Federal tax update: A six-month look back

August 9, 2024 1:10 PM

The year 2024 has been crammed with significant events for the tax world, given Supreme Court and other judicial decisions, legislation, and agency pronouncements.

To help practitioners sort through all of them, tax attorney and CPA David De Jong, a partner in the Rockville, Maryland law firm of Stein Sperling Bennett De Jong Driscoll PC provides the following update of the developments he considers to be most relevant for tax practitioners. An abridged "high points" version is available here; the more comprehensive collection below is divided into developments with broad individual applications, those related to retirement and estate planning, those specific to business, and major procedural changes.

INDIVIDUAL: Secs. 170 and 786

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Final regulations under Code Sections 170 and 786 follow prior proposed regulations limiting charitable contributions flowing from partnerships based on conservation easements to 2.5 times the sum of each partner's "relevant basis" and determine how to compute relevant basis for such purpose.

INDIVIDUAL: Sec. 6045

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Final regs under Code Section 6045 make few changes from prior proposed regs despite 44,000 comments; centralized exchanges are due to start reporting 2025 sales in 2026 on a new form 1099-DA with rules for decentralized exchanges due out later in 2024.

INDIVIDUAL: EITC

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In Turner v. Commissioner, TC Memo 2024-20, the Tax Court held that a grandparent was not eligible to claim head of household status or to receive the Earned Income Tax Credit despite year-round support inasmuch as the grandchild lived with the taxpayer for only two months of the year rather than the required more than one-half of the year.

INDIVIDUAL: Bad trusts

In Aldridge v. Commissioner, TC Memo 2024-24, the Tax Court concluded that "trust counselors," convicted of multiple tax crimes, had created a series of trusts that were shams lacking economic substance and, as such, should be disregarded, with the court noting that not a thing changed after creation of the trusts.

INDIVIDUAL: Signed v. unsigned

In Stead v. Commissioner, the Tax Court in a bench opinion required a corporate owner to report signed but uncashed checks as income but not unsigned uncashed checks except to the extent withholdings had been paid over.

INDIVIDUAL: Civil rights v. PTSD

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In Estate of Finnegan v. Commissioner, TC Memo 2024-42, the Tax Court concluded that settlement proceeds paid by a state as a result of improper findings of abuse and neglect of their children were taxable as paid for violation of their civil rights and not for post-traumatic stress disorder which had little or no mention in the complaint, jury instructions, voir dire questions or otherwise.

INDIVIDUAL: Reporting Social Security

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In Ecret v. Commissioner, TC Memo 2024-23, the Tax Court agreed with the IRS that gross Social Security benefits had to be reported notwithstanding that a majority were not actually paid due to an offset by worker's compensation.

INDIVIDUAL: Substantiation required

In Amos v. Commissioner, 133 AFTR2d 2024-1267, the Eleventh Circuit Court of Appeals agreed with the Tax Court that a CPA who owned several burger franchises could not substantiate over $4 million in net operating losses dating back 15 years when no original records were produced except tax returns and a carryover worksheet; in United States v. Cacchione, 133 AFTR2d 2024-638, a Pennsylvania Federal District Court denied an NOL carryback generated by an S corporation loss when the taxpayer could not prove that he had basis in the corporation to utilize the loss.

INDIVIDUAL: Alimony

In Rojas v. Commissioner, 133 AFTR2d 2024-775, the Ninth Circuit Court of Appeals agreed with the Tax Court that pre-2019 family support payments were not deductible as alimony where the payments terminated upon emancipation of the children notwithstanding that there was no current child support order at the time; in Martino v. Commissioner, TC Memo 2024-18, the Tax Court concluded that pre-2019 payments to a former spouse were not deductible as alimony where a $3 million lump sum obligation was subsequently converted by the court into monthly payments (the instrument plainly specified that payment was for a property settlement and other parts of the agreement provided for alimony).

INDIVIDUAL: SALT rules

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In State of New Jersey v. Mnuchin, 133 AFTR2d 2024-1240, a New York Federal District Court upheld an IRS regulation nixing a "workaround" to the $10,000 state and local tax deduction maximum; the method would have allowed donations to state charities in lieu of state tax obligations.

INDIVIDUAL: Conservation easements

In Savannah Shoals LLC v. Commissioner, TC Memo 2024-35, the Tax Court concluded that a conservation easement was worth $480,000 and not the $23 million claimed by a partnership, finding that sales projections were overly optimistic in light of the fact that competing quarries were in better locations; in Buckelew Farm LLC v. Commissioner, TC Memo 2024-52, the Tax Court denied a conservation easement claim of $47.6 million as almost 10 times the actual value based on current zoning and the likelihood of denial of a change.

