Slip opinions decided 2014 — Tax Court Memorandum

R determined that Ps were engaged in a civil fraud scheme and liable for the I.R.C. sec. 6663 75% civil fraud penalty for the tax years at issue. Held: R did not prove by clear and convincing evidence that Ps' underpayments were attributable to fraud. Accordingly, Ps are not liable for the I.R.C. sec. 6663 civil fraud penalty.

At the time of her death, D owned a 23.44% interest in a family-owned personal holding company ("PHC"), whose assets consisted primarily of publicly traded stock. D's estate tax return reported the fair market value of D's interest in PHC as $3,149,767, using a capitalization-of-dividends method to value the asset. R used instead a net asset value ("NAV") method and determined a deficiency in D's estate tax as well as an accuracy-related penalty under I.R.C. sec. 6662. Held: The fair market value of D's 23.44% interest in PHC is better determined by an NAV method and is $6,503,804 Held, further, P is liable for a 20% accuracy-related penalty under I.R.C. sec. 6662(a), (b)(5), and (g).

P-H borrowed against a life insurance policy but failed to repay the loans. The policy was terminated, and the loans were satisfied by policy proceeds and extinguished. R contends that the amount realized upon termination of the policy includes both loan principal and capitalized interest; Ps contend that the amount realized includes only loan principal. Held: Capitalized interest that accrued on P-H's loans against his life insurance policy is includible in determining the gross distribution and the taxable amount arising from the termination of the policy. Held, further, Ps are liable for the I.R.C. sec. 6662(a) accuracy-related penalty.

Ps claimed a deduction for rental real estate losses on their 2008 Schedule E, Supplemental Income and Loss, for two rental real estate properties. R determined that Ps were not real estate professionals and issued a notice of deficiency disallowing a current deduction for the claimed rental real estate losses. R also determined an I.R.C. sec. 6662 accuracy-related penalty. Held: Ps are unable to currently deduct their 2008 losses from their rental real estate activity pursuant to I.R.C. sec. 469 because they did not meet the passive activity loss exception for a rental real estate professional. Held, further, Ps are liable for the I.R.C. sec. 6662 accuracy-related penalty.

P purchased H Corp. and S Corp., two corporations that had recently realized large capital gains. To avoid paying taxes on the gains it inherited, P executed a common tax avoidance scheme to generate capital losses. Under the scheme, P contributed largely offsetting short-term options to two LLCs it had formed. P increased its bases in the LLCs by the cost of the purchased options but did not reduce its bases by the cost of the sold options. This accounting treatment allowed P to increase its bases in the partnerships by approximately $75 million while spending only $320,000. After the options expired, P resigned from the LLCs and received stock with nominal fair market value but very high bases. P sold the stock and recognized capital losses of almost $75 million, which completely offset the gains P had inherited from H Corp. and S Corp. R issued a notice of deficiency disallowing P's claimed deductions from the stock sales and professional fee deductions P had also claimed. R further determined that P was liable for the accuracy-related penalty under I.R.C. sec. 6662. Held: P improperly deducted capital losses on stock whose basis was artificially inflated with a transaction that lacked economic substance. Held, further, P was not entitled to deduct professional fees under I.R.C. sec. 162. Held, further, P is liable for the accuracy-related penalty under I.R.C. sec. 6662.

On remand from the U.S. Court of Appeals for the First Circuit, Kaufman v. Shulman, 687 F.3d 21 (1st Cir. 2012), aff'g in part, vacating and remanding in part… Held: Disallowance of charitable contribution deductions sustained on the ground that the value of the facade easement is zero. Held, further, accuracy-related penalties sustained on the basis of gross valuation misstatement or, alternatively, on the basis of negligence or substantial understatement of income tax.

