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Federal Tax Update – October 2018

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

INDIVIDUALS

In Felton v. Commissioner, TC Memo 2018-168, the Tax Court found that donations to a reverend were income rather than gifts, the IRS finding a “routinized, highly structured program.”

In Antonyshyn v. Commissioner, TC Memo 2018-169, the Tax Court held that work done in an individual’s capacity as an investor including studying and monitoring finances and operations does not count as hours expended in a real estate activity; the Tax Court determined that a couple who owned eight rental units did not qualify as real estate professionals where they generally retained the services of property managers.

In IRS Information Letter 2018-22, IRS stated that a prepayment in 2017 of 2018 property taxes will be deductible in 2017 if the tax was “assessed” in the earlier year as determined by local law (presumably requiring a finalization of both the tax rate and deemed value of the property).

RETIREMENT PLANS

In In Re:  Lerbakken, 122 AFTR2d 2018-________, the US Bankruptcy Appellate Panel for the Eighth Circuit agreed with a Minnesota Bankruptcy Court that an IRA account is not protected in a bankruptcy where it was obtained through interspousal transfer pursuant to a divorce.

In Information Letter 2018-17, IRS reminded that an IRA is currently taxed if it holds an operating business or assets financed by debt.

BUSINESS

In Hagos v. Commissioner, TC Memo 2018-166, the Tax Court disallowed all expenses claimed by an Uber driver except for the mileage allowance on 9,439 miles reported to Uber; the taxpayer had claimed 70,000 business miles and had reported both mileage and actual expenses as a deduction.

In Eldred v. Commissioner, TC Summary Opinion 2018-49, the Tax Court allowed certain business expenses of a video producer but denied a “double dip” where both actual automobile expenses and mileage were claimed; it denied deductions for movie tickets, and on demand video services found in the research and development expense category.

In Notice 2018-195, IRS adopted a broad definition of “meals” and set forth that food and drink, even if purchased at an entertainment event and separately stated, remains 50 percent deductible.

PROCEDURE

In Melasky v. Commissioner, 151 TC No. 9, a divided Tax Court determined that amounts received by IRS were involuntary and could be applied as IRS wished when the taxpayer delivered a check to IRS and four days later IRS levied which caused the check not to be honored (there was no indication that IRS acted willfully to cause the check to be disallowed as the levy was generated by a campus location).

In United States v. Lebeau, 122 AFTR2d 2018-6294, a California Federal District Court granted a motion to stay collection action during the pendency in Tax Court of an innocent spouse claim.

In Schorse v. Commissioner, TC Memo 2018-176, the Tax Court denied innocent spouse status to a business owner married to an OB-GYN who took lead in preparing joint returns and deducted losses although the wife’s accountant for the practice told him that there was insufficient basis for utilizing them.

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