INDIVIDUAL: More easements

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In Excelsior Aggregates LLC v. Commissioner, TC Memo 2024-60, in a decision applied to 13 cases, the Tax Court doubted the value of conservation easements restricting sand and gravel mining and reduced the deduction on the three factually litigated cases by an average of 88%.

In Oconee Landing Property LLC v. Commissioner, TC Memo 2024-25, the Tax Court disallowed a deduction for a conservation easement in excess of $20 million where the partnership failed to attach a qualified appraisal to the return, a requirement where the alleged value of donated property exceeds $500,000.

INDIVIDUAL: Yet more easements

In Valley Park Ranch, LLC v. Commissioner, 162 TC No. 6, a divided Tax Court effectively reversed a four-year old decision and, agreeing with the Eleventh Circuit Court of Appeals and in opposition to the Sixth Circuit, invalidated an IRS regulation on a procedural issue of failing to respond to a "significant comment" and threw out a denial of a $14.8 million deduction for a conservation easement where the deed reserved the value of post-donation property improvements to the donor by subtracting the value of those improvements from the proceeds the parties would receive in the event that the easement were extinguished.

In Green Rock LLC v. the Internal Revenue Service, 134 AFTR 2d 2024 -1630, the Eleventh Circuit Court of Appeals agreed with an Alabama Federal District Court that the IRS violated the Administrative Procedures Act for failure to have the required public hearings in forcing investors in conservation easements to disclose their participation as a "reportable transaction."

INDIVIDUAL: Madoff like a bandit

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In Pascucci v. Commissioner, TC Memo 2024-46, the Tax Court denied a theft loss deduction to an investor who placed assets with Bernie Madoff as the investment was through insurance contracts and the taxpayer did not have a direct ownership interest in the underlying stolen assets, which prevented tax on the inside buildup of the policies but also prevented loss on that buildup.

INDIVIDUAL: Judges by the hour?

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In Banuelos v. Commissioner, TC Summary Opinion 2024-7, the Tax Court disallowed post-2017 employee business expenses in the case of a California administrative law judge who would have come under an exception to the general denial of employee business expenses inasmuch as he was a state or local employee; however, the exception only applies to employees paid in whole or in part on a "fee basis" and he was paid on an hourly basis which was found to be outside of the exception.

INDIVIDUAL: East Palestine payments

Train tracks running through East Palestine, Ohio

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In Notice 2024-46, the IRS determined that payments made by Norfolk Southern to individuals affected by the 2023 train derailment in East Palestine, Ohio, are tax-free disaster payments as the result of "an event of catastrophic nature;" payments for lost wages and payments to businesses were determined to be taxable.

In Announcement 2024-19, IRS indicated that amounts received from the Department of Energy for home energy rebate programs are not income but constitute a reduction in price paid for the home improvements.

INDIVIDUAL: Trouble with Russia

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In Announcement 2024–26, the IRS announced that it was reciprocating actions by Russia to negate portions of the tax treaty between the countries designed to avoid double taxation.

INDIVIDUAL: Offers on easements

In News Release 2024-174, the IRS indicated that it will be sending offers in July to many taxpayers who participated in syndicated conservation easements but who have not settled their cases.

INDIVIDUAL: Work-life benefits

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In Fact Sheet 2024-13, IRS stated that the value of work-life information and referral services offered by an employer are generally exempt from taxation as de minimis.

INDIVIDUAL: More on alimony

In Letter Ruling 202426011, IRS ruled that a pre-2019 postnuptial agreement is a "divorce or separation instrument," allowing an alimony deduction based on such agreement to be deductible to the payor and income to the recipient (the result should not be different if it were a prenuptial agreement).

RETIREMENT AND ESTATE PLANNING: CRATs

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Proposed regulations under Code Section 6011 would make certain transactions involving the use of the Charitable Remainder Annuity Trust and a single premium annuity a "listed transaction."

RETIREMENT AND ESTATE PLANNING: Penalty or tax?

In Couturier v. Commissioner, TC Memo 2024-6, the Tax Court ruled that the "penalty" for excess IRA contributions is really a tax and, accordingly, is not subject to supervisory approval; less than two months later, at 162 TC No. 4, a divided Tax Court ruled that the 2022 legislation setting a six-year limitations period on imposition of the penalty for excess contributions to an IRA was not retroactive allowing IRS to assess almost $8.5 million in excise taxes against Mr. Couturier.

