Slip opinions decided 2012 — Tax Court Memorandum

R determined additional interest income, disallowed certain business expense deductions P claimed on his 2007 tax return, and determined a deficiency in income tax, an addition to tax for failure to timely file under sec. 6651(a)(1), I.R.C., and an accuracy-related penalty under sec. 6662(a), I.R.C., for P's 2007 tax year. Held: P is liable for the deficiency. Held, further, P is liable for the addition to tax for failure to timely file his tax return under sec. 6651(a)(1), I.R.C. Held, further, P is liable for the accuracy-related penalty under sec. 6662(a), I.R.C.

Ps granted qualified conservation easements to a qualified conservation organization in 2004, reporting noncash charitable contributions on their respective 2004 tax returns. Held: Ps are liable for the income tax deficiencies to the extent redetermined herein as the result of overvaluing the contributed conservation easements. Held, further, the Holmeses and the Tempels are not liable for sec. 6662(a), I.R.C., accuracy-related penalties.

R determined that 10 of P's workers were employees rather than independent contractors, and determined employment taxes and penalties against P. Held: Seven of 10 workers listed in the notice of determination of worker classification were independent contractors, and 3 were employees. Held, further, P is liable for an I.R.C. sec. 6651(a)(1) addition to tax and an I.R.C. sec. 6656(a) penalty with respect to the three employees.

1. Held: Ps have failed to prove that PH's receipt of an arbitrator's award from his former employer on account of its wrongfully failing to accommodate PH's disability was excludible from gross income under I.R.C. sec. 104(a)(2) because of its being paid on account of personal physical injuries or physical sickness. 2. Held, further, Ps are not liable for I.R.C. sec. 6662 accuracy-related penalty.

Ps were foreign citizens who worked in the United States at foreign embassies whose countries had not been certified by the U.S. State Department under I.R.C. sec. 893(b). Held: Notwithstanding our Opinion in Abdel-Fattah, R's position in these cases, though incorrect, was substantially justified under I.R.C. sec. 7430(c)(4)(B)(i), so that Ps may not recover costs.

P invested $310,000 in an oil and gas partnership in 2001; $110,000 of the investment was made in cash, and $200,000 was made by a subscription note maturing Dec. 31, 2009. Held: P's liability on the subscription note and related assumption agreement became nongenuine in 2003. Held, further, P must recognize a $200,000 gain for 2003 under I.R.C. sec. 465(e). Held, further, P is liable for an accuracy-related penalty under I.R.C. sec. 6662(a).

R denied P's request for interest abatement and sustained collection actions related to P's income tax deficiencies arising from P's participation in some of the Hoyt partnership tax shelters. Held: R's determinations are sustained.

R disallowed P's claimed $1 million general business credit resulting in his determining deficiencies in income tax and I.R.C. sec. 6662(a) accuracy-related penalties for P's 2005, 2006, and 2007 tax… Held: P is liable for the deficiencies. Held, further, P is liable for the I.R.C. sec. 6662(a) accuracy-related penalties.

P failed to timely file tax returns for his 2003, 2005, 2006, and 2007 tax years. Held: Respondent's determinations are sustained.

P purchased an interest in a foreign corporation in 1996. A separate foreign shareholder held an interest in the foreign corporation that was four times greater than P's. The foreign corporation's business activities were effectively limited by its articles of incorporation and a shareholders agreement to include only the purchase of contingent interest notes from the separate foreign shareholder. As part of P's acquisition of its interest in the foreign corporation, P contemporaneously purchased a put option from the separate foreign shareholder. The option gave P the right to put its shares in the foreign corporation to the foreign shareholder in January 2003 or January 2007 or upon the occurrence of particular events that were beyond the control of the parties. The put amount was defined as the fair market value of the shares on the respective option exercise dates. The put agreement was referenced in the shareholders agreement, to which the foreign corporation was a party. The shareholders agreement also afforded P, upon the occurrence of certain events, the exclusive authority to convene a shareholders meeting at which the shareholders could (1) cause the foreign corporation to reduce its capital in order to redeem or repurchase P's shares, or (2) cause the foreign corporation to dissolve. P anticipated receiving dividends from its investment in the foreign corporation and claiming substantial direct and indirect foreign tax credits associated with those distributions. Held: P's investment in the foreign corporation is more appropriately characterized as a loan for Federal income tax purposes. Held, further, P is not entitled to deduct a capital loss in connection with its exit from the transaction.

Ps owed outstanding Federal income tax liabilities for tax years 2004, 2005, and 2006. R issued to Ps a levy notice to collect those unpaid liabilities. Held: There is a genuine issue of material fact as to whether Appeals, having advised Ps that their submission was sufficient, abused its discretion in terminating the CDP hearing and rejecting Ps' proposal for an installment agreement, rather than soliciting a satisfactory substitute proposal.

