Document

Federal Tax Update – June 2017

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

INDIVIDUALS

In Fakiris v. Commissioner, TC Memo 2017-126, the Tax Court denied a charitable deduction on a bargain sale of a theater because the transferee was restricted from selling the theater for five years.

In RP Golf, LLC v. Commissioner, 119 AFTR 2d 2017-________, the Eighth Circuit Court of Appeals agreed with the Tax Court that a charitable deduction for a conservation easement cannot be claimed if the land is subject to unsubordinated bank mortgages; in Ten Twenty Six Investors v. Commissioner, TC Memo 2017-115, the Tax Court disallowed a conservation easement where the donor failed to record the grant for two years; the Court determined that the delay violated the requirement of perpetuity of the restriction.

In Watts v. Commissioner, TC Memo 2017-114, the Tax Court determined that the abandonment of a partnership interest gave rise to a capital loss rather than an ordinary loss; the Fifth Circuit Court of Appeals in a surprise 2015 decision had ruled that the abandonment of stock gave rise to an ordinary loss.

In Action on Decision 2017-5, IRS indicated its disagreement with Tsehay v. Commissioner in which the Tax Court allowed the father of five children to claim the earned income credit on a married filing separate return in violation of the statute.

ESTATES

In Revenue Procedure 2017-34, IRS extended the time period for timely filing for estate tax returns submitted solely for purpose of portability until two years from a decedent’s death but in no event earlier than January 2, 2018.

BUSINESS

In Petersen v. Commissioner, 148 TC No. 22, the Tax Court determined that an accrual basis corporation cannot deduct amounts payable to a cash basis employee whose only ownership is constructably through an ESOP until the accrued wages are actually paid by the corporation.

In Taylor v. Commissioner, TC Memo 2017-99, the Tax Court disallowed automobile expense claimed by a commissioned bill collector who showed no revenue but claimed to have driven 132,456 miles in one year; alleged contemporaneous records showed ending odometer readings lower than the starting readings and one day’s entry showed 1,696 miles in a single day (the Court noting that she would have to have driven at an average speed of 70 miles per hour for 24 consecutive hours).

In Jacobs v. Commissioner, 148 TC No. 24, the Tax Court determined that game day meals provided by the Boston Bruins to their players, coaches and traveling staff for away games were fully rather than 50 percent deductible as a de minimis fringe benefit.

In Crissey v. Commissioner, TC Summary Opinion 2017-44, the Tax Court declined to let a retired salesman deduct expenses for transportation and advertising where he attempted to start a consulting business but never had a dollar of revenue.

In Stettner v. Commissioner, TC Memo 2017-113, the Tax Court balanced nine factors and determined that an individual who engaged in auto racing for several years, having large losses in the first two years and small profits in the next three years, was involved in a hobby as opposed to having an actual honest profit objective.

In Zudak v. Commissioner, TC Summary Opinion 2017-41, the Tax Court determined that an otherwise employed individual who organized film festivals was engaged in a hobby although he showed significantly increasing revenues and rapidly declining losses for the two years following the year of audit.

In Vest v. Commissioner, 119 AFTR2d 2017-813, the Fifth Circuit Court of Appeals agreed with the Tax Court that an individual who spent about $1 million investigating his father’s suspicious death many years before could not deduct the expense; the taxpayer claimed a business opportunity to write a book and make a movie.

In Lewis v. Commissioner, TC Memo 2017-117, the Tax Court found that a minister receiving $1 per year was not engaged in a business for profit.

In Letter Ruling 201725022, IRS determined that an S corporation which maintained several medical buildings did not receive passive investment income which could have led to loss of S status despite delegating leasing and build-out functions.

PROCEDURE

In Steele v. Commissioner, 119 AFTR2d 2017-818, a District of Columbia Federal District Court ruled that IRS could not charge a user fee for PTINs.

In Haynes v. United States, 119 AFTR2d 2017-________, a Texas Federal District Court sustained a late filing penalty against an individual whose preparer filed electronically on the due date but the return did not go through due to an improper entry.

In Whitsett v. Commissioner, TC Memo 2017-100, the Tax Court declined to impose an accuracy-related penalty of $108,000 on a physician who turned over all information on a stock sale to his preparer who failed to report the transaction accurately, the Court noting that “although petitioner is a highly educated person and a skilled physician, she had no knowledge of Federal income taxation.”

In Conrad v. Commissioner, TC Memo 2017-116, an individual was denied innocent spouse relief under all three subsections inasmuch as she was aware that both her first husband who died and her second husband from whom she was divorced worked with a tax preparer who created fake partnership losses causing the underlying deficiency.

In W. Zintl Construction, Inc. v. Commissioner, TC memo 2017-119, the Tax Court agreed that a company’s going concern value is an asset for consideration in whether to except an Offer in Compromise submitted on behalf of a corporation; however, the Court found that IRS miscomputed the reasonable collection potential by adding back the unpaid tax liability to the computed value.

In Thaxton v. United States, 119 AFTR2d 2017-804, a West Virginia Bankruptcy Court determined that interest on the Trust Fund Recovery Penalty is a nondischargeable in bankruptcy.

In News Release 2017-102, IRS announced that it will only accept online payments for letter rulings, determination letters and closing agreements effective June 15, 2017.

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