RETIREMENT AND ESTATE PLANNING: Crime doesn't pay

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In Hubbard v. Commissioner, TC Memo 2024-16, the Tax Court determined that a pharmacist serving a 30-year prison term for distribution of controlled substances was taxable on a forfeiture of his IRA of more than $400,000 notwithstanding that the seizure was involuntary.

RETIREMENT AND ESTATE PLANNING: Gifts v. loans

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In Bolles v. Commissioner, 133 AFTR2d 2024-1235, the Ninth Circuit Court of Appeals agreed with the Tax Court that transfers of money from a mother to her son were loans for the first five years but were gifts for the next 18 years; though transactions within the family are presumed to be gifts, there was an expectation of repayment in the early years which diminished.

RETIREMENT AND ESTATE PLANNING: More gift questions

In Estate of Anenberg v. Commissioner, 162 TC No. 9, the Tax Court concluded that the termination of a QTIP trust by court order after mutual agreement with the widow who subsequently made a gift of the distributed stock to her stepchildren and sold the remaining shares to her stepchildren and step-grandchildren, while causing a reportable gift of a portion of the stock, was not a reportable gift as to the portion that was sold as there was no gratuitous transfer.

RETIREMENT AND ESTATE PLANNING: Key man insurance

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In Connolly v. United States,134 AFTR2d 2024 - ____, the U.S. Supreme Court agreed with the Eighth Circuit Court of Appeals that insurance proceeds paid to a corporation upon the death of a stockholder are includable in determining the value of the corporation as of the date of death when the statutory criteria are not met in full for using a preset value or formula contained in the stockholder agreement.

RETIREMENT AND ESTATE PLANNING: College in Maryland

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In Notice 2024-23, the IRS indicated that, in the interest of "sound tax administration," the one-rollover-in-12-months limitation will not apply to taxpayers impacted by failures in the Maryland Prepaid College Trust program who transfer funds to an alternative program.

RETIREMENT AND ESTATE PLANNING: Inherited IRA interests

In Notice 2024-35, the IRS indicated that final regulations on inherited retirement plan interests will be issued later in 2024 and will take effect in 2025; meanwhile, the agency will not require minimum distributions in such cases for 2024 (previously not required for 2021-23) of inherited accounts.

RETIREMENT AND ESTATE PLANNING: Early withdrawal

In Notice 2024-55, the IRS issued guidance in question-and-answer form on the exceptions to the 10% penalty for early withdrawal from qualified retirement plans (except defined benefit plans) and IRAs based on emergency needs up to $1,000 and to domestic abuse victims up to $10,000 indexed for inflation after 2024.

BUSINESS: Settlement payments

In ACQUIS Technology v. Commissioner, TC Memo 2024-21, the Tax Court agreed with the IRS that payments received by a hardware developing and licensing business for settlement of patent infringement were includable in gross income and that an allocation to a purported capital contribution with a reduced settlement amount was a sham despite increased equity reported on the balance sheet, the court finding no economic substance to the arrangement.

BUSINESS: Clear reflections

In Continuing Life Communities Thousands Oaks LLC v. Commissioner, 134 AFTR2d 2024-_____ , the Ninth Circuit Court of Appeals agreed with the Tax Court that deferred entrance fees into a care facility are only taxed to an accrual basis taxpayer when it has fulfilled its statutory and contractual obligations, with the court noting that, when a method of accounting clearly reflects income and complies with generally accepted accounting principles, the IRS cannot shift the taxpayer to an accounting method that "more clearly" reflects income.

BUSINESS: Not a sham

In Parkway Gravel Inc v. Commissioner, TC Memo 2024-59, the Tax Court concluded that the division of proceeds between two related companies was legitimate based on business endeavors and risk assumptions, where the IRS had argued that the split proceeds was a sham transaction.

BUSINESS: Making adjustments

In Pangelina v. Commissioner, TC Memo 2024-5, the Tax Court rejected a taxpayer's submission of random profit and loss statements and bank statements in an eight-year audit, sustaining virtually all of the adjustments made under audit in the case of a sole proprietor engaged in a tile-related business; in Thompson v. Commissioner, TC Memo 2024-14, the Tax Court determined that a couple who earned income from both farming and tax preparation had unreported income from both businesses and unprovable deductions for such items as insurance, chicken feed and contract labor.

BUSINESS: Whose percent is it?

