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Federal Tax Update – October 2016

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

INDIVIDUALS

Public Law 114-239, the United States Appreciation for Olympians and Paralympians Act of 2016, excludes from income the value of any medal or prize money won in Olympic competition retroactive to awards after 2015.

In Hatcher v. Commissioner, TC Memo 2016-188, the Tax Court determined that an individual who lent in excess of $600,000 to her ex-boyfriend to develop a comic strip had a nonbusiness bad debt as she was not engaged in the business of lending money.

In Partita Partners, LLC v. United States, 118 AFTR2d 2016-________, a New York Federal District Court denied a deduction for a façade easement on a Manhattan building because additional exterior construction was permitted, inconsistent with the requirements for a charitable contribution which requires maintenance and protection of the entire existing exterior.

RETIREMENT PLANS

In Letter Ruling 201640026, IRS waived the 60-day rollover time limit where the taxpayer was disabled with an autoimmune disease and was taking care of her mother and a delay in the sale of a primary residence did not allow timely restoration of funds.

ESTATES

In United States v. Spoor, 118 AFTR2d 2016-6018, the Eleventh Circuit Court of Appeals reversed a Florida Federal District Court and determined that an IRS estate tax lien takes priority over administrative expenses including Personal Representative fees where the estate qualifies and elects to pay over 14 years.

In Chief Counsel Advice 201643020, IRS advised that the failure to show prior gifts on a gift tax return causing liability to be understated does not cause an extended statute of limitations for assessing additional tax on the reported gift.

BUSINESS

In Vest v. Commissioner, TC Memo 2016-187, the Tax Court found that a CPA who had sold his practice for a substantial amount was not engaged in a business activity when he spent millions of dollars in investigating his father’s 1946 death apparently by hanging; he had hired a manuscript writer and public relations individuals but there was insufficient interest in a book or movie.

In Action on Decision 2016-3, IRS announced its non-acquiescence to a decision of the Third Circuit Court of Appeals in Giant Eagle v. Commissioner, 117 AFTR2d 2016-674, in which the Court allowed a retailer to accrue outstanding customer loyalty discounts on gasoline.

In Chief Counsel Advice 201640014, IRS determined that a franchisee who was active in operations was required to pay self-employment tax not only on his guaranteed salary but also on his flow through income as he was not akin to a limited partner.

In Chief Counsel Advice 201642035, IRS reached a contradictory conclusion to a prior Letter Ruling and stated that a termination fee from a party that arises out of a stock acquisition deal gives rise to capital gain or loss for the recipient following a netting with capitalized expenses in the transaction.

PROCEDURE

In Byers v. United States Tax Court, 118 AFTR2d 2016-5996, a District of Columbia Federal District Court ruled that the US Tax Court is not a federal agency subject to the Freedom of Information Act as 2015 legislation made the Court independent of the Executive Branch of Government.

In Smith v. Commissioner, TC Memo 2016-186, the Tax Court did not allow substantive issues to be brought up at a collection due process hearing where the individual who was assessed the Trust Fund Recovery Penalty received prior notices but did not choose previously to contest the liability.

In United States v. McGrew, 118 AFTR2d 2016-________, the Ninth Circuit Court of Appeals agreed with a California Federal District Court that a transfer of community property to a wife’s separate name upon divorce did not prevent an IRS foreclosure on the property for the husband’s tax debts during the marriage, also finding that the entire community property was liable for pre-separation liability and a one-half interest was liable for post-separation liability.

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