Slip opinions decided 2008 — Tax Court Memorandum

CS, a limited partnership, owned real property R, which CS sold in April of year 2. W and C were members of CS. Held: Because the deemed distribution of the notes to W and C (1) accomplished a legitimate business purpose (to enable W and C to convert their shares of CS's equity in property R into interest-bearing promissory notes) and (2) resulted in a change in their economic position, the transactions which enabled them to accomplish that result…

P failed to report certain wage and dividend income that she received in 2004. Held: P is liable for the deficiency and the additions to tax pursuant to secs. 6651(a)(1) and 6654(a), I.R.C.

R determined a deficiency in income tax for P's 1999 tax year based primarily on the disallowance of claimed business expenses. R mailed to P a notice of deficiency that incorrectly provided the last day P could petition the Tax Court. P claims that the notice of deficiency is invalid and alleges that the examination and audit were illegal and retaliatory. Held: The notice of deficiency is valid because P received the notice timely and petitioned the Tax Court timely. Held, further, the examination and audit of P's 1999 Federal income tax return were in accordance with applicable law. Held, further, R's deficiency determination is sustained.

R determined a deficiency of $ 6,582 in P's Federal income tax for 2003. Held: P is liable for the deficiency but not the sec. 6662, I.R.C., penalty.

L is a limited liability company that purchased equipment and partially financed its purchases using recourse debt. L reports its operations for Federal income tax purposes on the basis of a taxable year ending July 31. On Mar. 28, 2001, L's two members amended L's operating agreement to add a provision on deficit capital account restoration. Under the provision, stated as effective Jan. 1, 2000, any L member with a deficit capital account following the liquidation of its interest in L had to contribute to L by the end of the taxable year, or if later within 90 days after the date of the liquidation, funds equal to the amount of the deficit for payment to L's creditors or for distribution to the members of L with positive capital accounts. Pursuant to the provision, H, a member of L with a 99-percent interest therein, took into account its proportionate share of L's recourse debt in computing its at-risk amounts under sec. 465(b)(2)(A), I.R.C., for H's taxable years ended in July 2000 and 2001. Held: For Federal income tax purposes, the provision is inapplicable to H's taxable year ended in 2000 because the amendment was made too late under sec. 761(c), I.R.C., and other provisions, to be included in L's operating agreement for that year. Held, further, H may not take into account L's recourse debt for H's taxable year ended in 2001 because H was not personally liable for the repayment of that debt under sec. 465(b)(2)(A), I.R.C.

P sought an installment arrangement to pay a portion of the liability shown on his tax return. Held: R's summary judgment motion will be granted except as to two periods regarding which R failed to show entitlement to decision as a matter of law.

P failed to file Federal income tax returns for 1999, 2000, 2001, and 2002. Held: P is not entitled to deductions in excess of those conceded by R.

R determined deficiencies in income tax for Ps' 2000 and 2001 taxable years, primarily on account of disallowed business expense deductions, and determined that Ps were liable for the sec. 6662,… Held: Ps failed to substantiate their claimed deductions and are liable for the deficiencies. Held, further, Ps are liable for the sec. 6662, I.R.C., accuracy-related penalty for 2000.

R determined deficiencies and penalties pursuant to sec. 6662(a), I.R.C., for Ps' 2001 and 2002 taxable years. The parties stipulated to Ps' taxable income for 2001 and 2002. Held: Ps are liable for the sec. 6662(a), I.R.C., penalty for 2001 and 2002. Held, further: Ps are liable for the sec. 6673, I.R.C., penalty.

R determined that Ps are liable for additions to tax pursuant to sec. 6653(a)(1) and (2), I.R.C., for their 1983 and 1985 taxable years and pursuant to sec. 6661(a), I.R.C., for their 1983 taxable… Held: Ps are liable for the additions to tax.

