Taxpayer Not Allowed to Exclude Amounts from Income Merely Because IRS Allowed the Position on Three Prior Amended Returns

February 06, 2017 by Ed Zollars, CPA

The fact that the IRS had granted the taxpayer’s position on three prior returns that his military retirement was not subject to tax did not require the IRS to accept that same position on a later return. The case of Taylor v. Commissioner, TC Summary Opinion 2017-4 dealt with this issue of how much reliance a taxpayer can place on the IRS’s acceptance of a return position in an earlier year.

The taxpayer in this case had retired from the Army after completing the length of time necessary to qualify for retirement in 2002. Although he did not separate due to disability, he did file an application with the VA in 2002 for compensation for service related disabilities. He was awarded such compensation which was not reported by the VA to the IRS, which he did not report as taxable on his return for the year in question (2010) and which the IRS was not arguing was taxable compensation to him.

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Extended Statute Enacted to Claim Refund Related to Non-Taxable Severance Payments Made to Veterans

December 19, 2016 by Ed Zollars, CPA

It has taken awhile (twenty-four years to be exact), but Congress enacted a relief provision to deal with the fact that the Department of Defense had been withholding taxes on lump-sum severance payments to combat-injured veterans despite that income being found to be excludable from taxable income under IRC §104(b)(3). The bill, the “Combat-Injured Veterans Tax Fairness Act of 2016” H.R. 5015 was signed into law on December 16.

In the case of St. Clair v. United States, 778 F. Supp. 894 (E.D. Va 1991) these one-time lump sum severance payments were held to be excludable from taxable income. However, per a Tax Analysts news article describing the bill, the Defense Finance and Accounting Service said an error with its payment system caused taxes to be improperly withheld from 14,000 veterans receiving these payments.

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Disability Pension Payments Converted to Taxable Amounts in Hands of Former Spouse Receiving Them Under a QDRO

May 23, 2015 by Ed Zollars, CPA

Payments from a disability pension being paid to a former spouse under a qualified domestic relations order (QDRO) will not qualify for an exclusion from income pursuant to IRC §104(a)(1) per the ruling in PLR 201521009. That will be true even if the amounts are excludable from income under that provision when paid to the original recipient of the payments.

Addition to Disability Pension Received Based on Years of Service Not Excludable Under §104

May 15, 2015 by Ed Zollars, CPA

The Ninth Circuit affirmed the Tax Court’s finding in the case of Sewards v. Commissioner, 2015 TNT 92-13, CA9, No. 12-72985 aff’g 138 TC No. 15 (2012). The issue in this case was whether the taxpayer could exclude a portion of his pension as disability income received under a worker’s compensation act.

Unlike Taxpayer in 1988 Case, Payments Received for Accrued Sick Leave Were Not Excludable Workers Compensation

April 18, 2015 by Ed Zollars, CPA

Subtle differences in facts can be very important when attempting to apply the opinion in a prior court decision to a client’s current situation. This is rather clearly illustrated by looking at the result in the case of Speer v. Commissioner, 144 TC No. 4 and contrasting his result with the result in a case he was relying upon, Givens v. Commissioner, 90 TC 1145.

Whistleblower Settlement Taxable as Ordinary Income, Not Excludable as Personal Injury Settlement Nor a Capital Gain from Sale of Personal Goodwill

February 23, 2015 by Ed Zollars, CPA

In the case of Duffy v. United States, US Court of Federal Claims, 115 AFTR 2d ¶2015-438 the taxpayers were looking to either exclude $50,000 in a legal settlement from income or have it taxed as capital gains—and they succeeded in neither attempt.

Compensation for Undergoing Procedures to Donate Eggs to Infertile Couples Not Excludable Under §104(a)(2)

January 23, 2015 by Ed Zollars, CPA

In the case of Perez v. Commissioner, 144 TC No. 4, the Tax Court took care immediately upon starting the opinion section by explaining what it wasn’t deciding, a somewhat unusual step. But, then again, this was a somewhat unusual case.

The issue in this case was whether Nichelle Perez had taxable income for payment she received for undergoing procedures to donate her eggs to infertile couples.