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In Alvarado v. Commissioner, TC Memo 2024-1, the Tax Court found that a tax professional who also operated a used car business as a sole proprietor understated gross receipts but used the Cohan rule to determine cost of goods sold at 55% of sales while the tax returns claimed 82% and the IRS adjustment was based on 36%.

BUSINESS: Disallowed expenses

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In Midwest Medical Aesthetics Center v. Commissioner, TC Memo 2024-32, the Tax Court disallowed numerous expenses claimed by a corporation causing constructive dividends to the owner related to lack of substantiation; the court imposed the civil fraud penalty on the stockholder who had previously gone to jail for tax evasion.

BUSINESS: Loss denied

In Kolomiyets v. Commissioner, TC Summary Opinion 2024-8, the Tax Court denied a claimed loss in excess of $112,000 on a schedule C from a purported consulting business when the individual worked full time and earned in excess of $156,000 in wages, with the court finding him to lack most substantiation and an inability to tie other expenses to the deduction claimed on the return; in Wright v. Commissioner TC Summary Opinion 2024-9, the Tax Court disallowed a large number of expenses of a couple in a construction business who produced almost 2,000 pages of evidence with a spreadsheet as they contained fabricated data.

BUSINESS: Car expenses

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In Chappell v. Commissioner, TC Summary Opinion 2024-2, the Tax Court disallowed a claim for actual automobile expenses because of failure to meet the strict substantiation rules but allowed a deduction at the standard mileage rates based on mileage logs but only to the extent that the business purpose was self-evident; in Steward v. Commissioner, TC Summary Opinion 2024-3, the Tax Court allowed a musician whose contemporaneous automobile log was destroyed in a fire to deduct automobile expenses but not multiple trips to Japan, where he had never performed, as he could not prove a business purpose for the travel.

BUSINESS: Captives

In Keating v. Commissioner, TC Memo 2024-2, the Tax Court disallowed payments made to a captive insurance company, with the court concluding that it was operated as a tax-free savings account rather than as a bona fide insurance company, designed only superficially to resemble a policy with premium pricing, premium payments and claims approval; in Patel v. Commissioner, TC Memo 2024-34, the Tax Court once again denied a deduction for payments made to a captive company for insurance, finding that these companies were not organized, operated or regulated as insurance companies and that the premiums were unreasonable and designed to maximize tax benefits.

BUSINESS: Captives again

In Swift v. Commissioner, TC Memo 2024-13, the Tax Court found that a physician whose entities deducted more than $1 million in premiums and related fees over four years could not deduct payments to captive insurance companies because their premiums were found to be "nonsense … engineered to suit the tax needs of the moment, not to account for any risk;" the premiums were typically 50 times greater than similar commercial policies.

BUSINESS: Deducting legal fees

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In Anderson v. Commissioner, 134 AFTR2d 2024-1551, the Tenth Circuit Court of Appeals agreed with the Tax Court that a geneticist convicted of sexual offenses and sentenced to 14 years in prison could not deduct $360,000 in legal fees; he claimed that a former colleague framed him in order to steal the intellectual property without consideration.

BUSINESS: Inter-company transfers

In Estate of Fry v. Commissioner, TC Memo 2024-8, the Tax Court concluded that transfers between related companies were contributions for equity and not debt due largely to conditional repayment, allowing additional basis to be considered for purpose of using flowthrough losses; the IRS position in this case was opposite its usual stance.

BUSINESS: Option prices

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In Huffman v. Commissioner, TC Memo 2024-12, the Tax Court threw out an option price for stock established between parents and their son as lacking the criteria of being bona fide, not a device and comparable to similar arrangements, finding there was a gift causing in excess of $14 million in tax liability; the court also determined that an allocation of $21.8 million to personal goodwill on a subsequent sale was overstated (the government originally said no personal goodwill, and at trial conceded that there was $3.9 million as such), making adjustments to the taxpayer's computations resulting in more liability at the corporate level and a dividend to the owner.

BUSINESS: R&D credits

In Meyer, Borgman & Johnson, Inc. v. Commissioner, 134 AFTR2d 2024-________, the Eighth Circuit Court of Appeals agreed with the Tax Court that an engineering firm creating structural designs for building projects was not entitled to the research tax credit because it was funded and payment was not at risk based on the results of the research.

