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Federal Tax Update – July 2017

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

INDIVIDUALS

In Rajcoomar v. Commissioner, TC Memo 2017-129, the Tax Court denied a taxpayer an exclusion for damages arising out of physical injury where his employer failed to make workplace accommodations for an injury received, the Court noting that the source of the claim was anti-discrimination laws; in Maciujec v. Commissioner, TC Summary Opinion 2017-49, the Tax Court reached the same result where there was an allegation of sexual contact but not physical injury.

In Taylor v. Commissioner, TC Memo 2017-132, the Tax Court determined that a fireman’s disability retirement pay was taxable as it was determined by age, length of service and compensation notwithstanding that it was subject to future medical examinations.

In Yorklic v. Commissioner, TC Memo 2017-143, the Tax Court determined that an individual who received unemployment compensation but was required in the same year to repay it had to pick up the benefits as income when he delayed repayment to the following year.

In Silipigno v. United States, 120 AFTR2d 2017-5046, a New York Federal District Court denied a purported net operating loss carryback where the taxpayer could not prove that his tax liability reported for the carryback year was correct and notwithstanding the expiration of the statute of limitations on the earlier year.

In Turan  v. Commssioner, TC Memo 2017-141, the Tax Court agreed with IRS that a taxpayer could not prove that he directed his broker as to specific shares of identical stock to be sold and was accordingly required to use FIFO in determining cost basis; the taxpayer claimed he was unable to accomplish the direction online or get assistance by phone.

In Ohde v. Commissioner, TC Memo 2017-137, the Tax Court disallowed a charitable contribution deduction for $145,000 purportedly representing 20,000 items donated to Goodwill in a single year, the Court noting that the taxpayers have “failed woefully to satisfy the substantiation requirements.”

In Reri Holdings I, LLC v. Commissioner, 149 TC No. 1, the Tax Court disallowed a charitable contribution deduction for a remainder interest because it did not comply with the statutory substantiation requirements including disclosure of basis (which would have shown a valuation of ten times the cost of the interest one year before).

In RP Golf, LLC v. Commissioner, 119 AFTR2d 2017-2338, the Eighth Circuit Court of Appeals agreed with the Tax Court that a taxpayer could not take a charitable deduction for a conservation easement where two mortgages remained on the property and the taxpayer could not prove their subordination to the easement (only an alleged oral agreement).

In Walker v. Commissioner, TC Summary Opinion 2017-50, the Tax Court ruled that incorrect advice by a health insurance exchange does not modify the requirement that an individual repay an advance health insurance premium tax credit for which there was no entitlement due to rising income.

RETIREMENT PLANS

In Frias v. Commissioner, TC Memo 2017-139, the Tax Court determined that an employee received a constructive distribution from her retirement plan even though the loan default arose from her employer’s failure to properly withhold and transmit withholding intended to repay the loan; in Gowen v. Commissioner, TC Summary Opinion 2017-57, the Tax Court ruled that income from such a constructive distribution is reported in the year when the cure period expires.

In Block Developers v. Commissioner, TC Memo 2017-142, the Tax Court determined that family members in a limited liability company made “excess” contributions to a Roth IRA when the LLC was created as a conduit from the husband-father’s construction company as a means of funding retirement benefits.

In a Treasury Department Website Posting, Treasury announced that it is phasing out the myRA retirement savings program with no new enrollments permitted.

ESTATES

In Notice 2017-38, IRS announced, pursuant to President Trump’s Executive Order to review all tax regulations issued in the final year of the Obama administration, that it is reviewing the controversial rules on discounting in estate and gift tax valuations.

In Legal Advice Issued by Field Attorneys 20172801F, IRS concluded that the statute of limitations remained open on a gift tax return lacking a description of the transferred property and the method used to determine value.

BUSINESS

In Gregory v. Commissioner, 149 TC No. 2, the Tax Court interpreted the law on waste disposal reclamation expenses to allow a cash basis taxpayer to create a deductible reserve for future costs.

In Balyan v. Commissioner, TC Memo 2017-40, the Tax Court, citing lack of substantiation, allowed only about $6,000 of the $51,000 in business expenses claimed by a nurse to offset gross receipts of $35,000.

In United States v. Hartman, 120 AFTR2d 2017-5091, a Michigan Federal District Court determined that a 50 percent owner of a company was liable for trust fund taxes although his co-owner had internal responsibility for payment; he allowed other bills to be paid once he became aware that the checks for payroll taxes were sitting unmailed in a drawer.

PROCEDURE

In Edwards v. Commissioner, TC Summary Opinion 2017-52, the Tax Court determined that a timely filed joint return initiated by a divorcing husband not bearing the wife’s signature or authorization was invalid where the wife subsequently but timely filed a married filing separate return.

In Rogers v. Commissioner, TC Memo 2017-130, the Tax Court denied innocent spouse status for a wife of a tax shelter promoter when she had a law degree and MBA, the Court noting that her testimony about the extent of her ignorance was not credible; in Ryke v. Commissioner, TC Memo 2017-144, the Tax Court declined to give innocent spouse status to a doctor who remained married to a lawyer who she knew had major financial problems and, accordingly, could have assumed that the unpaid liability on the returns would not be paid.

In Announcement 2017-122, IRS announced a pilot program for web-based appeals conferences.

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