In docket No. 3613-04L, P and his wife challenged a notice of determination by the IRS Appeals Office sustaining a proposed levy to collect their joint federal-income-tax liability for 1998. The Tax Court dismissed the case because the petition did not contain any arguments with legal basis. The Court ordered P and his wife to pay a penalty of $5,000 under I.R.C. sec. 6673. The U.S. Court of Appeals dismissed the untimely notice of appeal that P and his wife filed and imposed a $3,500 sanction against them under Fed. R. App. P. 38. In docket No. 3853-05L, P challenged a notice of determination by the IRS Appeals Office sustaining a proposed levy to collect his federal income-tax liabilities for the tax years 1996, 1997, 1999, 2000, and 2001, and a $500 frivolous-return penalty assessed against him for the tax year 1997. The notice of determination included the determination that P's return for 1997 was frivolous. The Tax Court dismissed the case because the arguments in the petition were frivolous and groundless. The Court ordered P to pay a penalty of $10,000 under I.R.C. sec. 6673. P now files a petition challenging a notice of determination by the IRS Appeals Office sustaining (1) a proposed levy to collect his federal income-tax liability for the tax year 2002 and (2) a notice of federal tax lien to collect (a) his federal income-tax liabilities for the tax years 1996, 1997, 1998, 1999, 2000, 2001, 2002 and (b) the $500 frivolous-return penalty assessed against him for the tax year 1997. Held: P's argument that the IRS failed to personally interview him to ascertain his income-tax liabilities is without merit. Held, further, P cannot challenge the merits of his income-tax and frivolous-return-penalty liabilities anyway. Under I.R.C. sec. 6330(c)(2)(B), a taxpayer may not challenge the existence or amounts of liabilities in a proceeding before the IRS Appeals Office if the taxpayer had a prior opportunity to raise the challenge. With respect to P's income-tax liabilities for 1996, 1997, 1998, 1999, 2000, and 2001, if P received notices of deficiency, then his right to file a petition in the Tax Court for redetermination of the deficiencies constituted his prior opportunity to challenge the existence or amounts of the income-tax liabilities. If he did not receive notices of deficiency, then he could have presented his challenges to the existence or amounts of the income-tax liabilities to the IRS Appeals Office at his prior two proceedings at that Office. (The first proceeding involved the 1998 year; the second proceeding involved the years 1996, 1997, 1999, 2000, and 2001.) Even if the IRS Appeals Office had refused to consider his challenges, he could have asserted the challenges directly in the Tax Court cases by which he sought review of the Appeals Office's determinations. With respect to his 2002 income-tax liability, we consider P to have received a notice of deficiency. With respect to the $500 frivolous-return penalty assessed against P for the tax year 1997, P had a prior opportunity to challenge the existence and amount of the penalty in the second proceeding at the IRS Appeals Office. Held, further, P maintained this proceeding to delay collection of his liabilities. His position is meritless. We impose an I.R.C. sec. 6673 penalty of $15,000.

Estate (E) requested an extension of time to file its estate tax return and included a letter stating that it intended to make the election under I.R.C. sec. 6166 when it filed the return. E was allowed a six-month extension. E requested a further extension of time to file, which R denied. E filed its estate tax return nearly 2-1/2 years late. In the return, E expressly elected to pay estate tax in installments pursuant to I.R.C. sec. 6166 and included a notice of election providing all requisite information required by the applicable regulation. R sent E a notice of determination denying the election on the ground that E had failed to make the election on a timely filed estate tax return. E filed a petition requesting declaratory relief under I.R.C. sec. 7479. E alleged that it had made a valid I.R.C. sec. 6166 election under the doctrine of substantial compliance. R moved for summary judgment on the ground that sec. 20.6166-1(b), Estate Tax Regs., requires that an election under I.R.C. sec. 6166 be made on a timely filed estate tax return. E objected to R's motion and filed a cross-motion for summary judgment, arguing that it had substantially complied with sec. 20.6166-1, Estate Tax Regs. Held: E did not substantially comply with sec. 20.6166-1, Estate Tax Regs., nor did it comply with I.R.C. sec. 6166 itself. E's motion for summary judgment will therefore be denied. Held, further, because E failed to make a timely election under I.R.C. sec. 6166, R's motion for summary judgment will be granted.

R determined income tax deficiencies and accuracy-related penalties, the latter of which R conceded before the trial, for P's 2010 and 2011 tax years. Held: P is entitled to dependency exemption deductions for his qualifying child, K.H., for 2010 and 2011. Held, further, P is entitled to the credit for child and dependent care expenses, child tax credit, and earned income credit for K.H. for 2010.

