Slip opinions decided 2013 — Tax Court Memorandum

Both P and R have moved for partial summary judgment on the issue of whether D (1) made gifts to his nieces (intervenors herein), in 2001 and 2002, of all the units of an LLC… Held: R's motion for partial summary judgment with respect to the date-of-gift issue will be granted on the basis of collateral estoppel and, alternatively, because the 2001 and 2002 gifts were, in fact, gifts for Federal gift tax purposes. P's motion with respect to that issue will be denied. 2.

Ps filed petitions for review of a notice of Federal tax lien filing pursuant to I.R.C. sec. 6320 in response to R's determinations that the collection actions were appropriate. Held: We exercise our discretion and remand these cases to IRS Appeals to clarify and supplement the record as the parties deem appropriate to consider P-H's medical condition.

R determined a deficiency in E's Federal estate tax. In a separate notice of deficiency, R determined a Federal gift tax deficiency for D's 2000 tax year. Held: The values of the High Meadows parcels of real property were higher, on the applicable gift tax and estate tax valuation dates, than those reported on the respective filed gift and estate tax returns. The values were at the same time lower than those determined in the notices of deficiency.

R determined deficiencies in P's 2007 and 2008 Federal income tax. P and R dispute whether P is entitled to deduct expenses in excess of the gross income from her horse activity, whether the death of P's stallion was a casualty loss, and whether P is entitled to deduct legal and professional expenses. Held: P is not entitled to deductions for the expenses incurred in her horse activity for the 2007 and 2008 tax years. Held further, the death of P's stallion was not a casualty loss in the 2008 tax year. Held further, P is not entitled to deduct the disputed legal and professional expenses for the 2007 and 2008 tax years. Held further, P is not liable for the I.R.C. sec. 6662(a) accuracy-related penalties for the 2007 and 2008 tax years.

R disallowed certain business expense deductions P claimed on his 2006 and 2007 tax return and determined deficiencies in income tax, additions to tax pursuant to I.R.C. sec. 6651(a)(1) for failing to timely file the 2006 and 2007 tax returns, and accuracy-related penalties under I.R.C. sec. 6662(a) for P's 2006 and 2007 tax years. Held: P did not substantiate expense deductions for travel, meals, entertainment, and car expenses. Held, further, P is entitled to a portion of his claimed deductions for promotion and materials costs in connection with his real estate business for 2006 and 2007. Held, further, P is liable for additions to tax pursuant to I.R.C. sec. 6651(a)(1) for failing to timely file his 2006 and 2007 tax returns. Held, further, P is liable for accuracy-related penalties pursuant to I.R.C. sec. 6662(a) for 2006 and 2007.

R determined that the compensation P paid to E, its employee and owner, was unreasonable and disallowed its deduction for the tax year ending Aug. 31, 2004. Held: E's compensation was reasonable and deductible under I.R.C. sec. 162 to the extent determined herein. Held, further, P is liable for a portion of the I.R.C. sec. 6662(a) accuracy-related penalty as redetermined in this opinion.

In response to R's notice of a proposed levy, P's request for a collection due process ("CDP") hearing under I.R.C. sec. 6330(d) for his 2005 income tax requested abatement of penalty and stated that he wanted a collection alternative—an offer-in-compromise ("OIC") or an installment agreement ("IA"). At the CDP hearing before R's Office of Appeals ("Appeals"), P submitted a financial statement (on Form 433-A, "Collection Information Statement for Wage Earners and Self-Employed Individuals") and an OIC concerning his 2005-2008 income tax liabilities. P did not raise the abatement of penalty issue during the CDP hearing or submit a proposed plan for an IA. To evaluate P's OIC, Appeals requested documentation concerning P's assets and income. P was given several extensions of deadlines to provide this additional documentation, but he never fully complied with Appeals' request. Nonetheless, on the basis of the financial information provided, Appeals determined P could fully pay his 2005-2008 liabilities. Appeals determined to reject P's OIC and proceed with the proposed levy to collect P's unpaid 2005 liability. P filed a petition in this Court, and R moved for summary judgment. Held: Appeals did not abuse its discretion in rejecting P's OIC and determining to proceed with the proposed levy, because P failed to produce all the requested documentation about his assets and income. Held, further, Appeals did not abuse its discretion in rejecting P's OIC when Appeals determined that P could fully pay his 2005-2008 liabilities. Held, further, Appeals did not abuse its discretion in not considering the abatement of penalty issue when P did not raise it at the CDP hearing. Held, further, Appeals did not abuse its discretion in not considering an IA when P proposed none.

