The Tax Court in Steinberg v. Commissioner, 141 TC No.8 (referred to as Steinberg I), reversing the position it had previously taken, held that the value of a gift could be reduced when the recipients of the gift agreed to assume any potential estate tax if the donor died within three years. 

Generally if a donor dies within 3 years of the date of a gift, the value of the gift and the resulting gift tax is added back to the donor’s estate pursuant to IRC §2035(b).  While the estate gets credit for the gift tax paid, the inclusion of the gift tax in the estate results in a transfer tax being imposed on both the gift in question and the gift tax itself.  In the absence of such a provision, a tax could dramatically reduce his/her transfer taxes by making deathbed gifts.

The Tax Court decided that a taxpayer who had voluntarily filed an amended return in response to an IRS examination of her claim of a refundable first time homebuyer credit had not had a previous chance to challenge the tax due in the case of Canaday v. Commissioner, TC Summary Opinion 2015-57.

The issue goes back to the return Ms. Canaday filed for 2008 on April 15, 2009 in which she claimed a first time homebuyer credit.  In 2011 the IRS opened an audit of her return in 2011 and in May of that year she filed an amended return on which she no longer claimed the refundable credit.  On the basis of the return the IRS issued a notice and demand for additional tax.  In 2013 the taxpayer filed a request for audit reconsideration, now apparently believing she really should have qualified for the credit.  The IRS denied that request.

In response to concerns about potential exposure of a private foundation and its manager to the tax under §4944(a) if it makes an investment this not a program related investment (PRI) but which would still further its charitable purposes the IRS issued Notice 2015-62. 

A tax is imposed both on a private foundation and an investment manager if the foundation makes an investment that jeopardizes the carrying out of any of its exempt purposes.

Sometimes there are hardships that may make it difficult for a taxpayer to file certain reports electronically even where such filing is required.  In Revenue Procedure 2015-47 the IRS has issued guidance on requesting such a hardship waiver for plan administrators that are required to file Forms 5500-EZ (Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan) and/or Form 8955-SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits).

If the tax law provides for an application for special treatment to be made in such time and manner as the IRS may require, can a taxpayer make the application if the IRS hasn’t gotten around to writing any regulations or provided other guidance on the subject?  This was the issue addressed by Chief Counsel Memorandum 201537021.

The open transaction doctrine, if applicable to a case (and that’s a really big if), provides that a taxpayer generally treats amounts received as a return of capital until the taxpayer’s basis has been entirely recovered.  Unfortunately for the taxpayers in the case of Friedman v. Commissioner, TC Memo 2015-177, the Tax Court did not find their situation to be one where that doctrine applied.

In Revenue Procedure 2015-44 the IRS has officially terminated the Appeals arbitration program that was currently running with Revenue Procedure 2006-44.  The program was mandated by Congress in IRC §7123(b)(2) where Congress ordered the IRS to establish a pilot program for arbirtration.

The Tax Court decided, at least for purposes of filing a petition with the Tax Court, that a federal “snow day” declared in the District of Columbia that falls on the last day for filing with the Court serves to push the due date back to the first day the office of the clerk of the Tax Court was open.  The issue was decided in an order filed in the case of Guralnik v. Commissioner, Docket No. 4358-15 L, Order dated August 24, 2015.

Deductibility of legal expenses is always a tricky issue for tax purposes.  In the situation described in Private Letter Ruling 201536006 the litigation involved a potential infringement on a patent, with a key issue being whether the legal fees incurred represented a capitalizable payment in defense of title to the patent or an ordinary and necessary business expense arising from a dispute over whether there had been an infringement on the patent.

In Private Letter Ruling 201536005 the IRS granted an executrix, who was also the surviving spouse of the decedent,  the right to make a late portability election under IRC §2010.  By making that election, the estate of the surviving spouse will be able to take into account the decedent’s deceased spousal unused exclusion amount (DSUE).

Taxpayers were again beaten back in an attempt to broadly define a “capital asset” and a “sale of a capital asset” in order to gain access to the preferential capital gain tax rates in the case of Patrick v. Commissioner, 142 TC No. 5, affirmed on appeal by the Seventh Circuit Court of Appeals, Case No. 14-2190.

In this case the taxpayers were looking to get capital gain treatment for an amount they received as a reward for, effectively, turning in the husband’s employer through a qui tam complaint filed under the False Claims Act.

In Legal Advice Issued by Field Attorneys 20152201F the IRS conclude disclosures related to a gift were inadequate on the gift tax return that was filed by the taxpayer.  That is important because, under IRC §6501(c)(9) if there is inadequate disclosure of a gift on a gift tax return the statute of limitations stays open indefinitely.

By repossessing a personal residence the taxpayer had sold by taking an installment note, the taxpayer ended up losing access to the IRC §121 $500,000 exclusion of gain on the sale of a principal residence in the case of Debough v. Commissioner, 141 TC No. 17, affd CA8, 2015 TNT 168-11, No. 14-3036.

The case deals with the interplay of IRC §121 (the exclusion for the gain on the sale of a qualifying residence) and IRC §1038 (a provision that is meant to offer relief when a taxpayer repossesses real property).  Effectively the Tax Court concluded that IRC §1038’s provisions trump the relief provision of IRC §121 in this fact pattern.