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Federal Tax Update – November 2016

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

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INDIVIDUALS

In Bobo v. Commissioner, TC Summary Opinion 2016-74, the Tax Court found that $20,500 cash paid to a couple for vacating their home in lieu of foreclosure was not taxable as it was part of the “purchase price” and the house was disposed at a loss.

In Pham v. Commissioner, TC Summary Opinion 2016-73, the Tax Court refused to allow a couple to offset winnings reported by a casino where they kept no documentation or other proof to support losses; they stated that they gave up writing down their losses because it was “bad for your psyche…you need to be strong mentally” when playing cards.

RETIREMENT PLANS

In Letter Ruling 201647014, IRS waived the 60-day rollover rule for an IRA distribution made to a disabled individual who mistakenly deposited the distribution in a non-IRA account but determined that it could not waive under the law an issue with a second distribution caused by a second rollover in a 12-month period.

BUSINESS

In Franklin v. Commissioner, TC Memo 2016-207, the Tax Court gave a shareholder credit for basis when he made payment under a guarantee.

In McClendon v. United States, 118 AFTR2d 2016-5464, a Texas Federal District Court determined that the owner of a large medical practice was liable for unpaid payroll taxes when its chief financial officer stole $10 million and the owner, after learning of the theft and the nonpayment of payroll taxes, lent the business money for specific purposes other than paying back taxes; the Court rejected his argument that he had encumbered the funds by directing their usage and that this should shield him from liability.

In Fitzpatrick v. Commissioner, TC Memo 2016-199, the Tax Court determined that the wife of a 50 percent business owner with signature authority but who spent about one hour per week at the business, in part due to a severely disabled child, was neither a responsible person nor had knowledge of unpaid payroll taxes.

In Notice 2016-66, IRS imposed disclosure requirements applicable in most circumstances to both captive insurance companies and those parties using captives for insurance.

In Letter Ruling 201645017, IRS stated that a coffee shop providing a location for Bible study and church group meetings, among other activities, did not qualify for exempt status as more than an insubstantial amount of its activities were furthering nonexempt purposes.

PROCEDURE

In Urgent Care Nurses Registry, Inc. v. Commissioner, TC Memo 2016-198, the Tax Court once again ruled that a corporation not in good standing does not have jurisdiction in Tax Court and accordingly threw out its petition.

In Adolphson v. Commissioner, 118 AFTR2d 2016-________, the Seventh Circuit Court of Appeals agreed with the Tax Court that it has no jurisdiction to consider a challenge that a “Final Notice of Intent to Levy” was not sent to the last known address, leaving affected taxpayers with only a possible administrative remedy or the need to pay and file a claim for refund; the Court noted that the result here differs from a mismailing of a  Notice of Deficiency, the validity of which may be resolved by the Tax Court.

In United States v. Candy, 118 AFTR2d 2016-________, A Texas Bankruptcy Court found that a couple who earned more than $20 million per year could not discharge federal income taxes of more than $2.8 million in a bankruptcy due to willful evasion by living a lavish lifestyle while knowing a tax debt existed.

In Revenue Procedure 2016-57, IRS announced new mediation procedures to be conducted by Appeals in certain offers in compromise issues (value of assets, dissipation of assets, deviation from standards, projections of future income, doubt as to liability, etc.) and in certain Trust Fund Recovery Penalty matters such as responsibility, willfulness and payment designation).

In a letter from IRS Appeals Chief Kirsten Wielobob to the practitioner community, IRS appeared to reverse itself by stating “Appeals will no longer grant in-person conference solely upon taxpayer request” though it did not elaborate beyond stating that it wished to better allocate resources and “get the right work to the right Appeals employee.”