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Federal Tax Update – February 2019

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

INDIVIDUALS

In Doyle v. Commissioner, TC Memo 2019-8, the Tax Court determined that a settlement received by an individual who was fired for “whistleblowing” which allegedly caused stress bringing on multiple physical problems was taxable; the complaint said nothing about emotional or physical injuries (the CPA reported the settlement payments over two years on a Schedule C, offsetting the payments in one year by the words “personal injury” and in the other year by the words “pain and suffering”).

In Siegel v. Commissioner, TC Memo 2019-11, the Tax Court allowed a deduction to the pre-2019 payor of lump sum alimony where a contempt order had been issued; the Court distinguished a contempt order from a money judgment, payment under which would not have been deductible to the payor.

In Letter Ruling 201903017.  IRS indicated that employer provided “snacks”, even when continuously offered, are a de minimis fringe benefit while meals are not and accordingly are subject to the “convenience of the employer” test to determine taxability.

RETIREMENT AND ESTATE PLANNING

In DeVazier v. DeVazier, 123 AFTR2d 2019-________, the Eighth Circuit Court of Appeals agreed with an Arkansas Federal District Court that a Personal Representative had no claim under federal law for contribution from a trustee in the case of a trust included in the federal estate until payment has been made by the estate, the Court noting that the statutory language requires payment prior to the claim and the Personal Representative had paid only the taxes on the estate apart from the trust.

In Delegation Order 7-16, IRS gave authority to Employee Plan Determination Area Managers to allow amending of employee plans after expiration of remedial amendment periods.

BUSINESS

In Pugh v. Commissioner, TC Summary Opinion 2019-2, the Tax Court termed interest on land acquired for a future headquarters of a sole proprietorship as business interest notwithstanding that the idea was abandoned due to deteriorating business conditions.

In Feinberg v. Commissioner, 123 AFTR2d 2019-________, the Tenth Circuit Court of Appeals agreed with the Tax Court on multiple issues resulting in a denial of deductions for two medical marijuana dispensaries beyond the proven costs of cost of goods sold.

In Action on Decision 2019-3, IRS acquiesced in the result but not the reasoning of Jacobs v. Commissioner, 148 TC No. 24 (2017) in which the Tax Court permitted the Boston Bruins to deduct 100 percent of the meals provided the hockey team, coaches and administrative personnel at away games as a de minimis fringe benefit.

PROCEDURE

In Walquist v. Commissioner, 152 TC No. 3, the Tax Court held that the requirement of supervisory approval for accuracy-related penalties does not apply to penalties which are automatically calculated through electronic means; in Palmolive Building Investors, LLC v. Commissioner, 152 TC No. 4, the Tax Court ruled that written approval may be on any form.

In Campbell v. Commissioner, TC Memo 2019-4, the Tax Court found that an IRS Appeals Officer abused her discretion when she included assets transferred ten years ago and investments not made to avoid a tax liability in the computation of “reasonable collection potential.”

In In Re:  Clark, 123 AFTR2d 2019-________, a Georgia Bankruptcy Court allowed a doctor and his wife to discharge taxes in bankruptcy despite having two residences where he did not have an otherwise lavish lifestyle and had irregular employment.

In Contreras v. Commissioner, TC Memo 2019-12, the Tax Court granted innocent spouse status to a stay at home mother who was the victim of physical and verbal abuse, finding that she signed joint returns under duress and that she met all of the criteria for relief; the Court threw out the IRS argument that a transfer of assets to her was a fraudulent conveyance when it was part of a court order.

In United States v. Chesteen, 123 AFTR2d 2019-________, a Louisiana Federal District Court overruled a bankruptcy court and determined that the shared responsibility payment was a tax and not a penalty despite use of the word “penalty” 18 times in the statute and use of the word “tax” not at all.

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