Slip opinions decided 2016 — Tax Court Memorandum

In 2007, Ps granted to a qualified donee a facade easement on their Chicago residence, which constituted a certified historic structure in a historic district, so that the easement was eligible for… Held: Ps' deductions are denied in full because of Ps' failure to include a qualified appraisal with their 2007 return. SeeI.R.C. sec. 170(h)(4)(B)(iii)(I). 2.

P received property and cash from her boyfriend, B, which she did not report as income. Held: P's motion for summary adjudication that R is collaterally estopped from litigating the State court's gift finding is denied because P has failed to demonstrate that R was in privity with a party to the State court action. 2.

Ps requested an Appeals hearing after receiving a notice of intent to levy for their 2011 taxable year. The IRS Appeals Office determined to proceed with collection of Ps' unpaid Federal income tax for that year, and Ps petitioned for review of that determination. R moved for summary judgment on the grounds that Ps are not entitled to challenge their underlying tax liability and have raised no other issue regarding R's determination. R claims that Ps cannot challenge their underlying tax liability for 2011 because they received a notice of deficiency for that year and also failed to raise the merits of their liability at their Appeals hearing. Held: Ps' denial of receipt of a notice of deficiency presents a genuine question of material fact sufficient to require denial of R's motion. Held, further, Ps' claim that the settlement officer who conducted their Appeals hearing refused to consider their underlying liability and would not discuss the issue raises a genuine question of material fact regarding the adequacy of the opportunity provided to Ps to challenge their liability and thus provides an additional ground for denial of R's motion.

Held: P, an incorporated law firm, liable for accuracy-related penalties for mischaracterizing, as compensation for services, dividends paid to shareholder attorneys. Held: P, an incorporated law firm, liable for accuracy-related penalties for mischaracterizing, as compensation for services, dividends paid to shareholder attorneys.

Held: We will dismiss this case for lack of jurisdiction because we have no authority to review R's decision letter sent to P following an equivalent hearing and deciding to proceed by levy to collect the penalty that R imposed on P for filing a frivolous return.

After examining P's returns for 2009 and 2010, R disallowed all or most of the miscellaneous itemized deductions she claimed for those years. Held: P failed to substantiate the expenses underlying the miscellaneous itemized deductions she claimed for 2009 and 2010 in excess of the amounts allowed by respondent. Held, further, I.R.C. sec. 6662(a) accuracy-related penalty for 2010 sustained.

In 1999 and 2000, PH purchased interests in jet aircraft in anticipation of leasing them profitably to E, a corporation organized to… Held: Because PH's contracts with the provider of his aircraft allowed him to cause it to reacquire his interests in the aircraft no later than October 20, 2002, Ps did not establish that the losses incurred in PH's jet service activity in 2003 and 2004 were unavoidable or that PH engaged in his jet service activity for profit during those…

R determined a deficiency and an accuracy-related penalty under I.R.C. sec. 6662(a) after examining a return filed by P and his ex-wife, K, for 2006. Held: Because the Court in Hiramanek I allowed P to participate in the trial in that case over R's argument that P could not challenge K's claim of duress, judicial estoppel does not prevent R from arguing that P is bound by Hiramanek I under collateral estoppel.

R disallowed deductions P claimed on Schedule C of her 2009 Federal income tax return for gifts and travel, moving and storage, passenger automobile, cellular… Held: P's testimony alone did not meet the substantiation requirements of I.R.C. sec. 274(d) applicable to her gifts and travel, automobile, and cellular telephone expenses. Held, further, in regard to the remaining deductions in issue, P's testimony was adequate to substantiate only her moving and storage expenses.

Petitioner and Ms. Belot formed and jointly owned three businesses during their marriage. They were divorced in 2007. Held: The division of property held during the marriage of petitioner and Ms. Belot accomplished by the 2008 settlement agreement qualifies for nonrecognition treatment under I.R.C. sec. 1041.

