Document

Federal Tax Update – December 2018

By David S. De Jong, Esq., CPA, Stein Sperling Bennett De Jong PC

INDIVIDUALS

In Connell v. Commissioner, TC Memo 2018-213, the Tax Court determined that forgiveness of a broker’s debt to Merrill Lynch, as ordered by the Financial Industry Regulatory Authority (FINRA) gave rise to ordinary income and could not be tied back to the sale of a business.

Hassan v. Commissioner, TC Summary Opinion 2018-56, and in Kaviro v. Commissioner, TC Summary Opinion 2018-57, the Tax Court distinguished the test for head of household from that of determining dependency allowances and denied head of household status to each of two parents as to their six children inasmuch as their rent was heavily subsidized and several received various forms of public assistance.

In Triggs v. Commissioner, TC Summary Opinion 2018-58, the Tax Court threw out mileage of a construction worker who kept no contemporaneous travel log or calendar and also disallowed a deduction for hotels during the week when all work was within a 69-mile radius of the taxpayer’s home.

In Sholes v. Commissioner, TC Memo 2018-203, the Tax Court denied a deduction for over $1.25 million in legal and other professional fees related to a divorce but not tied to any item for which the fees might be deductible.

In Texas v. United States, 122 AFTR2d 2018-________, a Texas Federal District Court threw out the individual mandate for health insurance based on the 2017 tax act removing the penalty and went on to hold that, because the mandate is inseverable from the legislation, the entire Affordable Care Act is invalid (the plaintiffs were denied an injunction effectively allowing the status quo to continue pending appeal).

BUSINESS

In Pine Mountain Preserve LLLP v. Commissioner, 151 TC No. 14, the Tax Court by majority decision agreed with the Fourth Circuit Court of Appeals rather than an opposite decision of the Fifth Circuit, holding that a conservation easement may not be deducted if alternative property may be substituted in the future.

In Alternative Health Care Advocates v. Commissioner, 151 TC No. 13, the Tax Court disallowed expenses of a separate business entity created to handle payroll and other expenses of a marijuana dispensary.

In Dasent v. Commissioner, TC Memo 2018-202, the Tax Court agreed with IRS that a person claiming to operate an education consulting business assisting recent college graduates, returning military personnel and women rejoining the workforce, who never charged for services, cannot deduct business expenses inasmuch as she was not carrying on a trade or business.

In United States v. Commander, the US Supreme Court declined to review a decision of the Third Circuit Court of Appeals at 121 AFTR2d 2018-1861, affirming a New Jersey Federal District Court’s determination that a 50 percent owner with an ability to pay payroll taxes and with knowledge of the lack of payment is equally liable notwithstanding that the other individual was given specific responsibility for the payment of taxes.

In United States v. Ulasi, 122 AFTR2d 2018-6910, a Texas Federal District Court found both husband and wife, each holding a 25 percent interest, to be responsible individuals who willfully did not pay payroll taxes, discounting their argument that they did not have access to business accounts while in Nigeria.

In Notice 2018-99, IRS provided guidance for determining the amount of parking expense for employees that is nondeductible based on reserved employee spots plus customary usage of other spots by employees on a typical business day in spots not reserved for customers.

PROCEDURE

Public Law 115-332, Protecting Access to the Courts for Taxpayers Act, allows the transfer of misfiled tax cases from other federal courts to the Tax Court.

In Namakian v. Commissioner, TC Memo 2018-200, the Tax Court determined that anxiety and depression are insufficient reasons for abatement of late filing and late payment penalties where the individual carried on other normal activities without issue.

In Mathews v. Commissioner, TC Memo 2018-212, the Tax Court refused to sustain a civil fraud penalty on an individual with limited education who was convicted of filing a false return (as opposed to evasion which requires willfulness).

In Bontrager v. Commissioner, 151 TC No. 12, the Tax Court determined that restitution may be assessed upon a person who has aided and abetted in another’s tax liability (in this case a son assisting his father).

In Revenue Procedure 2019-9, IRS set forth what must be disclosed to avoid penalties on a return with respect to an “unreasonable position”; provided, no relief is available even with disclosure as to tax shelter items, failure to keep books and records and where the position has no reasonable basis.

The IRS Small Business and Self-Employed Division announced that it has commenced the first seizures of virtual currency and predicts an uptick in cryptocurrency tax enforcement in the coming years.

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