On his 2006 Form 1040, U.S. Individual Income Tax Return, P claimed a nonbusiness bad debt deduction of $1,904,987 resulting from his transfers of funds to two irrevocable trusts that he had established for the benefit of his two sons. He also deducted two losses totaling $3,795,082 resulting from an agreement to indemnify his mother for losses she suffered on account of certain unauthorized stock purchases P made on her behalf. R disallowed the deductions and determined an accuracy-related penalty. Held: Nonbusiness bad debt deduction disallowed for failure to show (1) bona fide debts and (2) if bona fide debts, (a) that P was creditor and (b) if P was creditor, that debts were worthless. Held, further, no indemnification agreement shown with respect to certain payments; other payments not made in course of trade or business; therefore, loss deduction disallowed. Held, further, accuracy-related penalty sustained.

We review R's decision to proceed with collection of Ps' unpaid income tax. Held: Appeals officer did not abuse her discretion in relying on transcripts to verify that Ps' unpaid tax had been properly assessed. Held, further, documents provided to Ps satisfied R's obligation to provide them with records of assessment for the unpaid tax. Held, further, I.R.C. sec. 6673(a)(1) sanction imposed. Held, further, Ps' counsel is ordered to show cause why he should not be made to pay R's excessive costs pursuant to I.R.C. sec. 6673(a)(2) or be sanctioned pursuant to Rule 33(b), Tax Court Rules of Practice and Procedure.

LLC contributed a successor member interest in another LLC to University. TMP moves for partial summary judgment that, as a matter of law, the doctrines of "sham" and "lack of economic substance" are not applicable to the determination of whether a taxpayer's charitable contribution deduction is allowable under I.R.C. sec. 170. Held: TMP's motion will be denied.

P failed to file tax returns for the 1999 through 2007 tax years. R prepared substitutes for returns under I.R.C. sec. 6020(b) for those years and determined deficiencies in income tax and additions to tax under I.R.C. secs. 6651(a)(1) and (2) and 6654. P raised only frivolous arguments in his pleadings and failed to appear when these cases were called for trial. Held: P's liability for deficiencies and additions to tax for all years is established by P's default, deemed admissions, and facts deemed stipulated. Held, further, R's motion for penalties under I.R.C. sec. 6673 will be granted.

In response to R's notice of intent to levy and notice of Federal tax lien filing, P's request for a collection due process ("CDP") hearing under I.R.C. sec. 6330(d) for his 2009 income tax stated that he wanted a collection alternative—i.e., an offer-in-compromise ("OIC"). At the CDP hearing before the Office of Appeals ("Appeals"), P submitted partially completed financial statements (on Forms 433-A) and an OIC concerning his 2009 income tax liability. From September until December 2011 P timely made sufficient periodic payments pursuant to his OIC, as required by I.R.C. sec. 7122(c)(1)(B)(ii). In January 2012 R's Centralized OIC Unit ("COIC") determined that P had not provided the required financial information and notified P that it had sent the case back to Appeals for a final decision. Upon receiving notice that the COIC had returned the case to Appeals, P ceased making periodic payments. To further evaluate P's OIC, Appeals again requested documentation concerning P's assets and income. P requested and received several extensions of deadlines to provide this additional information, but he never fully complied with Appeals' request. On the basis of the financial information provided, Appeals determined P could not fully pay his 2009 liability. Appeals determined to reject P's OIC and proceed with the proposed levy and notice of Federal tax lien to collect P's unpaid 2009 liability. P filed a petition in this Court. P and R jointly moved to submit this case pursuant to Rule 122, Tax Court Rules of Practice and Procedure. Held: Appeals did not abuse its discretion in rejecting P's OIC and determining to proceed with the proposed levy and to sustain the notice of Federal tax lien, 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 for failure to make the required periodic payments.