BUSINESS: The Moore decision

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In Moore v. United States, 133 AFTR2d 2024 -1805, the U.S. Supreme Court in a 7-2 decision affirmed a holding of the Ninth Circuit Court of Appeals finding the Mandatory Repatriation Tax on U.S. shareholders included in the Tax Cuts and Jobs Act of 2017 is constitutional and not in violation of the 16th Amendment as being a tax on unrealized investment gains.

BUSINESS: Selling trade receivables

In Piccirc LLC v. Commissioner, TC Memo 2024-50, the Tax Court denied an LLC's claimed loss of $22.7 million in connection with the sale of trade receivables, holding that this LLC was one of a number of companies formed for tax avoidance purposes in violation of the partnership anti-abuse rules, with the court additionally finding that there was insufficient evidence to determine sufficient basis.

BUSINESS: Assuming liabilities

In ACI Construction LLC v. United States, 133 AFTR2d 2024-________, a Utah Federal District Court determined that the taxpayer was a successor-in-interest under state law to an entity with a huge tax debt and therefore assumed the liabilities.

BUSINESS: TEFRA adjustments

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In Worthington Holdings LLC v. Commissioner, 162 TC No. 10, the Tax Court threw out a TEFRA adjustment against a partner for 2016 where the LLC had elected, as was the law for 2016 and 2017, to come under the new BBA partnership procedures, declining to invoke equitable estoppel against the taxpayer.

BUSINESS: Unreported income

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In Belcik v. Commissioner, TC Memo 2024-49, the Tax Court determined that a couple had about $7 million of unreported income over a 20-year period when they did not file returns; he had a foreign bank account which he used to pay business and personal expenses.

BUSINESS: Using the Tax Court

In XC Foundation v. Commissioner, 124 AFTR2d 2024 -1678, the Ninth Circuit Court of Appeals agreed with the Tax Court that a corporation not in good standing could not use the Tax Court to appeal its denial of tax-exempt status, extending a principle applied to profit-making entities in numerous instances.

BUSINESS: Here's the tea

In Iowaska Church of Healing v. Werfel, 133AFTR 2d 2024- __, the District of Columbia Circuit Court of Appeals agreed with a D.C. Federal District Court that the IRS properly denied exempt status to an Iowa church whose members used a tea with a psychedelic drug as part of its religious practices.

BUSINESS: Hobby losses

In Schwarz v. Commissioner, TC Memo 2024-55, the Tax Court, in a 117-page opinion, determined that a dentist and his wife, owners of over 15,000 acres of land in South Texas, with gross income from farming including hunting/fishing on their lands averaging almost $1 million per year but with huge losses, was not engaged in a "for-profit" activity but rather sought to offset an average of $2 million in earned income.

BUSINESS: Paying payroll taxes

In Taylor v. Commissioner, TC Memo 2024-33, the Tax Court found that the sole owner and CEO of a management consulting company was a responsible person liable for paying over payroll taxes, rejecting his argument that he did not comprehend mathematical concepts and had delegated authority to his accountant who embezzled company funds, and noting that the reimbursed funds from the accountant were used for purposes other than paying back taxes; in Powell v. Internal Revenue Service, 133 AFTR2d 2024-1212, a Pennsylvania Federal District Court determined that the general manager of an auto body shop was not personally liable as he was not an owner, director or officer and his signature authority was used only per direction of the owner and, in any event, he was unaware of the tax liability.

BUSINESS: Related-party transactions

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In Revenue Ruling 2024-14, the IRS indicated that it will apply the "economic substance doctrine" to disallow tax benefits in transactions involving related-party partnerships to which the parties generate a disparity between inside basis and outside basis causing increased depreciation deductions and/or reduced gain upon sale of the property.

BUSINESS: No cost of goods sold

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In Information Release 2024-177, the IRS reminded marijuana businesses that deductions other than cost of goods sold remain disallowed until final regulations declassifying marijuana as a controlled substance.

BUSINESS: The ERC

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In Generic Legal Advice Memorandum 2024-1, the IRS stated that third-party payers who provide and pay employees for other businesses are liable with their client for false claims of the Employee Retention Credit.

BUSINESS: The ERC again

In a press call, IRS Commissioner Danny Werfel stated that during the suspension of processing new claims for the Employee Retention Credit, the IRS has disallowed one-third of processed claims and has a backlog of 1.4 million claims and it suspects that 70% have questions as to accuracy.

PROCEDURE: Anti-money-laundering rules

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FinCEN proposed regulations would require special record retention and submission of information on most non-financed transfers of residential real property other than to individuals for the purpose of assisting in identifying money laundering.

