Slip opinions decided 2002 — Tax Court Memorandum

H and W deducted net operating losses (NOL) on their joint Federal income tax return for 1994, the year in which H died. The NOLs, all of which were attributable to H's business activities, arose before and during H's bankruptcy proceeding under ch. 11 of the Bankruptcy Code. The bankruptcy proceeding terminated in 1994 after H's death. Pursuant to Fed. R. Bankr. 1016 the proceeding was continued and concluded after H's death as though he had not died.

On Sept. 28, 1993, A, a limited liability Wyoming company, composed of two Belgian citizens, BP and FBE, purchased a portfolio of 40 IBM mainframe computers (the equipment) from C, for $ 122,415,762,… Held: A is disregarded because BP and FPE did not intend to join together for the purpose of carrying on a business as partners or sharing in the profits and losses from an equipment leasing activity.

P appeals under sec. 6330(d)(1), I.R.C., from R's determination to proceed by levy to collect unpaid Federal assessments of income taxes,… Held: P was mentally competent when he signed Forms 4549-CG, Income Tax Examination Changes, for 1990-93; by signing Forms 4549-CG, P waived his rights to dispute the tax liabilities for those years prior to assessment and thereby conclusively acknowledged that he had an opportunity to dispute those liabilities within the meaning of sec.…

For 1996 and 1997, Ps K and B filed with their joint tax    returns Schedules C, Profit or Loss From Business, on which they    reported income and deducted claimed expenses related to K's    rendering of medical services for DWP.      Held: During 1996 and 1997, K was an employee of    DWP and not an independent contractor. Ps therefore are not    entitled to report K's income and expenses on Schedules C.      Held, further, Ps are not entitled to deduct    business expenses claimed on their 1996 and 1997 returns.

In 1995, Ps leased (as lessee) retail space in a shopping center to operate a bakery. Held: Ps' expenditures for the permanent improvements they made to the leased space constitute capital expenditures that are not currently deductible. Sec. 263, I.R.C. 1986. Ps' cost recovery for the years in issue is by way of depreciation, as allowed in the notice of deficiency. 2.

UNITED STATES TAX COURT

R determined a deficiency in tax, and an accompanying accuracy-related penalty, attributable to Ps' failure to account for discharge of indebtedness income in 1994. Held: R's position with respect to the discharge of indebtedness issue was substantially justified within the meaning of sec. 7430(c)(4)(B)(i), I.R.C. 2. Held, further, R's position with respect to the penalty issue was not substantially justified within the meaning of sec. 7430(c)(4)(B)(i), I.R.C. 3.

P is a nonprofit corporation described in sec. 501(c)(3), I.R.C., and exempt from taxation under sec. 501(a), I.R.C. P's articles of incorporation, as filed in conjunction with its application for… Held: P is to be classified as a private foundation on account of failure to satisfy the integral part test of sec. 1.509(a)-4(i)(3), Income Tax Regs.

Ps were successful in this Court in showing that a $ 130,000 payment received in settlement of an insurance claim was not for punitive damages and that any gain realized would not be recognized under… Held: Ps exhausted their administrative remedies and are entitled to litigation costs. Held, further,. sec. 7430(b)(1), I.R.C.; sec. 301.7430-1(b)(2), Proced. & Admin. Regs., interpreted.

R determined a deficiency for P's 1993 taxable year. Held: P had unreported taxable income from her sole proprietorship. Held, further, based on all the facts and circumstances, the horse activity was an activity not engaged in for profit within the meaning of sec. 183, I.R.C., and P is not entitled to deduct the losses therefrom.

P suffered a permanent disability that arose out of, and in the course of, his employment as a municipal court judge. Held: Under sec. 1.104-1(b), Income Tax Regs., gross income does not include amounts received under a statute in the nature of a workers' compensation act. A statute that does not distinguish between work-related injuries and other types of injuries is not in the nature of a workers' compensation act.

R determined deficiencies in tax, additions to tax, and penalties for fraud with respect to P's 1991, 1992, and 1993 tax years. Held: R's assertion of the fraud penalty was substantially justified, within the meaning of sec. 7430(c)(4)(B)(i), with respect to one adjustment but was not substantially justified with respect to the balance of the adjustments. 2.