Ps filed a 2011 return, which R processed in May 2012, that showed an overpayment of income tax due to overwithholding from wages. According to documentation R submitted, as of April 15, 2012, Ps' overpayment for 2011 was credited against their 2009 tax liability. R then determined a deficiency in Ps' 2011 income tax, which he now concedes. R moved for entry of decision that there is no deficiency due from, nor any overpayment due to, Ps for 2011. Ps moved for entry of decision that they are due a refund of the amount overwithheld for 2011. Held: Because R established that the crediting of the overpayment shown on Ps' 2011 return as of the due date of that return was consistent with established practice, the documentation that R submitted is reliable evidence that the overpayment was, in fact, credited. Held, further, because I.R.C. sec. 6402 allows for the crediting of refunds shown on a return before a final determination of the taxpayer's tax liability for the year covered by the return, Ps' 2011 overpayment was credited against their 2009 tax liability "under" I.R.C. sec. 6402, and, consequently, the Court has no jurisdiction to review the propriety of the credit. SeeI.R.C. sec. 6512(b)(4).

In Senyszyn v. Commissioner (Senyszyn II), 146 T.C. (Mar. 31, 2016), we declined to apply the doctrine of collateral estoppel to uphold whatever minimum deficiency would be consistent with PH's prior… Held: The discretion we exercised in Senyszyn II not to apply collateral estoppel to uphold a minimum deficiency was squarely within applicable precedent; R's motion for reconsideration will be denied.

CS, an individual, filed for ch. 11 bankruptcy in 2006. CS's ch. 11 bankruptcy case was open throughout 2007. During 2007 CS earned self-employment income. Held: CS is liable for the self-employment tax on his self-employment income for 2007.

P, who made no returns of income tax for the years in issue, objects to R's proceeding with collection of unpaid tax solely on the ground that, for failure of R to mail to her a notice of tax… Held: P bears the ultimate burden of proving that R did not mail the notice.

P filed untimely tax returns for 2007 and 2008 and failed to file tax returns for 2009 and 2010. R determined deficiencies in tax for all years. R made adjustments (among others) on the grounds that P omitted ordinary dividend income received from one of two of P's wholly owned S corporations, that P lacked sufficient bases to deduct passthrough losses from either of his S corporations, that P had gross income from unexplained bank deposits, and that P omitted discharge of indebtedness income. R also determined various additions to tax and an accuracy-related penalty. 1. Held: Adjustment for distribution of ordinary income is not sustained. 2. Held, further, P did have a sufficient basis in 2007 to deduct a claimed passthrough loss from one S corporation but did not have sufficient bases in 2008 to deduct claimed losses from either S corporation. 3. Held, further, P received in 2009 and 2010 gross income from unexplained bank deposits. 4. Held, further, P omitted from his 2008 gross income discharge of indebtedness income. 5. Held, further, R's determination of additions to tax and penalties are sustained, other than R's determination of failure-to-pay-timely additions to tax.

P1, P2, and P3 are treated as partnerships for Federal tax purposes and are in the business of farming almonds. Held: I.R.C. sec. 263A(a)(2)(B) requires that P1 capitalize the property taxes corresponding to the portion of its land on which it grew almond trees in that this portion of the taxes is an allocable, indirect cost of P1's growing (and thus producing) the almond trees.

On account of Ps' postdecision challenges to one of R's expert witnesses, we will vacate our decisions, which were substantially for R, in order to reconsider our findings of fact and opinion. Upon reconsideration, disregarding the challenged expert's testimony, we reach the same conclusions and will reenter our decisions for R.

In 2011 P-H was a partner of a New York partnership, which reported P-H's distributive share of partnership income as $479,743. On their timely filed 2011 tax return, Ps reported only $75,000 of the income from P-H's partnership. Ps contend that P-H's fiduciary duties under State law required him to use the remainder to pay partnership expenses to keep the firm from failing. Held: Ps are liable for income tax on P-H's full distributive share of partnership income for 2011. Any payment of partnership expenses by P-H was a contribution to capital, and he can deduct his share of the partnership's expenses. Held, further, Ps are liable for an accuracy-related penalty for an underpayment attributable to a substantial understatement of income tax for their failure to report partnership income.