has an interest in knowing the identities of persons using the courts, we must resolve the competing social interests at stake. Whistleblower 14106-10W v. Commissioner, 137 T.C. 183, 205 (2011) (balancing social interests of (1) protecting identity of confidential informant with (2) the people's right to know who is using their courts). P has made an adequate showing that, at this early stage in the action, the public's interest in knowing P's identity is relatively weak and does not outweigh the social interest of protecting P's identity as a confidential informant. See id. Nevertheless, as the action progresses, the balance may change, and, perhaps because of the size of the award that P may become entitled to, or because of other developments, the public's interest in learning P's identity may outweigh continuing to protect it. Held: We will grant the motion, and P may proceed anonymously until and unless the Court determines differently.

In 2005 P entered into a cost sharing arrangement (CSA) with S, its Luxembourg subsidiary. Held: R's determination with respect to the buy-in payment is arbitrary, capricious, and unreasonable. Veritas Software Corp. v. Commissioner, 133 T.C. 297, followed. 2. Held, further, P's CUT method, with appropriate upward adjustments in numerous respects, is the best method to determine the requisite buy-in payment. 3.

At its CDP hearing P, a corporate taxpayer, challenged the appropriateness of a proposed levy on the grounds that the levy would create economic hardship because of the financial condition of P. R's… Held: I.R.C. sec. 6343(a)(1)(D) is silent or ambiguous on this issue, and sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is based upon a permissible interpretation of the statute. Sec. 301.6343-1(b)(4)(i), Proced. & Admin. Regs., is a valid regulation.

P, a foreign corporation organized under the laws of the Republic of the Marshall Islands, issued its stock shares in bearer form. Held: I.R.C. sec. 883(c)(1) as well as its legislative history is silent--there is a gap in that section as well as its legislative history--as to how ownership by individuals of a foreign corporation may be established for purposes of determining whether the foreign corporation is described in I.R.C. sec. 883(c)(1) and thus whether it is…

R reclassified P's workers as employees and determined that P owed the applicable withholding tax under I.R.C. section 3402(a). Held: The disclosure of third-party taxpayer information to absolve an employer of his I.R.C. section 3402(a) tax liabilities is not barred under I.R.C. section 6103(h). Held, further, the fact that the burden of proof is on P to show its workers paid income tax does not make their confidential return information nondiscoverable.

W provided information to the Internal Revenue Service (IRS) regarding T's alleged failure to withhold and pay over taxes for 2006 through 2008. Held: Because there were no collected proceeds for 2006 through 2008, W is not entitled to an award for those years. Held, further, there was no administrative or judicial action with respect to years after 2008 because the IRS took no action with respect to those years.

Decedent (D) entered into variable prepaid forward contracts (original VPFCs) with two investment banks in 2007. Pursuant to the terms of the original VPFCs, the investment banks made prepaid cash payments to D, and D was obligated to deliver variable quantities of stock to the investment banks on specified future settlement dates in 2008 (original settlement dates). D treated the execution of the original VPFCs as open transactions pursuant to Rev. Rul. 2003-7, 2003-1 C.B. 363, and did not report any gain or loss for 2007. In 2008, before the original settlement dates, D paid consideration to the investment banks to extend the settlement dates until 2010 (VPFC extensions). D did not report any gain or loss upon the execution of the VPFC extensions and continued the open transaction treatment. D died in 2008 after the execution of the VPFC extensions. R determined that the execution of the VPFC extensions in 2008 constituted sales or exchanges of property under I.R.C. sec. 1001, and thus D should have reported gain from the transactions for 2008. Held: D's execution of the VPFC extensions did not constitute sales or exchanges of property under I.R.C. sec. 1001, and the open transaction treatment afforded to the original VPFCs under Rev. Rul 2003-7, supra, continues until the transactions are closed by the future delivery of stock. Held, further, D did not engage in constructive sales of stock in 2008 pursuant to I.R.C. sec. 1259.

