Slip opinions decided 2006 — Tax Court Memorandum

The Telecommunication Relay Service (TRS) enables a hearing- impaired individual to communicate with a hearing individual over the telephone through the use of a relay operator. Held: Because the AdaCom program was not acquired by Ps in order for them to comply with the applicable requirements of the Americans with Disabilities Act of 1990, Pub. L. 101-336, 104 Stat. 327, the AdaCom program is not an eligible access expenditure for purposes of sec. 44(c), I.R.C.

The Telecommunication Relay Service (TRS) enables a hearing- impaired individual to communicate with a hearing individual over the telephone… Held: Because the AdaCom program was not acquired by Ps in order for them to comply with the applicable requirements of the Americans with Disabilities Act of 1990, Pub. L. 101-336, 104 Stat. 327, the AdaCom program is not an eligible access expenditure for purposes of sec. 44(c), I.R.C. Svoboda v. Commissioner, T.C. Memo. 2006-1.

R disallowed deductions claimed by P, for 2000 and 2001, on    account of cash and noncash contributions to certain churches    and charitable organizations. R also imposed accuracy-related    penalties under sec. 6662(a), I.R.C.    1. Held: Substantial portions of both cash and noncash    contributions claimed by P are disallowed for failure to comply    with the substantiation requirements of sec. 170(f)(8), I.R.C.,    and sec. 1.170A-13(b)(2) and (3), Income Tax Regs.    2. Held, further, R's imposition of the sec.    6662(a), I.R.C., penalty is sustained.

P seeks relief from a tax lien filed for 1999 under sec. 6330(d), I.R.C. P contests the income tax liability assessed for 1999. Held: P's 1999 tax liability is properly before this Court subject to de novo review, since P did not receive the notice of deficiency for 1999 and did not otherwise have an opportunity to dispute the liability. Sego v. Commissioner, 114 T.C. 604 (2000), distinguished.

The Telecommunication Relay Service (TRS) enables a hearing- impaired individual to communicate with a hearing individual over the telephone through the use of a relay operator. Held: Because the AdaCom program was not acquired by Ps in order for them to comply with the applicable requirements of the Americans with Disabilities Act of 1990, Pub.

Held: Because petitioners use a portion of their bed and breakfast inn as their personal residence, the general disallowance rule of sec.… Held: Because petitioners use a portion of their bed and breakfast inn as their personal residence, the general disallowance rule of sec. 280A(a), I.R.C., and the exclusive-use limitation of sec. 280A(f)(1)(B), I.R.C., are applicable, and expenses relating to the portion of the inn that is used for both business and personal purposes…

Leonard O. Parker, Jr. pro se.

Ps did not include in their 2001 Federal income tax return payments totaling $ 135,000, remitted pursuant to a settlement agreement entered into… Held: Ps are not entitled to exclude the $ 135,000 settlement payment from their gross income under sec. 104(a)(2), I.R.C. The record does not establish that P-H received any part of the $ 135,000 sum on account of personal physical injury or physical sickness, as required by sec. 104(a)(2), I.R.C. Held, further, Ps are liable for…

P filed Federal income tax returns for P and two LLCs for 1999 and 2000. Held: Following a concession by R, P is liable for the remaining deficiencies, except for an adjustment for a reduced share of income from one LLC in 1999, determined by R for 1999 and 2000 including self-employment taxes pursuant to sec. 1401, I.R.C. Held, further, P is liable for a penalty under sec. 6662, I.R.C., for 1999 and 2000.

Ps established a tiered trust arrangement and transferred to the entities their assets, including their personal residence and lifetime services. Held: The trusts implemented and used by Ps during 1996 and 1997 should be disregarded for tax purposes as sham entities lacking in economic substance, with resultant inclusion by Ps of income reported by the trusts, recomputation of business deductions allowable to Ps, and liability for self-employment taxes.

Ps' claimed net capital losses were disallowed to the extent they exceeded $ 3,000, on authority of sec. 1211(b), I.R.C. 1986. Held: This limitation does not prevent the taxes imposed by secs. 1 and 55, I.R.C. 1986, from being taxes on income within the meaning of the Sixteenth Amendment to the Constitution.

Ps were each 50-percent shareholders in an S corporation that incurred ordinary losses before and during the years in question (1999 and 2000). Held: Only the partnership advances through Ps resulted in loans from the partnership to Ps and from Ps to the S corporation, and those advances provided Ps with sufficient bases in the S corporation to deduct only a small portion of that corporation's 1999 ordinary loss and none of its 2000 ordinary loss.

P, a full-time professor of physics at Lehigh University, filed 1996-2000 individual income tax returns in which he reported, on Schedule C, Profit or Loss From Business,… Held: R's denial of business expense deductions under sec. 162(a), I.R.C., sustained. 2. Held, further, modifications to the deficiency determinations for 1997-99 required in order to correct computational errors. 3. Held, further, R's penalty against P for 1997 sustained, in part, under sec. 6662, I.R.C.