P failed to file a Federal income tax return for tax year 2008. R prepared a substitute for return ("SFR") pursuant to I.R.C. sec. 6020 and issued to P a notice of deficiency that included the tax shown on the SFR as well as additions to tax under I.R.C. secs. 6651(a)(1) and (2) and 6654. P did not file a petition with this Court for redetermination of the deficiency, and R assessed the tax and the additions. R later issued to P a final notice of intent to levy to collect the unpaid tax liability. In response P requested a collection due process hearing before R's Office of Appeals ("Appeals") pursuant to I.R.C. sec. 6330, claiming that the SFR failed to take into account deductions to which P was entitled. After requesting a hearing, P filed an untimely return for 2008 in which he claimed deductions and showed a lesser amount of tax due than had been calculated in the SFR. R accepted the return and abated a portion of the tax, so that the remaining tax assessed equaled P's self-reported liability. R also abated portions of the additions to tax to reflect the reduced tax. At the CDP hearing P raised only a concern that the total amount R claimed was due was greater than the amount shown on the return P had filed. The Appeals officer informed P that the difference between the amount due and the amount shown on the return constituted additions to and interest on the tax shown on P's return. P raised no other issues at the hearing and Appeals issued a notice of determination sustaining the levy notice. P filed with this Court a timely petition for review of that determination, claiming for the first time that he had reasonable cause with respect to his failure to file a return and his failure to pay tax and that the additions to tax should be abated. R moved for summary judgment on the ground that P cannot challenge his underlying liability, because he received a prior notice of deficiency, and that IRS Appeals did not abuse its discretion in sustaining the levy notice. Held: P is barred from asserting "reasonable cause" and challenging his underlying liability for the additions to tax pursuant to I.R.C. sec. 6330(c)(2)(B) because he received a notice of deficiency determining those additions to tax. Held, further, Appeals did not abuse its discretion in sustaining the levy notice, and R's motion for summary judgment will be granted.

R determined a deficiency and a penalty for P's 2008 tax year. Held: P does not qualify under any of the exceptions pursuant to I.R.C. sec. 72(t) and is liable for the 10% additional tax for early distributions from the retirement plans for 2008. Held, further, P is liable for the accuracy-related penalty pursuant to I.R.C. sec. 6662(a) for 2008.

P is a gymnastics booster club. In June 1988 the IRS granted P's request to be recognized as exempt from Federal income tax under I.R.C. sec. 501(c)(3) as an organization fostering amateur sports competition. In its fiscal year ending June 30, 2003, P's members were parents of young athletes from approximately 240 families. The athletes were all on teams from one local private gym, to which each family individually paid tuition and other fees. These teams competed in meets, which required substantial additional funds that P collected and administered. Membership in P was mandatory for the parents of athletes who wanted to participate on the teams that were operated out of that private gym, and each family paid to P an annual assessment to cover the athlete's entry fees to compete in the meets and to offset the estimated expenditures for the coaches' travel. The assessment ranged from $600 to $1,400 per athlete for FY 2003, depending on the athlete's competitive level. A family could satisfy its athlete's assessment either by paying cash or by participating in P's fundraising program. The amount that an athlete's family raised was credited against his assessment. About 46% of the families engaged in fundraising in FY 2003. This fundraising generated a net profit of $35,326. P used 93% of that profit to reduce the assessment on average by 50 to 70% for the families that fundraised. P did not credit any of this profit against the assessments of the athletes whose families did not fundraise. R examined P's operations for FY 2003 and determined that it was not operated exclusively for tax-exempt purposes under I.R.C. sec. 501(c)(3). P petitioned for a declaratory judgment under I.R.C. sec. 7428(a). Held: R's final adverse determination is sustained because P was not operated exclusively for exempt purposes within the meaning of I.R.C. sec. 501(c)(3). P's net earnings inured to the benefit of its fundraising parent members, and it conferred substantial private benefit on children of those fundraising families.

