NOL Created By Foreign Tax Treatment Change Did Not Benefit from Extended Statute

Dealing with the interaction of various statute of limitation rules can be complex that it appears at first and, in the situation described in Chief Counsel Advice 201517005, the IRS concluded that the taxpayer could not take full advantage of amending a return to change from claiming a foreign tax credit to claiming a deduction for foreign tax paid when that change to the prior return created a net operating loss required to be carried back.

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Another California Corporation With Retroactively Restored Rights Has Tax Court Petition Thrown Out

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.

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Calendar and Log Book Formed Adequate Records to Support 100% Business Use for Two Autos

Under IRC §274(d) taxpayers are denied any deduction for certain expenses if they do not maintain adequate contemporary documentation to support the expense, even if it is obvious that the taxpayers must have incurred the expense and the amount of expense could be reasonably estimated.  This rule was put into the IRC to override the “Cohan” rule, so called due to the case involving George M. Cohan where the Second Circuit ruled that documentation is not needed if it is clear a taxpayer incurred an expense and it can be reasonably estimated [Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).

The IRS claimed in the case of Ressen v. Commissioner, TC Summary Opinion 2015‑32 that the taxpayer’s records documenting his use of two vehicles, for which he claimed a 100% business use deduction on each, was inadequate.  However the Tax Court did not agree with the IRS on this issue.

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Flight Attendant Based in Hong Kong Could Not Exclude All Earnings As Foreign Earned Income

If a U.S. citizen is a flight attendant based out of Hong Kong, can she exclude all of her income using the foreign earned income exclusion under IRC §911?  The taxpayer in the case of Rogers v. Commissioner, Docket No. 13-1241, CA DC Circuit took that position—but neither the Tax Court nor the Court of Appeals for the DC Circuit agreed with her.

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IRS Issuance of Notice of Determination Concerning Collection Action Violated Automatic Stay

The issuance by the IRS of a Notice of Determination Concerning Collection Action following the filing of a bankruptcy petition by the taxpayer was held by the Tax Court to be in violation of the automatic stay imposed by the Bankruptcy Code under 11 USC §362(a).  Therefore, in the case of Yuska v. Commissioner, TC Memo 2015-77, the Tax Court held that, given no valid notice being issued, it had no current jurisdiction in the case.

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

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.

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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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