In reporting their Social Security benefits on their return, Ps left line 20a ("Social security benefits") blank, but correctly entered the taxable portion on line 20b ("Taxable amount"). In processing Ps' return, R treated the entry on line 20b as the gross amount and recomputed the taxable portion. R's error served to increase Ps' refund by $548 Held: Of the refund that Ps received $548 was a rebate refund because it was based on respondent's recalculation of Ps' tax liability. SeeI.R.C. sec. 6211(b)(2) Held, further, Ps' rebate refund constitutes a deficiency recoverable by R through the deficiency procedures. SeeI.R.C. sec. 6211(a)

R included in P's gross income a portion of P's salary received from his employment as a Junior Reserve Officers' Training Corps instructor that P claims represents nontaxable amounts received as… Held: P did not receive any nontaxable allowances from the Federal Government because he was employed by the Baltimore City Public School System and was not on active duty. 2. Held, further, P is liable for an accuracy-related penalty.

Ps claimed mortgage interest deductions on their 2008 and 2009 Schedules C, Profit or Loss From Business, for a property they owned and had intended to rent out. R determined that Ps were not entitled to Schedule C deductions, but rather the property was a personal residence and Ps are able to deduct the mortgage interest payments only as qualified residence interest deductions on their Schedules A, Itemized Deductions, subject to the $1.1 million I.R.C. sec. 163(h) limitation. Held: The mortgage interest P-H paid in 2008 and 2009 on Ps' personal residence is not an ordinary business expense, but rather is deductible as an itemized interest deduction on each Schedule A and is subject to the qualified residence limitation of I.R.C. sec. 163(h). Held, further, P-H's property at 420 Cazador Lane is a personal residence. Held, further, for each year in issue, P-H is able to deduct the interest paid with respect to an amount allocable to the $1.1 million of acquisition and home equity indebtedness, but R properly disallowed a deduction for the remaining mortgage interest paid.

In 2004 Ps owned and operated several tiered business entities that promoted tax sheltered investments involving the purchase and sale of Brazilian receivables, brokered and developed real property, and attempted to bring a medical device to market. Ps failed to report as income some of the gross receipts of their business entities, and Ps contend that the unreported amounts were held "in trust" for another related entity. Ps' business entities claimed deductions associated with their operations that Ps could not substantiate. Ps also failed to report on Schedule C all of the income from P-H's attorney activity, claimed some deductions for that activity that they could not substantiate, and failed to deduct certain amounts that they did expend. By notice of deficiency issued in 2010, R determined that Ps did not report all of their income and that some of their claimed deductions were unsubstantiated and must be disallowed. R also determined that Ps are liable for an accuracy-related penalty. Held: With a few exceptions, Ps failed to substantiate their entitlement to business expense deductions beyond those R already allowed. Held, further, Ps failed to include certain amounts in gross income that should have been reported on their tax return. Held, further, certain receipts of one of Ps' business entities were not held in trust and were properly includable in that entity's gross receipts. Held, further, Ps are liable for an accuracy-related penalty.

This TEFRA case is before the Court on remand. Thompson v. Commissioner, 729 F.3d 869 (8th Cir. 2013), rev'g and remanding137 T.C. 220 (2011). In Thompson, this Court held that it lacked subject matter jurisdiction over Ps' income tax deficiency and a related accuracy penalty. As to the deficiency, this Court in Thompson reasoned that the computational adjustments underpinning it flowed inexorably from this Court's 2006 decision in the partnership-level proceeding, RJT Inys. X, LLC v. Commissioner, docket No. 11769-05 (June 6, 2006), aff'd, 491 F.3d 732 (8th Cir. 2007), and did not require any further partner-level determinations. As to the penalty, our final decision in the partnership-level proceeding had also resolved its application. That decision had acquired preclusive effect, and pursuant to I.R.C. secs. 6225(a)(2) and 6230(a)(1), the penalty could be directly assessed. Concluding that a partner-level determination was required to calculate the amount of Ps' income tax deficiency, the Court of Appeals for the Eighth Circuit reversed this Court's decision and remanded for further proceedings consistent with its opinion. Held: Regardless of whether computing Ps' income tax deficiency arising from the adjustments finalized in the partnership-level proceeding requires a partner-level determination, the Court need not now make any such determination because the parties have stipulated the amount of the deficiency. Held, further, this Court's conclusion that it lacks jurisdiction to consider the accuracy penalty stands, and pursuant to I.R.C. sec. 6221 and sec. 301.6221-1(c), Proced. & Admin. Regs., Ps must raise any partner-level defenses, if at all, in a refund suit pursuant to I.R.C. sec. 6230(c)(1)(C) and sec. 301.6221-1(d), Proced. & Admin. Regs.