While suffering from major depressive disorder after retiring from the NYPD in 2011, H received two distributions from his retirement accounts but did not roll them over into another qualified… Held: R's Examination Division had the authority to consider Ps' request for a hardship waiver under I.R.C. sec. 402(c)(3)(B). See Rev. Proc. 2003-16, 2003-1 C.B. 359, as modified retrospectively by Rev. Proc. 2016-47, 2016-37 I.R.B. 346.

P was convicted of several felony offenses. After being taken into the custody of the Kansas Department of Corrections, P was transferred to a State hospital to receive mental healthcare while incarcerated. He resided in the State hospital throughout 2015. While in the hospital, P earned wages. P claimed the earned income tax credit (EITC) on his 2015 income tax return. Under I.R.C. sec. 32(c)(2)(B)(iv), income earned while an inmate in a penal institution is excluded for the purpose of determining eligibility for the EITC. Held: P was an inmate during the time he was confined to the State hospital. Held, further, the State hospital in which P served a portion of his sentence was a penal institution. Held, further, P's income from 2015 is not taken into account for the purpose of determining eligibility for the EITC.

Ps were partners of a partnership that was subject to the unified audit and litigation procedures of I.R.C. secs. 6221-6234. Held: Because there were no adjustments to partnership items, deficiency procedures apply to the penalty asserted by R.

In an effort to collect P1's outstanding employment tax liabilities for 2007-2010, R issued a Notice of Federal Tax Lien (NFTL) Filing and Your Right to a Hearing. Held: The Court has jurisdiction to review SO2's determination to the extent he denied relief requested by P1, to which the notice of determination was issued and which is the subject of the IRS collection action. 2.

On August 8, 2008, D's son, J, acting on her behalf, transferred cash and securities to LP, a limited partnership, in exchange for a 99% limited partner interest. Held: D's ability, acting with LP's other partners, to dissolve the partnership was a right to designate the persons who shall possess or enjoy the cash and securities transferred to LP or the income therefrom, within the meaning of I.R.C. sec. 2036(a)(2).

P filed with the IRS Whistleblower Office (Office) Form 211, Application for Award for Original Information, with respect to TP(s). Held: The Office's issuance of the check to P constituted its determination that he was entitled to an award in the agreed-upon amount. I.R.C. sec. 7623(b)(4).

P filed with R's Whistleblower Office (W) a claim for a whistleblower award under I.R.C. sec. 7623(b). Held: Each of W's letters to P constitutes an appealable determination for purposes of I.R.C. sec. 7623(b)(4).

P, a whistleblower, provided information to R. Using P's information, R commenced examinations of a taxpayer that led to the assessment… Held: The amounts in dispute referenced in the I.R.C. sec. 7623(b)(5)(B) threshold are the total amount of the liability that R proposed with respect to a taxpayer's examination that was commenced using the information provided by a whistleblower and are not limited to the part of the collected proceeds attributable to the whistleblower's…

I.R.C. sec. 267(a)(2) defers deductions for expenses paid by a taxpayer to a related person until the payments are includible in the related person's gross income. Held: The entity holding the S stock for the benefit of the ESOP participants is a trust within the meaning of I.R.C. sec. 267(c). I.R.C. sec. 267(c)(1) thus deems the stock held by the trust to be owned by the trust's beneficiaries, viz., the S employees who participated in the ESOP. 2.

For 2003 Ps filed jointly their Form 1040, claiming deductions for losses--reflected on a Schedule K-1--flowing from a tax shelter. Held: Under I.R.C. sec. 6330(d)(1), as amended by the Pension Protection Act of 2006, Pub.

Ps own the Boston Bruins (Bruins), a National Hockey League franchise based in Boston, Massachusetts. Held: Ps' provision of pregame meals to Bruins' players and personnel at away city hotels qualifies as a de minimis fringe under I.R.C. sec. 274(n)(2)(B), and therefore the cost of such meals is not subject to the 50% limitation of I.R.C. sec. 274(n)(1).

P has moved to proceed anonymously in this whistleblower action involving his claim that a corporate taxpayer evaded paying nearly $100 million in taxes (motion). Held: While we are mindful of our legal system's general solicitude for confidential informants, P has not made a sufficient fact-specific case for anonymity. SeeRule 345(a), Tax Court Rules of Practice and Procedure.