Filing a Tax Court petition regarding a tax assessment carries risks, some of which an adviser may not normally consider.  In the case of Estate of Billhartz v. Commissioner, No. 14-1216, 2015 TNT 143-12 the issue that arose came after the estate had entered into a settlement with the IRS.

Under IRC §6512 a taxpayer who files a petition with the Tax Court regarding a proposed tax deficiency may not later file a claim for refund—rather, all issues need to resolved in the Tax Court case.  That’s true even for issues that may come to the taxpayer’s attention following the conclusion of the case. 

The taxpayer in the case of Stout v. Commissioner, TC Memo 2015-133 was looking to obtain capital gain tax treatment for the payment he received for the stock incentive units (SIUs) he held in his employer at the time the employer was acquired by another entity.  But it turns out that the fact that SIUs are similar to rights in the stock won’t qualify the taxpayer for capital gain treatment—unlike a game of horseshoes, here close is simply not good enough.

In Chief Counsel Advice 201529008 the IRS noted that while a loss sustained in an automobile accident might normally appear to meet the definition of a casualty loss, that won’t be true if your business is a car rental operation.

In the matter discussed in this advice a car rental company had been claiming as a casualty loss the amount of loss incurred when a customer had bought the company’s damage waiver, become involved in accident and the rental car company determined that they were not going to repair the vehicle and return it to their fleet.  So the question became whether the company was properly classifying the loss they incurred in this case.

The “kinder, gentler” IRS seems to be making a limited return in the area of IRS waivers of late IRA rollovers.  Recent rulings have taken a broader view than the IRS did in the past of a financial institution “error” for which the IRS deem to meet the test in Revenue Procedure 2003-16.  An example of a rather broad view of financial institution error is found in PLR 201530024.

Whether a taxpayer or an S corporation the taxpayer used to own, but which was now owned by an ESOP, actually made charitable contributions was one of the matters at issue in the case of Zavadil v. Commissioner, TC Memo 2013-222. The Tax Court’s decision limiting his deduction to the amounts he had actually repaid the corporation (not ones where his repayment was immediately paid for by a new corporate advance) for deductions made in the year in question was sustained on appeal by the Eighth Circuit (Docket No. 14-1053, 2015 TNT 137-14)

The IRS has issued proposed regulations (REG-115452-14) that will establish a series of tests to determine if an arrangement will be treated as a disguised payment for services under IRC §707(a)(2)(A).  The key test, based on the section’s legislative history, will be whether the payment is subject to significant entrepreneurial risk.

An IRS full unilateral concession of the case is not a settlement, per the Ninth Circuit, and thus the taxpayer was prevailing party for purposes of Knudsen v. Commissioner, No. 13-720077, 2015 TNT 136-13 reversing the Tax Court’s contrary holding in an earlier ruling in the same case (TC Memo 2013-87).

The taxpayer in the case of Padilla v. Commissioner, TC Summary Opinion 2015-38 did not fall into the traps that have caused other taxpayers to lose their cases claiming to be a real estate professional and deducting losses arising from their rentals.  But he found himself trapped by a different problem.

One of the “rules of thumb” for tax planning is that “smell counts” in any tax situation.  If the result just “looks bad” there’s a good chance that the courts will simply not allow it to stand.  This is doubly true with regard to §501(c)(3) charitable organizations that, while technically operated under principles that serve the public good, in reality always seem to benefit a very distinct, not so public, private group—like a single family.

That turned out to be the problem in the case of the Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts, Inc., v. United States, 2015 TNT 128-15.

In the case of Levi v. Commissioner, TC Memo 2015-118 the question before the court was, effectively, whether the Levis had filed a valid return.  The issue arose because the return had been signed by an attorney retained by the couple to prepare their tax return.