During the tax years at issue Ps sold insurance policies at recreational vehicle (RV) rallies. R disallowed depreciation and interest deductions that Ps claimed as business expenses and determined accuracy-related penalties under I.R.C. sec. 6662(a). Held: Ps' use of their RV had substantial business purpose but I.R.C. sec. 280A prohibits Ps from deducting the RV expenses. Held, further, Ps are liable for accuracy-related penalties under I.R.C. sec. 6662(a).

Z and then spouse S sought to contribute a facade conservation easement on their property to the National Architectural Trust (Trust). Z and S obtained an appraisal claiming the value of the conservation easement to be $660,000 as of July 26, 2004. On or before September 22, 2004, Z, S, and the Trust all signed a conservation deed of easement. However, the deed was not recorded until January 26, 2005. Z and S each claimed a charitable contribution deduction of $330,000 for the conservation easement on their separately filed 2004 tax returns. Because of applicable gross income limitations on charitable contribution deductions, seeI.R.C. sec. 170(b)(1)(B), Z and S were able to use only part of the deduction for 2004 and they carried the excess forward. R issued a notice of deficiency to Z for 2004 and a notice of deficiency to S for 2005-07 disallowing the charitable contribution deductions. Held: The conservation easement was not protected in perpetuity until January 26, 2005. Held, further, Z is not entitled to a deduction for the conservation easement for 2004. Held, further, S substantially complied with the substantiation requirements with respect to the conservation easement, notwithstanding the premature nature of the appraisal. Held, further, the fair market value of the conservation easement is $157,500 as of January 26, 2005. S is entitled to a deduction of $78,750 for 2005. Held, further, Z and S meet the reasonable cause and good faith exception to the accuracy-related penalties for 2004 and 2005, respectively. Held, further, S is liable for gross valuation misstatement penalties for 2006 and 2007.

P has a serious and sometimes disabling illness, and did not timely file a return for the 2007 tax year. Held: Appeals properly considered the issues P raised during his CDP hearing when issuing its supplemental notice of determination.

Ps attempted to amend year 1 return to add loss from business reported on Schedule C, Profit or Loss From Business. Held: Ps failed to prove (1) error in year 1 adjustment or (2) year 1 expenses beyond those agreed to by R. Held, further, Ps failed to prove (1) year 2 expenses or (2) that Ps erroneously reported year 2 gross receipts. Held, further, accuracy-related penalties sustained.

Ps claimed a deduction for a bad debt loss on their 2006 Schedule A, Itemized Deductions. Held: Ps are unable to deduct their loss as a theft loss for the 2006 tax year. Held, further, Ps are unable to deduct their loss as a bad debt loss for the 2006 tax year.

P-H desired to sell Ps' M stock in the ready market. Held: The applicability of the three-year limitations period under I.R.C. sec. 6501(a) is not properly before the Court in that (1) Ps attempt inappropriately to raise this issue in their opening brief and (2) I.R.C. sec. 7491(a)(1) does not require that the Court hold that the limitations period bars assessment simply because the record…

P filed a petition for review of a lien notice filing pursuant to I.R.C. sec. 6320 in response to R's determinations that the collection actions were appropriate. Held: P is not eligible to contest the underlying tax liability. Held, further, R's determinations are sustained.

During the pendency of a redetermination action, Ps made a qualified offer pursuant to I.R.C. sec. 7430(c)(4)(E) and (g). Held: R's position was substantially justified. SeeI.R.C. sec. 7430(c)(4)(B)(i). Held, further, the qualified offer rule does not serve to make Ps the prevailing party. SeeI.R.C. sec. 7430(c)(4)(E)(ii)(I). Held, further, Ps are not entitled to an award for costs.

