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Federal Tax Update – July 2020

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

INDIVIDUALS

In Beckett v. Commissioner, TC Summary Opinion 2020-19, the Tax Court found that, although the source of a claim for seizures at work from epilepsy was failure of an employer to make a reasonable accommodation constituting discrimination, the physical distress cited in the complaint and in the settlement agreement caused the Court to state that one-third of the settlement award was nontaxable based on the intent of the payor to pay in part for physical injury.

In Weiderman v. Commissioner, TC Memo 2020-109, the Tax Court denied an exclusion on cancellation of debt incurred to purchase a primary residence inasmuch as the property did not secure the loan. 

In Duffy v. Commissioner, TC Memo 2020-108, the Tax Court decided against the taxpayer on a number of issues, finding that a loss on one property was not allowable inasmuch as it was not rental property despite possible occasional rental income and on a second property where the adjusted basis could not be proven.

In Keefe v. Commissioner, 126 AFTR2d 2020-________, the Second Circuit Court of Appeals agreed with the Tax Court that a couple who took six years to renovate an historic mansion and then sold the property could not claim an ordinary loss where they spent more time trying to sell the property than rent it, the Court noting that a property never rented can still give rise to an ordinary loss under more favorable facts.

In Villages at Effingham LLC v. Commissioner, TC Memo 2020-102, Riverside Place LLC v. Commissioner, TC Memo 2020-103, Maple Landing LLC v. Commissioner, TC Memo 2020-104, Anglewood Place LLC v. Commissioner, TC Memo 2020-105, Smith’s Lake LLC v. Commissioner, TC Memo 2020-107, and Belair Woods LLC v. Commissioner, TC Memo 2020-112, the Tax Court rejected a deduction for a conservation easement, finding that it was not perpetually donated due to excluding any increase in value after the date of the easement attributable to improvements from any proceeds in the event of extinguishment. 

In Johnson v. Commissioner, TC Memo 2020-79, the Tax Court allowed about 60 percent of the $610,000 charitable contribution claimed for donation of a conservation easement although the amount allowed was almost twice the purchase price of the property five years earlier and excluded five acres with a residence. 

RETIREMENT AND ESTATE PLANNING

In Letter Ruling 202029006, IRS waived the 60-day rollover period in the case of a recent divorcee who was unaware that funds placed in her bank account by her spouse were from an IRA. 

BUSINESS

In Pilyavsky v. Commissioner, TC Summary Opinion 2020-20, the Tax Court found that a database engineer fabricated about $47,000 in expenses and $10,000 in income to create a Schedule C reflecting alleged self-employment; the Court allowed $3,500 in expenses but did not adjust out the $10,000 of alleged self-employment income. 

In Yapp v. Commissioner, 126 AFTR2d 2020-________, the Ninth Circuit Court of Appeals agreed with the Tax Court that expenses incurred in developing a product line and in soliciting pre-orders prior to the official launching of products were start-up expenses and not eligible for an immediate deduction. 

In United States v. Beskrone, 126 AFTR2d 2020-________, a Delaware Federal District Court reversed a bankruptcy court and held that a C corporation’s tax liability accrues only on the last day of the year which makes the tax obligation solely that of the estate and gives the Government priority over other creditors. 

In Fact Sheet 2020-11, IRS provided examples of situations in which Form 8300, reporting cash payments over $10,000 received in a trade or business, will be required including any two or more related payments within 24 hours or payments as part of a single transaction or related transactions within a 12-month period; recipients would need to file when $10,000 in cash is received cumulatively during the 12-month period and then with each $10,000 in additional payments. 

PROCEDURE

In Trump v. Vance, 126 AFTR2d 2020-5082, the US Supreme Court by a 7 to 2 margin agreed with the Second Circuit Court of Appeals that a sitting President does not enjoy absolute immunity from state criminal process and, accordingly, a prosecutor can obtain the President’s tax returns as part of an investigation upon showing of need and relevance.

In United States v. Blake, 126 AFTR2d 2020-5258, the Seventh Circuit Court of Appeals agreed with an Indiana Federal District Court that it was proper to base the sentencing of an individual with an MBA who filed false tax returns including one alleging his own death on the amount of the attempted fraud and not just the actual fraud.

In Minemyer v. Commissioner, TC Memo 2020-99, the Tax Court found that an individual was not liable for the civil fraud penalty due to lack of supervisory approval before communication to the taxpayer. 

In Barnhill v. Commissioner, 155 TC No. 1, the Tax Court allowed a company director pursued for unpaid trust funds taxes to argue merits at a CDP hearing when he asserted that he failed to get notice of an Appeals conference and IRS closed the matter and assessed two days later without follow-up.

In Dodson v. Commissioner, TC Memo 2020-106, the Tax Court agreed that IRS did not abuse its discretion in denying an installment agreement where a couple had sufficient equity in their primary residence against which they could borrow to pay the liability in full.

In Sadjadi v. Commissioner, 126 AFTR2d 2020-5188, the Fifth Circuit Court of Appeals agreed with the Tax Court that the terms of acceptance of an Offer in Compromise were clear and that it was voided by noncompliance during the five succeeding years.

In In Re:  Gabbidori, 126 AFTR2d 2020-5080, and in In In Re:  Szczyporski, 126 AFTR2d 2020-5048, Bankruptcy Courts in Florida and Pennsylvania respectively found the shared responsibility payment to be a tax rather than a penalty.

In SBSE-05-0720-0049, IRS recognized that CDP notices currently have two response addresses, one at the top of the first page and another on a voucher for submitting payment at the bottom of the first page, and will consider a timely appeal sent to either address as valid notwithstanding that the intended address is the one at the top of the page.

In Chief Counsel Advice 202026002, IRS determined that a “superseding” return, one refiled before the due date and not as an amended return, does not change the statute of limitations which is measured based on the date of the original return; this applies both to an IRS assessment and to a taxpayer claim for refund.

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