PROCEDURE: Bye-bye, Chevron

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In Loper Bright Enterprises v. Raimondo, 133 AFTR2d 2024 - ____, and In Relentless v. Department of Commerce, 133AFTR2d 2024 -_____ ,the U.S. Supreme Court by a 6-3 margin overrode a 40-year decision allowing a regulation to stand if it offered any reasonable interpretation of an unclear statute, paving the way for courts to give less deference to the IRS.

PROCEDURE: Pay the IRS first

In United States v. Olson, 133 AFTR2d 2024-1342, the Seventh Circuit Court of Appeals reversed an Indiana Federal District Court and held that a plumbing company that failed to pay over payroll taxes as well as income taxes could be enjoined and ordered to pay the IRS ahead of creditors.

PROCEDURE: No excuses for late filing

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In RSBCO v. the United States, 133AFTR2d 2024 - ___, the Fifth Circuit Court of Appeals threw out a pro-taxpayer jury decision of a Louisiana Federal District Court which had found that the incapacity of a single manager was a sufficient basis for late filing.

PROCEDURE: Excuses for understatement

In Maderia v. Commissioner, TC Summary Opinion 2024-5, the Tax Court held that a taxpayer had reasonable cause for an understatement of income tax when an identical issue regarding constructive dividends was not subject to penalty based on the results of prior-year examinations.

PROCEDURE: Taxing the Swiss

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In Lamprecht v. Commissioner, 133 AFTR2d 2024-________, the DC Circuit Court of Appeals agreed with the Tax Court that Swiss citizens who were U.S. residents were liable for an accuracy penalty regarding funds kept in a UBS account in Switzerland despite correcting their tax returns as soon as UBS began cooperating with the IRS.

PROCEDURE: Blaming the preparer

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In Hall v. Commissioner, in a bench opinion the Tax Court concurred in imposing the accuracy penalty where the taxpayers blamed the errors on their preparer; the couple failed to demonstrate the requirement of showing that the preparer was competent in that he did not sign the return, claimed expenses for a business that no longer operated and reported other expenses on the incorrect schedule.

PROCEDURE: Fraud and trusts

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In Standifird v. Commissioner, TC Memo 2024-30, the Tax Court agreed with the IRS that a civil fraud penalty was appropriate where an individual set up a partnership owned by two trusts that distributed funds for his personal use.

PROCEDURE: Fraud and ESOPs

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In Smiley v. Commissioner, TC Memo 2024-66, an attorney who focused his practice on ESOPs and who personally acquired stock in businesses with overfunded qualified pension plans was found liable for civil fraud for failing to report income from transferring these funds to personal accounts.

PROCEDURE: Statute of limitations

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In Murrin v. Commissioner, TC Memo 2024-10, the Tax Court declined to overrule a decision two decades earlier and held that a literal reading of the law keeps the civil statute of limitations open indefinitely upon fraud by the preparer even if unknown to the taxpayer; a divided federal circuit court of appeals decision is to the contrary.

PROCEDURE: Time doesn't matter

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In Estate of Glassman v. Commissioner, TC Memo 2024-51, the Tax Court held that the length of time that a supervisor spent on penalty review is irrelevant in determining whether written supervisory approval of a penalty was obtained.

PROCEDURE: FBARs

Panama City

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In United States v. Kelly, 133 AFTR2d 2024-710, the Sixth Circuit Court of Appeals agreed with a Michigan Federal District Court that an anesthesiologist's failure to file the FBAR report was willful in that he sought no professional advice prior to closing all of his domestic bank accounts and opening one in Switzerland; in United States v. Fesko, 133 AFTR2d 2024-________, a Nevada Federal District Court determined that the estate of a Nevada businessman was liable for willful FBAR penalties where the decedent controlled accounts in Panama, Belize and the Bahamas.

PROCEDURE: More FBARs

In United States v. Harrington, 133 AFTR2d 2024-831, a Colorado Federal District Court found that a decedent had willfully failed to file FBARs for four years, holding that reckless failure to file and not just knowing failure to file constitutes willfulness; in United States v. Reyes, 133 AFTR2d 2024-468, a New York Federal District Court found that a couple willfully failed to disclose their Swiss bank account, concluding their statement on Schedule B that they had no interest in a foreign bank account showed that they "recklessly" disregarded the FBAR reporting obligation even though they stated that they did not review the tax returns.

PROCEDURE: Willful or not?