In Dixon v. Commissioner, 316 F.3d 1041 (9th Cir. 2003), revg. and remanding T.C. Memo. 1999-101, the Court of Appeals held that the misconduct of R's trial attorney and his supervisor in the trial… Held: The final settlement of T's 1979-1981 deficiencies amounts to a 62.17-percent reduction of those deficiencies. Held, further: Two minor additional benefits included in the T settlement bring the reduction percentage up to 63.37 percent.

Henry Binder and John A. Irvine, counsel for petitioners in docket Nos. 9382-83, 15907-84, 40159-84, and 30979-85. Michael Louis Minns and Enid M. Williams, counsel for petitioners in docket No. 29643-86. Henry E. O'Neill and Peter R. Hochman, counsel for respondent.

P filed a Federal income tax return for 2003, claiming dependency exemptions, a child tax credit, an additional child tax credit, and an earned income credit. Held: P is liable for the deficiency determined by R.

C and J entered into a Marital Settlement Agreement in connection with a divorce terminating their marriage, which was characterized as a marriage of long duration under California law. Cal. Fam. Held: Since J has no liability to make payments after the death of C, the periodic payments to C constitute gross income includable as alimony payments under sec. 71, I.R.C. They are therefore taxable to C.

P failed to timely file Federal income tax returns for the 1994, 1995, 1996, 1997, 1998, 1999, 2000, and 2001 taxable years. Held: P is liable for the deficiencies determined by R, for additions to tax under secs. 6651(a)(1) and 6654, I.R.C., and for a penalty under sec. 6673, I.R.C.

P filed a Motion for Reconsideration and a Motion to Vacate challenging some of the Court's factual and legal conclusions. Held: The Government's claim for P's 1994 tax liability arose no earlier than Dec. 31, 1994, and therefore postdated the commencement of the case in bankruptcy on April 7, 1994. Thus, the bankruptcy stay did not bar the assessment of P's 1994 income tax liability.

Ps failed to file Federal income tax returns for the 1997, 1998, 1999, and 2000 taxable years. Held: P-H is liable for additions to tax for the years in issue under sec. 6651(f), I.R.C.

At the close of business on Dec. 31, 1984, P had 30 debt instruments outstanding on which it paid effective contract interest rates that were below current interest rates that P would have incurred… Held: P may amortize its favorable financing intangible assets because it reasonably estimated the fair market value of its favorable financing to be $ 428,391,551 and reasonably estimated the remaining limited useful lives.

P husband (PH) was CEO and chairman of the board of SE Corp., which had developed a process for recovering synthetic crude oil and other minerals from oil sands. Held: Ps are taxable on ML's sale of pledged shares. 2. Held, further, PH's bases in the pledged shares sold by ML must be computed on a FIFO basis. 3. Held, further, Ps are not entitled to any bad debt deduction for the worthlessness of PH's $ 2 million loan to SE Corp. 4.

Ps failed to report certain farming income for the 1999, 2000, 2001, and 2002 taxable years and a capital gain for the taxable year 2001. Held: Ps are liable for the deficiencies determined by R for 1999, 2000, 2001, and 2002 including self-employment taxes pursuant to sec. 1401, I.R.C., and a capital gain for 2001. Held, further, Ps are liable for penalties under sec. 6662, I.R.C., for 1999, 2000, 2001, and 2002.

P incurred alternative minimum tax liability as a result of her exercise of incentive stock options in 2000. The stock declined precipitously in value after the date of exercise. Held: it was not an abuse of discretion to reject P's offer. IRS may proceed with the levy. Speltz v. Comm'r, 124 T.C. 165 (2005), affd. 454 F.3d 782 (8th Cir. 2006), followed.

During 1995, Ps, through P-H, became involved in a leveraged buyout transaction resulting in ownership of two S corporations, A and T, and relinquishment of an interest in another S corporation, E.… Held: Ps' income and losses for 1994 and 1995 related to ownership of A, T, and E are to be adjusted consistent with this opinion.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate. Held: Because P has advanced only frivolous arguments, R's determination to proceed with collection action is sustained. Held, further, a penalty pursuant to sec. 6673(a), I.R.C., is due from P and is awarded to the United States in the amount of $ 1,500.

P failed to file a Federal income tax return for 2000. Held: P is liable for an addition to tax pursuant to sec. 6651(a)(1), I.R.C.

Ps requested R to abate assessments of interest on deficiencies arising from Ps' investment in a tax shelter partnership. R issued a notice of final determination denying Ps' abatement claim. Held: R's failure to abate interest was not an abuse of discretion under sec. 6404(e)(1), I.R.C.

D died on Oct. 31, 2000, and a Federal estate tax return was thereafter filed on behalf of her estate. Held: Two annuities payable under a settlement agreement are includable in the gross estate pursuant to sec. 2033, I.R.C.    Held, further, for purposes of inclusion in the gross estate, the annuities are to be valued under sec. 7520, I.R.C., in accordance with the actuarial valuation methodology of sec. 20.2031-7(d), Estate Tax Regs. Held, further, under the circumstances present in this case, expenditures incurred for a funeral luncheon are not properly deductible as funeral expenses under sec. 2053(a)(1), I.R.C.