P, a married individual with substantial wage income, failed to file a Federal income tax return for 2010 because he disagreed with Government policies. R prepared a substitute for return, assigning P the filing status of married filing separately, and determined a deficiency in income tax and additions to tax. P contends that he should be entitled to joint filing status because it would have been allowable if he had elected to file a joint return with his wife. Held: P is not entitled to joint filing status. Held, further, P is liable for additions to tax under I.R.C. secs. 6651(a)(1) and (2) and 6654(a).

In 1979 Ps started Knight Tool Co. ("Knight"), a contract manufacturing company that made tools and machine parts. In 1982 P-H and Ps' eldest son developed an automated liquid-dispensing machine they called CAM/ALOT. In 1987 Ps' three sons incorporated Camelot Systems, Inc. ("Camelot"), a business dedicated to the selling of the CAM/ALOT machines made by Knight. The two companies operated out of the same building, shared payroll and accounting services, and collaborated in further development of the CAM/ALOT product line. Knight funded the operations of both companies and paid the salaries and overhead costs for both. In 1994 Ps sought estate planning advice. The professionals they consulted advised Ps that the value of the CAM/ALOT technology resided in Camelot (the sons' company) and not in Knight (the parents' company) and that they should adjust their estate planning accordingly. Ps and their sons merged Knight and Camelot in 1995, and Camelot was the surviving entity. Valuing the two companies in accordance with the advice their professionals had given, Ps accepted a disproportionately low number of shares in the new company and their sons received a disproportionately high number of shares. After examining the merger, R issued notices of deficiency to Ps determining for each a gift tax liability and an I.R.C. sec. 6651 failure-to-file addition to tax (as well as an I.R.C. sec. 6663 fraud penalty that R eventually conceded). Ps timely petitioned this Court for redetermination. Respondent later conceded the fraud penalties and asserted, in the alternative, accuracy-related penalties under I.R.C. sec. 6662(a). Held: The Camelot shares that Ps received in the merger in exchange for their shares of Knight were not full and adequate consideration; therefore, in 1995 Ps made a $29.6 million gift to their sons. Held, further, because they followed professional advice, Ps had reasonable cause for failing to timely file gift tax returns and are not liable for the I.R.C. sec. 6651 additions to tax, and Ps likewise had reasonable cause for their underpayments of gift tax and are not liable for I.R.C. sec. 6662 accuracy-related penalties.

Ps timely filed their 2006 Federal income tax return on which they erroneously carried forward a 2005 net operating loss ("NOL") without first carrying it back two years or making a proper election to waive the carryback pursuant to I.R.C. sec. 172. Ps reported zero income tax liability on that 2006 return. In 2008 Ps amended their 2006 return to remove the 2005 NOL carryforward and report a tax liability of $76,400. In 2008 they also amended their 2003 tax return to correctly use the 2005 NOL carryback and generate a 2003 tax overpayment of $206,311. On the amended 2003 return, Ps requested that the 2003 overpayment be credited to the 2006 liability of $76,400 that resulted from removal of the NOL carryforward. R processed the amended return for 2003 but, rather than applying the 2003 overpayment for 2006 as Ps requested, R refunded the entire 2003 overpayment to Ps. R then assessed Ps' 2006 self-reported and unpaid tax liability of $76,400, along with $8,014 in interest charged for the period beginning on the due date of the 2006 return in April 2007. Pursuant to I.R.C. sec. 6404, Ps sought an abatement of interest, arguing that because Ps directed that the 2003 overpayment be applied to the 2006 liability, there should be no tax due and unpaid and no interest charged. R denied Ps' abatement request. Ps petitioned this Court for a review of R's denial of abatement of interest. Held: R did not abuse his discretion in denying Ps' abatement of interest request and requiring Ps to pay interest on the entire unpaid 2006 liability. Held, further, Ps are not entitled to relief under I.R.C. sec. 6404.