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In United States v. Vettel, 133 AFTR2d 2024-________, a Nebraska Federal District Court determined that an international salesman "credibly testified" that he did not believe earnings from overseas placed in a Swiss bank account were subject to U.S. taxes, with the court finding, however, that his conduct was that of "willful blindness" and imposing the penalty for willful failure to file an FBAR.

In United States v. Gaynor, 133 AFTR2d 2024-716, a Florida Federal District Court jury concluded that a deceased heiress to the Texaco fortune did not willfully evade FBAR reporting for three years w here she answered to the negative on Schedule B regarding foreign accounts despite $31 million in a Swiss account and attempted to file back returns and FBARs through a "silent disclosure."

PROCEDURE: FBARs once again

In United States v. Wolin, 133 AFTR2d 2024-802, a New York Federal District Court determined that it had jurisdiction to enforce collection of the FBAR penalty against a U.S. citizen living in Israel involving distribution of assets to her and a sister without payment of the FBAR assessed against her late father.

PROCEDURE: Suing timely

In United States v. Page, 133AFTR2d 2024 -____, the Ninth Circuit Court of Appeals reversed an Arizona Federal District Court and concluded that the IRS sued timely to recover almost $500,000 erroneously paid when the suit was filed within two years of negotiating the check (rather than measure from the date that the check was received or was dated).

PROCEDURE: Setting your own deadlines?

In Kehmeir v. United States, 133 AFTR2d 2024-1263, the Court of Federal Claims denied a refund claim of a taxpayer for not following administrative procedures when he sent a "notice and demand letter" to the IRS with a deadline for the return of tax withholdings.

PROCEDURE: Sent to the wrong address

In Phillips v. Commissioner, TC Memo 2024-44, the Tax Court threw out a notice of deficiency when sent to an improper address, the IRS apparently confusing the taxpayer (who was serving a seven-year prison sentence) with his adult son of the same name.

PROCEDURE: Audit targets

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In Barnes v. United States, 133 AFTR2d 2024-1163, the Court of Federal Claims indicated that it had no authority to order the IRS to audit tax returns of the litigant's wife.

PROCEDURE: Mandatory extensions

In Abdo v. Commissioner, 162 TC No. 7, the Tax Court determined that a statute provides for a mandatory 60-day extension of certain tax-related deadlines including filing a Tax Court petition such that the retroactivity of the COVID disaster to Jan. 20, 2020, made the petition timely notwithstanding a subsequent IRS regulation that set forth specific conflicting dates.

PROCEDURE: The wrong date

In Dodson v. Commissioner, 162 TC No. 1, the Tax Court determined that it had jurisdiction to hear a case where the petition was filed five months after the date of the notice of deficiency where the IRS showed an incorrect date 14 months out as the last date for filing a petition; the service sent a corrected notice one day after the first one but the law requires taxpayer consent to the recission.

PROCEDURE: Not all FedEx services are the same

In Lynch v. Commissioner, No. 1398-24, the Tax Court threw out a petition which was sent on the last day but received thereafter where the taxpayer used FedEx "Express Saver," which is not one of the eight services from FedEx allowed in lieu of using the U.S. Postal Service.

PROCEDURE: Tolling questions

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In Commissioner v. Culp, the U.S. Supreme Court declined to hear an appeal from a Third Circuit Court of Appeals decision at 132 AFTR2d 2023-5198 allowing taxpayers to argue equitable tolling (exceptions to the 90-day rule) in deficiency cases before the Tax Court; in Frutiger v. Commissioner, 162 TC No. 5, the Tax Court again concluded that the 90-day deadline set by statute is inviolate.

PROCEDURE: Late filings

In Belagio Fine Jewelry v. Commissioner, 166 TC No. 11, the Tax Court concluded that it had jurisdiction in payroll tax matters to consider if the late filing of a Tax Court petition was due to good cause; the decision does not extend to income tax matters, which come before the Court under a different section of the code.

PROCEDURE: Not a forgery

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In Diaz v. Commissioner, TC Memo 2024-45, the Tax Court threw out an argument by taxpayers that their signatures on a closing agreement were forged; no expert witness testimony was presented and the court noted similarities between the signature of the husband on the closing agreement vis-à-vis other documents.

PROCEDURE: Tax liens

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In United States v. Wardle, 133 AFTR2d 2024-1317, a Montana Federal District Court held that the IRS could enforce a tax lien where the taxpayer conceded liability though the exact amount was in dispute (the parties were $600,000 off).

PROCEDURE: More tax liens

A recent court ruling in Illinois advances a conspiracy case against prominent Wall Street banks.