P, a corporation organized under the Iowa Nonprofit Corporation Act, filed an application with R for a determination of tax-exempt status, Form 1023, Application for… Held: P failed to exhaust its administrative remedies, a jurisdictional prerequisite to declaratory judgment proceedings in the Tax Court relating to the status of an organization under sec. 501(c)(3), I.R.C., as required by sec. 7428(b)(2), I.R.C. Therefore, jurisdiction of this Court is not available.

Ps' cases were part of the Kersting tax shelter project, which the parties and the Tax Court tried to resolve by using a test case… Held: The fraud on the Court committed by R's attorneys in the test case proceedings constituted fraud on the Court in every case bound by the outcome of the test cases and harmed the integrity of the judicial process, not only as the test case procedure was employed in the Kersting project cases, but also as it might be employed in the…

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.

R determined a deficiency and a penalty under sec. 6662, I.R.C., for 2004. The deficiency and sec. 6662, I.R.C., penalty were based on P's failure to include amounts reported on Forms 1099-MISC on his Federal income tax return. Held: R's determinations are sustained. Held, further: P is liable for a sec. 6673, I.R.C., penalty.

In connection with Ps' motions under secs. 7430 and 6673(a)(2), I.R.C. 1986, Ps move to compel stipulations under Rule 91(f), Tax Court Rules of Practice and Procedure. Held: R's general objections to the motion to compel are overruled. 2. Held, further, R's objections to specific proposed stipulations are sustained in large part and overruled in part.

R determined deficiencies and penalties under sec. 6662, I.R.C., for 2001 and 2002. Held: R's determinations are sustained. Held, further, P is liable for a sec. 6673, I.R.C., penalty.

R determined that Ps are liable for additions to tax pursuant to secs. 6653(a)(1) and (2) and 6661(a), I.R.C., for their 1983 taxable year. Held: Ps are liable for the additions to tax. Held: Ps are liable for the additions to tax.

P failed to file Federal income tax returns for 2002 and 2003. Held: P is liable for the deficiencies and additions to tax as determined by R. P is also liable for a penalty under sec. 6673(a)(1), I.R.C., because his position in these cases is frivolous.

Ps altered and thus falsified a notice of deficiency in order to make it appear that their petition for redetermination was timely filed with the Court. Held: R's motion to dismiss for lack of jurisdiction on the ground that the petition was not timely filed shall be granted. Held, further, the Court shall make its Order To Show Cause absolute and impose a penalty under I.R.C. sec. 6673(a)(1), I.R.C., on petitioners for instituting this action for purposes of delay.

P filed a petition for review pursuant to sec. 6320, I.R.C., in response to a determination by R that lien action was appropriate. Held: R's determination to proceed with collection is sustained.

R determined a deficiency in P's Federal income tax for 2004. Held: P is liable for the sec. 6662, I.R.C., penalty.

P failed to report certain interest and distribution income that he received in 2002. R determined a deficiency and additions to tax pursuant to secs. 6651(a)(1) and (2) and 6654(a), I.R.C. Held: P is liable for the deficiency and the addition to tax pursuant to sec. 6651(a)(1), I.R.C. P is not liable for the additions to tax pursuant to secs. 6651(a)(2) and 6654(a), I.R.C.

R mailed a notice of determination to petitioner on Friday, Feb. 29, 2008. Thirty-three days later, on Wednesday, Apr. 2, 2008, P mailed a petition to the Court seeking to commence a levy action. Held: The petition was not timely filed. Held, further, Tax Court Rule 25(a)(2)(C) does not support a contrary conclusion.

R determined that Ps are liable for additions to tax pursuant to sec. 6653(a)(1) and (2), I.R.C., for their 1983, 1984, and 1985 tax years and pursuant to sec. 6661(a), I.R.C., for their 1983 tax year. Held: Ps are liable for the additions to tax. Andrew R. Moore, Catherine Caballero, and Nhi T. Luu for respondent.