R determined income tax deficiencies and accuracy-related penalties for the 2004 and 2005 tax years under the theory that Ps had and exercised dominion and control over assets held by S corporations wholly owned by ESOPs. In an amended answer R further asserted an increased deficiency relating to an alleged taxable distribution from a qualified retirement plan, which R contends occurred when Ps acquired the S corporations' stock from the ESOPs. Ps filed motions to reconsider the order granting R leave to amend his answer on the grounds that R had knowledge of the complete transaction giving rise to the alleged distribution. Ps filed motions to dismiss for lack of jurisdiction asserting that the deficiencies were based on partnership items or affected items and that the notices of deficiency were invalid because they were issued before the Court's review of the partnership adjustments was complete. Ps also filed motions for summary judgment asserting that collateral and judicial estoppel preclude R from determining the deficiencies. Further, Ps filed motions for partial summary judgment asserting that the statute of limitations barred determination of the deficiencies for 2005. Held: Ps' motions will be denied.

P failed to file Federal income tax returns for at least eight years. For three of those years (2005-07) R mailed notices of deficiency to P, assessed the deficiencies determined thereon, issued notice and demand for payment of the liabilities, and, when P did not pay, issued to P a notice of intent to levy and a notice of the filing of a notice of Federal tax lien ("NFTL"). P timely requested a collection due process ("CDP") hearing under I.R.C. sec. 6330(d) and stated that he wanted a collection alternative--i.e., an offer-in-compromise ("OIC"), an installment agreement ("IA"), or currently not collectible ("CNC") status--and wanted the lien filing withdrawn. At the CDP hearing before the Office of Appeals ("Appeals"), P submitted a financial statement (on Form 433-A, "Collection Information Statement for Wage Earners and Self-Employed Individuals") but, despite Appeals' request, did not submit his delinquent tax returns nor documentation to corroborate his Form 433-A. P did not describe or substantiate any harm that he expected the NFTL filing to cause him. Appeals issued a notice of determination sustaining the proposed levy and the filing of the NFTL. P filed a petition in this Court, and R moved for summary judgment. Held: In view of P's failure to file his delinquent tax returns, to provide information to corroborate his financial condition alleged on Form 433-A, or to describe or substantiate any harm expected to result from the NFTL filing, Appeals did not abuse its discretion in denying CNC status, or in not accepting any other collection alternative, or in sustaining the filing of the NFTL and sustaining the proposed levy.

E designs telephone systems for small and midsize businesses. Held: Eleven of the twelve projects satisfy the four-part test for qualified research. SeeI.R.C. sec. 41(d). @Held, further, Ps have substantiated the QREs that E claimed. Held, further, S's wages were unreasonable under I.R.C. sec. 174(e). Reasonable wages determined.

R issued a notice of transferee liability to P to collect N's unpaid Federal income tax pursuant to I.R.C. sec. 6901. R argues that under Texas State law: (1) P has transferee liability with respect to a special dividend that N distributed to P and (2) P has transferee-of-transferee liability with respect to P's proceeds from his sale of N stock. Held: P is a transferee under Federal law principles pursuant to I.R.C. sec. 6901. Held, further, under Texas State law, P has transferee liability with respect to the special dividend. Held, further, under Texas State law, P has transferee-of-transferee liability with respect to the proceeds from the sale of N stock.

Ps filed a return for 2011, included in income P-H's wages and P-W's net profit from self-employment, and reported both regular income tax and self-employment tax. Held: No part of P-W's net profit from self-employment is excludable from Ps' income, nor is any part of P-H's wages. Held, further, R may proceed with the proposed collection action.

R disallowed P's costs of goods sold and deductions for expenses relating to his sports memorabilia activity and to his computer activity. R disallowed those costs and deductions relating to the memorabilia activity on the grounds that P had failed to show that the activity was an activity engaged in for profit or, if it was, that P had substantiated those expenditures. R disallowed the costs and deductions relating to the computer activity for lack of substantiation. 1. Held: R's denial of deductions is sustained for P's lack of substantiation and, with respect to the memorabilia activity, because P failed to show that it was "for profit within the meaning of section 183." 2. Held, further, additions to tax sustained.

Held: Over I's objection, P is relieved from joint and several liability.

R mailed a notice of deficiency to P on Dec. 2, 2013. The last day to file a petition with the Court was Monday, Mar. 3, 2014. The petition was received by the Court and filed on Mar. 10, 2014. The envelope in which the petition was received bears both a U.S. Postal Service postmark dated Mar. 4, 2014, and a mark from Stamps.com dated Mar. 3, 2014. R filed a motion to dismiss for lack of jurisdiction. Held: The mark from Stamps.com is disregarded. Malekzad v. Commissioner, 76 T.C. 963, 966-967 (1981), applied and followed. Accordingly, the petition was not timely filed, and the Court does not have jurisdiction to decide P's case. Held, further, R's motion to dismiss will be granted.

