A taxpayer’s attempt to designate her corporation’s adequate protection payments made in the corporation’s bankruptcy case failed in the case of Riggs v. Commissioner, TC Memo 2015-98. 

The taxpayer in this case had been the sole owner and president of a corporation that had run up significant payroll tax liabilities with the IRS.  The corporation ended up in bankruptcy and, although she attempted to start up a new corporation, the IRS found that corporation was a successor in interest to the tax liabilities, pulling it into the bankruptcy case that had been filed on behalf of the first corporation.  As well, the IRS found that Ms. Riggs, as President and sole shareholder of the corporation, was a responsible party who had willfully allowed trust fund taxes to go unpaid, finding her liable for the trust fund penalty under IRC §6672.

Update - see our discussion of Ninth Circuit's reversal of a similar case in July of 2015, two months after the Tax Court issued this opinion

A taxpayer that makes a “qualifying offer ” in a tax dispute may receive an award of litigation costs if a judgment in the case subject to litigation ends up being less than the amount of qualifying offer.  The case of Angle v. Commissioner, TC Memo 2015-92, looks at this issue in a tax matter that ended up with multiple proceedings (four cases, including this one).

Does filing a tax return that reflects a tax liability of $0.00 represent the filing of “a return for a preceding taxable year showing a liability for tax”—or, to put it simply, is $0 a liability for tax?  That was the issue that the U.S. District Court for the Central District of California addressed in the case of Cal Pure Pistachios, Inc. v. United States, 115 AFTR 2d ¶2015-643.

The issue was whether the taxpayer, a C corporation, could escape a penalty for underpayment of estimated taxes using the “prior year’s tax” exception under IRC §6655(d).

The question of what qualifies for the “reasonable cause” exception to the gross valuation misstatement penalty under IRC §6662(h)(1) was the issue before the First Circuit in the case of Kaufman v. Commissioner, Docket No. 14-1863, CA1, affirming TC Memo 2014-52.  This was the second time the Kaufmans had appealed an adverse Tax Court decision on this issue to the First Circuit, but the result wasn’t as favorable this time.

The Tax Court, on remand, determined that the value of the facade easement was zero and, given that, went on to decide that the taxpayers were subject to the penalty due to a gross valuation misstatement given the proper value was zero.  Finally, and the issue we are interested in at this point, the court found that the taxpayers did not qualify for the relief granted to taxpayers from the penalty under the reasonable cause relief provision for this penalty found at IRC §6664(c).

The IRS appears to have recognized that corporations who have tax issues with the IRS may also have problems with state taxing agencies.  The IRS also noticed that, in California, the Franchise Tax Board has the right to suspend a corporation's powers, rights and privileges for failure to pay California state taxes. 

One of the lost privileges is the privilege to file suit, an issue we have previously discussed in our post last month on Medical Weight Control case.  The fact that the taxpayer had its corporate status retroactively restored was ruled, by the Tax Court, did not serve to retroactively grant a right to file suit in Tax Court.