R issued a mathematical or clerical error notice to Ps for the 2008 tax year, which gave rise to an overpayment of $7,714. Held: This Court lacks jurisdiction to review R's application of the overpaid amount determined in the mathematical or clerical notice with respect to tax liabilities other than for 2008, the year for which the notice of deficiency was issued.

P, a fugitive from justice, underpaid his 2006 and 2007 Federal income tax. R determined for each year an I.R.C. sec. 6663(a) fraud penalty. P's business partner, not P, signed the 2007 return prepared for P. R received the 2007 return and processed it as P's. Held: Because the business partner was not properly authorized to sign the 2007 return, it is not a valid return for purposes of I.R.C. sec. 6663(a). SeeI.R.C. sec. 6664(b). Held, further, the Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment, signed by P's agent, is not a return. Held, further, because R has failed to prove that P deliberately filed his 2007 return after the due date, we will not sustain a delinquency addition to tax under I.R.C. sec. 6651(f) for fraudulent failure to file a return. Held, further, P is liable for an I.R.C. sec. 6663(a) fraud penalty for 2006.

Participant, T, acting on behalf of Peking Investment Fund, LLC (PIF), as PIF's tax matters partner (TMP), executed a series of consents extending the I.R.C. sec. 6229(a) periods of limitations for making assessments (periods of limitations) with respect to PIF's 2001-04 taxable years (years in issue) until Dec. 31, 2008. T executed those consents pursuant to his appointment as PIF's TMP by H, acting on behalf of CMI, PIF's member-manager and its then TMP. R's agent auditing PIF's returns for the years in issue was notified of that appointment, and he solicited and accepted the consents in the belief that they were properly executed by T as PIF's new TMP. T and his wife (Ts) also executed consents extending to that same date the periods of limitations for making assessments against them for their 2001-03 taxable years, including assessments attributable to items of a partnership. T moves for summary judgment that the consents he executed on behalf of PIF are invalid and that the FPAA, issued on Dec. 30, 2008, is, therefore, untimely, on the ground that, as a nonmanaging member of PIF, he was not qualified to be PIF's TMP and not otherwise authorized to sign the consents. SeeI.R.C. sec. 6229(b)(1)(B). For 2001, T argues in the alternative that the initial consent, properly executed by H, on behalf of PIF's then TMP, CMI, was executed after the period of limitations for 2001 had expired. As an alternative basis for his motion, T argues that, because R had opposed T's motion to elect to participate in this case on the ground that T was never PIF's TMP, R is both judicially and equitably estopped from alleging that any of the foregoing consents are valid extensions of the periods of limitations. R argues that (1) PIF's appointment of T as PIF's TMP effectively authorized him to execute the consents on behalf of PIF, (2) in the alternative, CMI's resignation and appointment of T as PIF's TMP was ineffective so that CMI remained PIF's TMP, and T, as CMI's vice president, was authorized to execute the consents on CMI's behalf, (3) for 2001, the initial consent was timely executed by H, and (4) the doctrines of judicial and equitable estoppel are inapplicable to invalidate the foregoing consents. R moves for summary judgment that the consents executed by the Ts for 2001-03, and by T for 2004, are valid with respect to them individually so that the FPAA is timely with respect to T's distributive share of PIF's partnership items for the years in issue. 1. Held: T's motion for summary judgment that the initial consent for PIF's 2001 taxable year was untimely will be denied because there remains a genuine dispute as to material facts. 2. Held, further, R is not barred by the doctrines of judicial and/or equitable estoppel from relying on the foregoing consents. 3. Held, further, the consents that T executed on behalf of PIF extended the periods of limitations beyond the issuance of the FPAA on the ground that (1) T's appointment as PIF's TMP effectively authorized him to execute the consents pursuant to I.R.C. sec. 6229(b)(1)(B) and, alternatively, (2) T is estopped from denying his authority, as PIF's ostensible TMP, to execute consents on PIF's behalf for the years in issue. 4. Held, further, R is not estopped by any misconduct from relying upon the consents that the Ts executed for 2001 to extend the period of limitations for that year beyond the issuance of the FPAA.