Held: Petition for determination of relief from joint and several liability under sec. 6015(f), I.R.C., dismissed for lack of jurisdiction. Billings v. Comm'r, 127 T.C. 7, 2006 U.S. Tax Ct. Held: Petition for determination of relief from joint and several liability under sec. 6015(f), I.R.C., dismissed for lack of jurisdiction. Billings v. Comm'r, 127 T.C. 7, 2006 U.S. Tax Ct. LEXIS 21, 127 T.C. No. 2 (2006), followed.

Held: Petition for determination of relief from joint and several liability under sec. 6015(f), I.R.C., dismissed for lack of jurisdiction. Billings v. Comm'r, 127 T.C. 7, 2006 U.S. Tax Ct. Held: Petition for determination of relief from joint and several liability under sec. 6015(f), I.R.C., dismissed for lack of jurisdiction. Billings v. Comm'r, 127 T.C. 7, 2006 U.S. Tax Ct. LEXIS 21, 127 T.C. No. 2 (2006), followed.

P filed a petition for judicial review pursuant to sec. 6320, I.R.C., in response to a determination by R that lien action was appropriate. Held: The case is remanded for further consideration by the Internal Revenue Service Office of Appeals.

P failed to file Federal income tax returns for 2000 and 2001. R    determined deficiencies and additions to tax pursuant to secs.   6651(a)(1) and 6654, I.R.C. P contested the determinations based    on tax-protester rhetoric.    Held: P is liable for the deficiencies determined by R    and additions to tax pursuant to secs. 6651(a)(1) and 6654,    I.R.C.

We consider two test cases that involve the purely legal    question of whether gain from the sale of the right to receive    future annual lottery payments is taxable as ordinary income or    capital gains. This Court and three Courts of Appeals have    consistently held that gain from such a sale is taxable as    ordinary income. R relies on established precedent, and Ps    contend, as a matter of law, that prior opinions on this    question are in error. Ps advance four categories of legal    arguments, as follows: (1) Lottery rights are capital assets    because they are denominated "accounts receivable" under the    Florida Uniform Commercial Code and, as such, are not in the    category "business accounts receivable" so as to be excluded    from the statutory definition of capital asset under sec.   1221(a)(4), I.R.C.; (2) the substitute for ordinary income    doctrine (doctrine) has been misinterpreted by the courts with    respect to its origins and application to the sale of a lottery    right; (3) to the extent that the doctrine continues to have    vitality, the Supreme Court's holding in   Arkansas Best Corp. v. Commissioner, 485 U.S. 212, 108 S. Ct. 971, 99 L. Ed. 2d 183 (1988), by establishing a    definitive analysis or test has limited the effect of the    doctrine; and (4) a lottery right falls within the definitions    of a "debt instrument" and a "bond" under secs. 1275 and 1286,    I.R.C., respectively, and its sale would result in capital gain.    Held: Ps have failed to show that established legal    precedent is in error, and the gains are taxable as ordinary    income.

P-H, as vice president of i2 Technologies, Inc. (i2), received incentive stock options (ISOs). On Dec. 31, 1999, P-H resigned as i2's senior vice president of marketing. Held: P-H was not an employee within 3 months of exercising his ISOs for purposes of sec. 422(a)(2). Kirk M. Paxson, Julie L. Payne, and William C. Schmidt for respondent.

Held: Petition for determination of relief from joint and several liability under sec. 6015(f), I.R.C., dismissed for lack of jurisdiction. Held: Petition for determination of relief from joint and several liability under sec. 6015(f), I.R.C., dismissed for lack of jurisdiction. Billings v. Commissioner, 127 T.C. 7, 127 T.C. 7 (2006), followed.

Held: Petition for determination of relief from joint and    several liability under sec. 6015(f), I.R.C., dismissed for lack    of jurisdiction. Billings v. Comm'r, 127 T.C. 7, 2006 U.S. Tax Ct. LEXIS 21, 127 T.C. No. 2    (2006), followed.

P failed to file a Federal income tax return for 2002. Held: P is liable for the deficiency determined by R and additions to tax pursuant to secs. 6651(a)(1) and 6654(a), I.R.C. Held, further, a penalty pursuant to sec. 6673, I.R.C., is due from P and awarded to the United States in the amount of $ 6,000.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action was appropriate. Held: A penalty under sec. 6673, I.R.C., is due from P and is awarded to the United States in the amount of $ 1,500.

Donna F. Herbert and Michael Zarefsky for respondent.

P filed a petition for judicial review pursuant to sec. 6330, I.R.C., in response to a determination by R that levy action is appropriate. Held: R's determination to proceed with collection by levy is sustained; Held, further, a penalty pursuant to sec. 6673, I.R.C., is due from P and awarded to the United States in the amount of $ 2,500.