On Jan. 24, 2008, R sent P's employer a "Lock-in Letter" requiring a prospective adjustment to P's withholding. On June 23, 2008, R sent P a notice of deficiency for 2004. On July 7, 2008, P filed, inter alia, a motion to restrain assessment and collection. Held: In the absence of any assessment or collection for 2004, there is nothing to restrain as to that year. Held, further, R's "Lock-in Letter" is not a collection action within the meaning of secs. 6320 and 6330, I.R.C. Held, further, P's motion to restrain shall be denied.

In 2005, P received a notice of deficiency for 2002. P's attorney, A, timely filed a petition for redetermination on P's behalf. Neither P nor A appeared when the case was called for trial. After the Court issued a show cause order, A appeared and consented to the dismissal of the case. R assessed the deficiency. After P failed to pay the amount owing, R proposed to levy. In 2007, P, through A, requested administrative review and sought only to challenge the underlying liability. R rejected the challenge on the basis of I.R.C. sec. 6330(c)(2)(B) and issued a notice of determination sustaining the proposed levy. In 2008, P, through A, filed a levy action with this Court, seeking only to challenge the underlying liability. R filed a motion for summary judgment; the Court then issued a show cause order requiring A to explain why A personally should not be liable under I.R.C. sec. 6673(a)(2)(A) for multiplying the proceedings unreasonably and vexatiously. Held: R's motion for summary judgment shall be granted. I.R.C. sec. 6330(c)(2)(B). Held, further, A is liable personally under I.R.C. sec. 6673(a)(2)(A) for excessive costs.

R determined that P is liable for additions to tax pursuant to sec. 6653(a)(1) and (2), I.R.C., for his 1983, 1984, and 1985 tax years and pursuant to sec. 6661(a), I.R.C., for his 1983 tax year. Held: P is liable for the additions to tax.

P claimed numerous deductions on his 2001 Federal income tax return and did not include distribution income in his taxable income. Held: P is liable for the deficiency, the addition to tax, and the accuracy-related penalty.

P filed a Federal income tax return reporting tax due for the year 2002, but did not fully pay the liability. Held: R's motion for summary judgment will be granted. R's appeals officer did not abuse her discretion in sustaining the levy when (1) P failed to submit requested financial information, (2) P proposed no other collection alternatives, and (3) P was noncompliant with return-filing obligations.

R determined a deficiency in P's 2005 Federal income tax after disallowing P's claimed earned income credit. Held: P is not entitled to the earned income credit and is liable for the deficiency.

P and her husband jointly filed a 2004 Federal income tax return in July 2007. Held: P is liable for the deficiency and all of the additions to tax.

R determined that Ps are liable for additions to tax pursuant to secs. 6653(a)(1) and (2) and 6661(a), I.R.C., for their 1982 tax year. Held: Ps are liable for the additions to tax.

P received a final notice of intent to levy to collect unpaid employer's withholding, FICA, and FUTA tax liabilities. Held: This Court lacks jurisdiction in this case over the allocation among tax, interest, and penalties of the payment accompanying the OIC submitted in the sec. 6330, I.R.C., administrative proceeding because the allocation among tax, interest, and penalty does not affect the amount of the underlying tax liability.

R determined deficiencies in P's Federal income tax for 2004 and 2005. Held: Because there is no causal relationship between an underlying medical condition or defect and P's expenses, and because the expenses at issue were not incurred for the purpose of affecting a structure or function of P's body, P is not entitled to deductions for those expenses and is liable for the deficiencies.

R determined a deficiency in Federal income tax and a penalty pursuant to sec. 6662(a), I.R.C., for the Bascoses' 2002 tax year. Held: RVP is not entitled to a deduction for payroll taxes in 2002. The Bascoses are therefore liable for Federal income tax on a constructive dividend from RVP in 2002.

In 1985, P husband (H) invested in DA, a limited partnership engaged in renting real estate, and he retained that investment until DA's termination in 2003. Held: The 1994 and 1996-2002 losses constitute suspended passive activity losses, and the excess of those losses over the unreported 1995 gain may be carried forward as a partial offset to Ps' unreported 2003 long-term capital gain from DA. 2.