Volume 149 — Tax Court Numbered Opinion

PS, a partnership, paid $2.95 million in March 2002 to acquire a remainder interest in property. Held: PS' omission from its Form 8283 of its cost or other adjusted basis in the contributed remainder interest violated the substantiation requirement of sec. 1.170A-13(c)(4)(ii)(E), Income Tax Regs.

Ps own C, an S corporation that operates a landfill and uses the cash method of accounting for tax purposes. Held: The term taxpayer in I.R.C. section 468 includes cash-method taxpayers and is not limited to accrual-method taxpayers. I.R.C. sec. 468(a). Held, further, cash-method taxpayers must make an I.R.C. section 468 election to currently deduct estimated reclamation, closure, and post-closure costs before the costs are paid.

In 2001 P, a foreign corporation, purchased an interest in PS, a U.S. limited liability company that was treated as a partnership for U.S. income tax purposes. Held: P's disputed gain was capital gain that was not U.S.-source income and that was not effectively connected with a U.S. trade or business. This Court will not follow Rev. Rul. 91-32. P is therefore not liable for U.S. income tax on the disputed gain.

P submitted to R nine Forms 1041, U.S. Income Tax Return for Estates and Trusts; and R assessed against P nine $5,000 penalties under I.R.C. sec. 6702 (for frivolous tax submissions), which are not… Held: Despite R's abatement of the penalties and release of the lien, the CDP case is not moot, in light of P's liability challenge under I.R.C. sec. 6330(c)(2)(B) and R's non-concession as to liability and R's reserving the right to reassess the penalties.

P is the parent of a group of companies that includes a number of controlled foreign corporations (CFCs). Held: The outstanding intercompany loan balance owed by S1 to the CFCs constituted United States property held by the CFCs, within the meaning of I.R.C. sec. 956(c)(1)(C), during FY 2008 and 2009. 2.

In 2009 a limited liability company (LLC) in which Ps were members owned 355 acres of land (property) that it leased to others who used it as farmland. Held: Pursuant to sec. 1.703-1(a)(2)(iv), Income Tax Regs., Ps are treated as having directly conveyed the conservation easement to E. Held, further, Ps are not qualified farmers within the purview of I.R.C. sec. 170(b)(1)(E).

Ps claimed deductions under I.R.C. section 162 on their 2009 and 2010 tax returns for amounts paid by their passthrough entities to captive insurance… Held: Amounts paid to C and A are not insurance premiums for federal income tax purposes and are not deductible under I.R.C. section 162. Held, further, C's I.R.C. section 831(b) and section 953(d) elections are invalid for 2009 and 2010. Held, further, the amount transferred directly from C to PW is an ordinary dividend.

D made valid gifts to Ns, his nieces, in December 2001 and January 2002. See Estate of Sommers v. Commissioner, T.C. Memo. 2013-8. D died in November 2002. Held: Because the estate's payment of D's gift tax liability would have given rise to a claim for reimbursement from Ns under the agreements governing the gifts, the gift tax owed on those gifts at D's death is not deductible under I.R.C. sec. 2053(a). P's gift tax motion accordingly will be denied.

Ps received an advance premium tax credit under the Affordable Care Act. That credit was paid directly to a health insurance provider to reduce the amount of the premium to be paid by Ps. Held: The Court does not have the equitable power to override the clear and unambiguous language of the Internal Revenue Code. Excess premium assistance credits are an increase in tax. I.R.C. sec. 36B(f)(2). Held, further, on the facts of this case, Ps are not liable for an addition to tax.

P's return for the taxable year 2012 was originally due on Apr. 15, 2013. She requested and received a six-month extension of time to file that return. By virtue of that extension the due date for filing her 2012 return was Oct. 15, 2013. P made tax payments for 2012 totaling $112,000. All of these payments were deemed made on Apr. 15, 2013. SeeI.R.C. sec. 6513. P did not file a return for 2012 by Oct. 15, 2013, or during the ensuing 22 months. On June 19, 2015, R issued P a notice of deficiency for 2012. On Aug. 29, 2015, shortly before filing her petition, P submitted a delinquent return for 2012 that reported a tax liability of $79,559. P and R agree that P for 2012 has a deficiency of $79,559 and an overpayment of $32,441. R contends that P is not entitled under I.R.C. sec. 6511(a) and (b)(2)(B) to a credit or refund of this overpayment because her tax payments were made outside the applicable "lookback" period keyed to the date on which the notice of deficiency was mailed. P contends that she is eligible for the three-year lookback period specified in the final sentence of I.R.C. sec. 6512(b)(3) and that she is entitled to a refund of $32,441 under that provision. 1. Held: P is not eligible for the three-year lookback period specified in the final sentence of I.R.C. sec. 6512(b)(3) because the notice of deficiency was not mailed to her "during the third year after the due date (with extensions) for filing the return of tax." 2. Held, further, P did not file her 2012 income tax return before the notice of deficiency was issued and did not pay her tax liability within two years of the mailing of the notice of deficiency. This Court therefore lacks jurisdiction to award a refund or credit of P's $32,441 overpayment for 2012.

