Financial Disability Suspension of Statute of Limitations Does Not Apply to Net Operating Loss Special Statute Rules

A person who is unable to manage their financial affairs due to a disability has the statute of limitations for claiming refunds suspended generally under §6511(h).  However, in Chief Counsel Advice 201515019 the IRS National Office concluded that the suspension is limited in one very important way—it does not suspend the special extended period for filing a net operating loss claim under IRC §6511(d)(2).

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Tax Court Accepts Taxpayer's Reconstruction of Travel Hours to Push Over 750 Hour Real Estate Professional Limit

Taxpayers who have tried to reconstruct log showing they met the qualified real estate professional requirements have generally fared poorly in Tax Court.  But in the case of Leyh and O’Neill v. Commissioner, TC Summary Opinion 2015-27 the Tax Court accepted the reconstructed records—but there are key facts that make this case different from the earlier taxpayer failures.

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Partner Not Able to Deduct Taxes Imposed by States in Which He Performed no Services as a Business Deduction

The taxpayer in the case of Cutler v. Commissioner, TC Memo 2015-73 argued that because his only connection with various states that were imposing an income tax on him was that he owned an interest in a partnership that operated in those states, he should be able to deduct that taxes paid to those states in computing adjusted gross income, rather than being limited to deducting the taxes as an itemized deduction.

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IRS Revises EPCRS Guidance for Employee Elective Deferral Failures

The IRS has issued revisions to the Employee Plans Compliance Resolution System (“ECPRS”) in Revenue Procedure 2015-28, modifying Revenue Procedure 2013-12. 

ECPRS is a program that allows for correction of plan failures.  As the IRS outlines in the introduction to the program found in Rev. Proc. 2013-12, it is meant to allow retirement plans that are intended to comply with §§401(a), 403(a), 403(b), 408(k) or 408(p) but which have failed to meet the requirements of those provision to correct the errors that will allow the plans to continue to offer tax-favored benefits.

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Contingency Found Related to Ex-Spouse and Not Child, Thus Payments Deductible as Tax Alimony

In the case of Wish v. Commissioner, TC Summary Opinion 2015-25 the taxpayer was paying funds to his former spouse as part of their divorce decree.  Not surprisingly the key question was how much of the payments made constituted deductible alimony under IRC §215 which, in turn, depends on whether the payments would be treated as alimony income by the recipient under IRC §71.

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Clauses in Trust Did Not Render Crummey Withdraw Right Illusory

The IRS lost in its attempt to claim a taxpayer’s attempt at providing a Crummey power to trust beneficiaries failed to grant a present interest in the case of Mikel v. Commissioner, TC Memo 2015-64.  The IRS’s claim was that there were effectively restrictions imposed on the beneficiary’s withdrawal rights that meant they had no real present interest.

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No De Minimis Exception Under Small Partnership Rules for 0.02% Interest Held by Passthrough Entity

The taxpayers in the case of Brumbaugh and Holifield v. Commissioner, TC Memo 2015-65 argued that an extremely small interest of a partnership held by an LLC (0.02%) should not cause the partnership to be subject to the TEFRA audit procedures, but rather qualify for the small partnership exception to those rules found in IRC §6231(a)(1)(B)(i).

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Transfer of State Credits Found to Be a Disguised Sale

The third time was not a charm for the taxpayer in the case of SWF Real Estate, LLC, et al. v. Commissioner, TC Memo 2015-63.  As was true in the case of Virginia Historic Tax Credit Fund 2001 v. Commissioner, 693 F.3d 146, CA4 reversing TC Memo 2009-295 and Route 231, LLC v. Commissioner, TC Memo 2014-30 the issue involved whether individuals who paid money to become “partners” that received tax credits from the state of Virginia had really simply bought credits in a disguised sale under IRC §707(a)(2).  And, as was eventually found in the prior cases, the Court determined the answer was yes.

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Taxpayer Failed to Exercise Ordinary Business Care and Prudence in Determining if Required to File FBAR Reports

In the case of Moore v. United States, US DC WD Washington, Docket No. 2:13-cv-02063, 2015 TNT 64-13 a taxpayer was found to be subject to civil penalties for failure to file FBAR reports on his foreign bank accounts, though the Court did not yet decide whether the IRS had abused its discretion in failing to reduce or waive the penalty, finding the IRS had not produced evidence of the reasoning it had for denying relief.

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Penalty Under §6694 May Be Assessed Against Preparer Up to Three Years After Meritless Refund Claim Filed

The IRS addressed the period during which a penalty may be assessed against a preparer under IRC §6694 for having prepared a claim for refund that contained a meritless position in Chief Counsel Advice 201514008.  As well the memo addressed the statute of limitations for the preparer to claim a refund of such a penalty.

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Taxpayer Materially Participated in Activity, Investor and Work Not Customarily Done by Owner Exceptions Did Not Apply

The IRS has lost again on the question of material participation for a taxpayer helping the family business deal with the financial crisis of 2008.  In the case of Lamas v. Commissioner, TC Memo 2015-59, the issue was whether the taxpayer had materially participated in businesses in 2008 where the taxpayer’s share of losses generated multi-million refunds from a net operating loss carryback.

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CPA Not Able to Show Request for Appeal Mailed, Taxpayer Unable to Challenge Trust Fund Penalty Validity at Colleciton Hearing

A CPA’s inability to prove that he had timely mailed an appeal to the IRS regarding the issue of whether this taxpayer was truly liable for a trust fund recovery penalty proved a major problem for the taxpayer in the case of Smith v. Commissioner, TC Memo 2015-60.

In late October of 2010 the IRS sent Letter 1153, Trust Funds Recovery Penalty Letter, to Mr. Smith proposing to assess the penalty against him for unpaid employment taxes of a partnership in which he had been a partner.  Mr. Smith faxed the letter to his CPA who was with a firm with 5 partners and over 40 staff members.

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Payment Under Deferred Prosecution Agreement Argued in IRS Memo to Be Nondeductible Despite DOJ's Intent to Use it Pay Restitution to Victims

The taxpayer referred to in Chief Counsel Email 201513003 argued that the payment he was making under a Deferred Prosecution Agreement (DPA) represented a deductible payment under IRC §162(a).  The taxpayer argued that the Department of Justice planned to use the funds to pay restitution to those the DOJ alleged had been defrauded by the taxpayer and thus should represent a business expense.

The IRS, in this email, disagreed with that view, arguing that IRC §162(f) prohibited the deduction. 

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2014 Return Paper Filing Mandated for Airline Employees Taking Advantage of Expansion of IRA Rollover Program

The paper income tax return makes a comeback—at least for certain airline employees affected by a change found in P.L. 113-243.  In Announcement 2015-13 the IRS provided guidance on reporting rollovers authorized by this act that requires individuals claiming the benefits of this law change for a 2014 payment to file their tax return in paper form.

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Corporation With Rights Suspended Under California Law Unable to File Tax Court Petition Even Though Certain Corporate Rights Later Retroactively Restored

The corporation in the case of Medical Weight Control Specialist v Commissioner, TC Memo 2015-52 found it could not have its day in Court because its corporate privileges had been suspended by the state of California during the 90 day period available for it to file a challenge of an IRS in Tax Court.  This was held to be the case even though the corporation had issued to it by the state a certificate of reviver and certificate of relief from contract voidability later that, in the corporation’s view retroactively reinstated its right to bring the suit initially.

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