In 2004 Ps granted to a qualified organization a facade easement on a townhouse they owned. With respect to that donation they claimed a charitable contribution deduction for 2004 and carryover charitable contribution deductions for 2005 and 2006. R disallowed the deductions because he determined the easement was valueless. R also determined that Ps were liable for a gross valuation misstatement penalty pursuant to I.R.C. sec. 6662(h) on the underpayment attributable to the easement overvaluation for each year. Ps and R now agree that the easement Ps contributed to the qualified organization was valueless. They further agree that Ps had underpayments attributable to gross valuation misstatements on their 2004, 2005, and 2006 returns attributable to the easement overvaluation but that Ps are not liable for penalties under I.R.C. sec. 6662(h) for 2004 and 2005 because Ps had reasonable cause for those underpayments. R claims that 2006 amendments to I.R.C. sec. 6664(c) preclude Ps from raising a reasonable cause defense to the penalty for their 2006 underpayment attributable to the carryover of the charitable contribution deduction. Ps argue that the reasonable cause exception is available to them because Congress did not intend to eliminate it for underpayments resulting from carryover deductions arising in years before the statute was amended. Held: Because their 2006 return was filed after the effective date of 2006 amendments to I.R.C. sec. 6664(c)(3), Ps are precluded under that section from raising a reasonable cause defense to imposition of the gross valuation misstatement penalty for the underpayment on their 2006 return attributable to the carryover of their charitable contribution deduction.

P filed a petition for redetermination with this Court on June 6, 2014. Some 3 1/2 hours later that same day P filed a petition for bankruptcy with the U.S. Bankruptcy Court for the Northern District of California. Thereafter R moved to dismiss the case in this Court for lack of jurisdiction on the ground that the automatic stay imposed by 11 U.S.C. sec. 362(a)(8) (2012) operated to bar the commencement of a case in this Court. Held: P filed her petition with this Court before she filed her petition with the bankruptcy court and thus before the automatic stay took effect. Accordingly, P properly invoked this Court's jurisdiction. Held, further, R's motion to dismiss will be denied.

P, a sculptor who works in cast bronze and sells his artwork through a wholly owned S corporation, filed a Federal income tax return for 2007 on which he self-reported a tax due of $163,928 that he failed to remit with his return. R assessed the unpaid tax plus certain additions to tax and interest, which totaled more than $200,000 and, thereafter, issued a notice of intent to levy. P requested and received a collection due process (CDP) hearing, which resulted in his agreeing with the Appeals officer on the terms of an installment agreement for full payment of his assessed liability. On the basis of her interpretation of relevant provisions of the Internal Revenue Manual (IRM) the Appeals officer insisted upon the filing of a notice of lien as a condition of entering into the installment agreement. P argued that a notice of lien would destroy his sculpting business, rendering him unable to satisfy the terms of the installment agreement, and he rejected the Appeals officer's proposal. Appeals then issued a notice of determination sustaining the notice of levy and authorizing collection by levy of the assessed liability. P filed a petition with this Court pursuant to I.R.C. sec. 6330(d)(1) alleging that the Appeals officer abused her discretion by misinterpreting the requirements of the IRM and believing she had no choice but to require that a notice of lien be filed in conjunction with the installment agreement. 1. Held: The Appeals officer erroneously concluded that the IRM required the filing of a notice of lien in the circumstances of this case. 2. Held, further, as a result, the Appeals officer failed to properly balance the need for the efficient collection of P's liability with P's legitimate concern that collection action be no more intrusive than necessary as required by I.R.C. sec. 6330(c)(3)(C). 3. Held, further, Appeals' determination to sustain the notice of levy and proceed with collection by levy is rejected and the case will be remanded to Appeals for a supplemental CDP hearing with directions to perform the balancing of factors required by I.R.C. sec. 6330(c)(3)(C) before determining the appropriate collection action.