H died in 2012, and H's estate reported a deceased spousal unused exclusion (DSUE) and elected portability of the DSUE. In 2013 R sent H's estate a letter reporting that the return had been accepted as filed. W died in 2013. W's estate claimed the DSUE reported by H's estate. As a part of an examination of the estate tax return filed by W's estate, R also examined the estate tax return filed by H's estate. R reduced the amount of the DSUE by the amount of taxable gifts given by H but did not determine or assess a deficiency against H's estate. But R determined an estate tax deficiency against W's estate. W's estate filed a petition in which it made several arguments regarding why R should not be allowed to examine the estate tax return filed by H's estate to determine the proper DSUE amount allowable to W's estate. Held: R acted within the authority granted by I.R.C. sec. 2010(c)(5)(B) when he examined the estate tax return of a predeceased spouse to determine the correct DSUE amount. Held, further, a letter stating that the estate tax return of a predeceased spouse has been accepted as filed is not a closing agreement under I.R.C. sec. 7121. Held, further, a letter stating that the estate tax return of a predeceased spouse has been accepted as filed does not estop R from examining the return of the predeceased spouse. Held, further, an examination of the estate tax return of a predeceased spouse in which R reviews the records in his possession and asserts no additional tax is not a second examination within the meaning of I.R.C. sec. 7605(b). Held, further, the estate of a later deceased spouse cannot challenge whether an examination of the estate tax return of a predeceased spouse is an improper second examination within the meaning of I.R.C. sec. 7605(b) because only the examined party can seek protection from a second examination under I.R.C. sec. 7605(b). Held, further, the applicable regulations relating to I.R.C. sec. 2010 do not prohibit R from examining the predeceased spouse's return. Held, further, the effective date of I.R.C. sec. 2010(c)(5)(B) does not preclude R from adjusting the DSUE amount by gifts given before Dec. 31, 2010, when the DSUE amount affects an estate tax return for a decedent dying after Dec. 31, 2010. Held, further, R's application of I.R.C. sec. 2010(c)(5)(B) did not frustrate congressional intent with respect to portability. Held, further, the period of limitations on assessment of tax for the estate of the predeceased spouse is not implicated if R does not determine an estate tax deficiency for the estate of the predeceased spouse.

Although Ps were married at all relevant times, H erroneously claimed single filing status on his 2012 individual income tax return. Held: The 2012 return that H originally filed, erroneously claiming single status, did not constitute a separate return within the meaning of I.R.C. sec. 6013(b). See Ibrahim v. Commissioner, 788 F.3d 834 (8th Cir. 2015), rev'g and remandingT.C. Memo. 2014-8; Glaze v. United States, 641 F.2d 339 (5th Cir.

P, a citizen of Canada, entered the United States in 2010 to work as a post-doctoral fellow at a university. Held: Article XV of the treaty does not exempt P's unemployment compensation from U.S. income tax. 2. Held, further, article XXII of the treaty governs the tax treatment of P's unemployment compensation and permits the United States to tax it.

Ps, a married couple, pleaded guilty to violating I.R.C. sec. 7206(1) by filing a false return for 2006. Held: I.R.C. sec. 6201(a)(4) does not authorize R to add underpayment interest or failure-to-pay additions to tax to a title 18 restitution award, and R may not assess or collect from Ps underpayment interest or additions to tax without first determining their civil tax liabilities.

P petitioned the Court for redetermination of his liability as a transferee under I.R.C. sec. 6901(a), but now moves that we dismiss… Held: Because a taxpayer's liability as a transferee is assessed, paid, and collected in the same manner and subject to the same provisions and limitations as a deficiency in tax, sec. 6901(a), a dismissal of a petition for redetermination of transferee liability, just like a dismissal of a petition for redetermination of a deficiency, for…

R revoked P's tax-exempt status retroactively to Jan. 1, 2002. In a subsequent deficiency proceeding P executed a stipulated decision document, agreeing to assessment of a deficiency for its 2002 tax year and of underpayment interest on that deficiency "as provided by law." R accrued and assessed interest on the deficiency from the date on which P's 2002 corporate tax return would have been due. When that amount remained unpaid, R began collection action. In a collection due process proceeding, P disputed its underlying liability, arguing that interest can begin accruing no earlier than the date on which R issued the final determination revoking P's tax-exempt status, notwithstanding the retroactive character of that revocation. 1. Held: Retroactive revocation of P's tax-exempt status requires restoring R to the position R would have occupied if P had never enjoyed tax-exempt status during its 2002 tax year. 2. Held, further, P is liable for interest beginning on the date its 2002 corporate tax return would have been due. 3. Held, further, the SO did not abuse his discretion in sustaining the proposed collection action.

In 2004 partnership PB transferred a facade easement by executing an easement deed in favor of a qualified organization. Held: In this case, presumably appealable to the U.S. Court of Appeals for the Seventh Circuit, we are not bound by the opinion of the U.S. Court of Appeals for the First Circuit in Kaufman v. Shulman, see Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff'd, 445 F.2d 985 (10th Cir. 1971), and we will follow Kaufman v. Commissioner; we…

On their 2011 Federal income tax return, Ps claimed a $7,500 credit under I.R.C. sec. 25A for expenses related to their children's postsecondary education. Held: When the Commissioner makes a rebate to a taxpayer for a year in excess of the amount of tax shown on the taxpayer's return for the year, that excess increases the taxpayer's deficiency, within the meaning of I.R.C. sec. 6211(a); thus Ps' deficiency for 2011 is $7,500 ($6,984 - ($3,984 - $4,500)).