This case is before the Court on remand. Petaluma FX Partners, LLC v. Commissioner, 2012 U.S. App. LEXIS 4011 (D.C. Cir. Feb. 27, 2012), remanding without published opinion135 T.C. 581 (2010). We are instructed by the Court of Appeals for the District of Columbia Circuit to determine whether our decision in Tigers Eye Trading, LLC v. Commissioner, 138 T.C. 67, 2012 U.S. Tax Ct. LEXIS 6 (Feb. 13, 2012), "altered or overruled" our decision in Petaluma FX Partners, LLC v. Commissioner, 135 T.C. 581 (2010) (Petaluma III), on remand from591 F.3d 649, 656, 389 U.S. App. D.C. 64 (D.C. Cir. 2010) (Petaluma II), aff'g in part, rev'g in part and remanding on penalty issues131 T.C. 84 (2008), and to explain the current status of Petaluma III. Held: Tigers Eye did not expressly or implicitly alter or overrule Petaluma III; rather, Tigers Eye recognized that Petaluma III was rendered: (1) under the strict constraints of the law of the case doctrine and the rule of mandate; and (2) without consideration of Mayo Found. for Med. Educ. & Research v. United States, 562 U.S.    , 131 S. Ct. 704, 178 L. Ed. 2d 588 (2011), and Intermountain Ins. Serv. of Vail, LLC v. Commissioner, 650 F.3d 691, 397 U.S. App. D.C. 7 (D.C. Cir. 2011), rev'g and remanding134 T.C. 211 (2010), supplementingT.C. Memo. 2009-195, vacated and remanded,132 S. Ct. 2100, 182 L. Ed. 2d 866, 2012 U.S. LEXIS 3308, 2012 WL 1468531 (Apr. 30, 2012). Held, further, the current status of Petaluma III remains unchanged.

R determined deficiencies and penalties for Ps' 2001-04 tax years. Held: The property was a capital asset, and petitioners are liable for the portion of the deficiency in income tax attributable to the sale of the property as determined in this opinion.

After P failed to file valid or timely tax returns for the 2001 and 2003 through 2007 tax years, R prepared substitutes for returns under I.R.C. sec. 6020(b) and issued a notice of deficiency… Held: P is liable for the deficiencies in income tax and additions to tax under I.R.C. sec. 6651(a)(1) and (2). Held, further, P is liable for an I.R.C. sec. 6673 penalty of $3,000.

P failed to file Federal income tax returns for the 2004 through 2007 tax years. Held: P's basis in 2115 India Street, Los Angeles, Cal., is the $63,500 price he stated he paid for it. Held, further, P did not meet his burden of substantiating claimed expense deductions and is not entitled any of the disallowed expense deductions.

Ps, husband and wife with many children, resided in Israel at all relevant times; P-H was a U.S. citizen whereas P-W was not. Held: R's summary judgment motion will be granted; Ps are not entitled to either the dependency exemption deductions or the child tax credits. SeeI.R.C. secs. 152(b)(3), 24(c)(2); Carlebach v. Commissioner, 139 T.C. , 2012 U.S. Tax Ct. LEXIS 25 (July 19, 2012).

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

P filed a petition for judicial review pursuant to I.R.C. sec. 6330(d)(1)(A) in response to R's determination that levy action was appropriate. Held: R's determination is sustained. Held: R's determination is sustained.

R mailed a notice of deficiency to Ps on Apr. 8, 2011. Held: The petition was not timely filed, and the Court does not have jurisdiction to decide Ps' case.

R mailed to P duplicate notices of deficiency for P's 2007 tax year. The petition herein was not timely filed. R and P filed competing motions to dismiss for lack of jurisdiction. R seeks dismissal on the ground that the petition was not timely filed. P seeks dismissal on the grounds that the notice was invalid because R failed to send either notice to P's last known address and P did not receive notice in time to file a timely petition. Held: P received actual notice of the deficiency with ample time remaining to file a timely petition but failed to do so. Held, further: Because P failed to file a timely petition, we will dismiss in favor of R.

R determined tax deficiencies and accuracy-related penalties pursuant to I.R.C. sec. 6662(a) for P's 2007, 2008, and 2009 taxable years. Held: R's disallowance of the gambling losses for all years and the American opportunity credit for 2009 is sustained. Held, further, P is entitled to an itemized deduction for taxes of $958 for 2009. Held, further, P is liable for the I.R.C. sec 6662(a) penalties.