In Leeds v. United States, 134 AFTR2d 2024 - ___, an Idaho Federal District Court determined that the IRS could lien the principal residence of an 88-year-old to collect tax penalties arising from foreign interests held by her deceased husband, declining to interfere by injunction or declaratory judgement as assessed taxes can be challenged only after payment.

PROCEDURE: Questions of ownership

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In United States v. Le Beau, 133 AFTR2d 2024-644, a California Federal District Court determined that an IRS tax lien on the former husband attached to 50% of the value of the principal residence of a legally separated couple who continued to live together and kept switching legal title between joint and separate, concluding that the former husband maintained 50% equitable ownership.

In United States v. Hovnanian, 133 AFTR2d 2024-673, the Third Circuit Court of Appeals agreed with a New Jersey Federal District Court that an individual was equitable owner of a part interest in property where a trust was shown as the legal owner, the decision allowing sale of the property to apply the applicable portion of the proceeds against the outstanding liabilities; in Society of Apostolic Church Ministries v. United States, an Arizona Federal District Court permitted a levy on a bank account owned by a purported religious organization to satisfy the tax liability of an individual where the entity was found to be a nominee of the individual who had transferred the property among a number of entities and enjoyed the benefits of the funds.

PROCEDURE: Hiding assets

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In United States v. Ohendalski, 134 AFTR2d 2024-1514, a Texas Federal District Court concluded that a couple had created a network of entities to hold personal assets which could be seized to satisfy tax liabilities.

PROCEDURE: Late appeals

In Shaw v. Commissioner, TC Memo 2024-48, the Tax Court rejected a collection due process appeal filed well after the 30-day deadline when no explanation for the late filing was provided and, in any event, the individual had failed to file the last seven years of tax returns.

PROCEDURE: Not face to face

Congress Focuses On IRS Delay In Disclosing Groups' Scrutiny

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In White v. Commissioner, TC Memo 2024-53, the Tax Court agreed with the IRS that the Internal Revenue Code does not require a face-to-face CDP hearing.

PROCEDURE: More on CDP

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In Zuch v. Commissioner, 133 AFTR2d 2024-________, the Third Circuit Court of Appeals reversed the Tax Court and held that a taxpayer's CDP appeal should not have been dismissed despite a zero balance to the IRS when the taxpayer was disputing application of payments (unlike a determination of initial liability under the law where a case is dismissed if there is no deficiency).

PROCEDURE: Collection alternatives

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In White v. Commissioner, TC Memo 2024-31, the Tax Court once again indicated that IRS Appeals did not abuse its discretion in denying a collection alternative where a taxpayer had not filed back returns or paid current estimated taxes; in Hartmann v. Commissioner, TC Memo 2024-46, the Tax Court sustained planned collection action by the IRS against an attorney who had not filed all back returns and was not current on estimated tax payments, with the court finding that he was given multiple filing "extensions."

PROCEDURE: Noncollectible status

In Wycoff v. Commissioner, TC Memo 2024-37, the Tax Court concluded that Appeals did not abuse its discretion in denying noncollectible status to the widow of an entrepreneur who owed over $13 million but had assets, and denying also an offer in compromise and an installment agreement due to insufficient documentation and lack of such a specific request respectively.

PROCEDURE: 'A serial filer'

In Holley v. Commissioner, TC Memo 2024-54, the Tax Court found that the IRS did not abuse its discretion when it rejected collection alternatives in a CDP for an anesthesiologist who filed four times for bankruptcy but had at least $2.2 million in assets; the revenue officer described her as a "serial filer."

PROCEDURE: Innocent spouse relief

In Strom v. Commissioner, TC Memo 2024-58, the Tax Court denied innocent spouse relief to a physician with an MBA degree on the failure to report approximately $105 million in income (from his wife's exercise of nonqualified stock options) where the couple schemed to place the income into the following year, by which time the stock value had declined significantly; he had been involved in numerous planning meetings and failed to disclose his MBA or that he had any business knowledge on his innocent spouse application.

PROCEDURE: Not-so-innocent spouses

In Rawat v. Commissioner, TC Memo 2024-56, the IRS denied innocent spouse status to a "well-educated" nurse who had been convicted on two counts of being an accessory after the fact to her husband's felony convictions, the court finding that she lacked candor and the couple failed to report substantial relief from indebtedness income and retirement income as well as understanding business profit; in Cotroneo v. Commissioner, TC Memo 2024-70, the Tax Court denied innocent spouse status to the wife of an insurance broker who plead guilty to bribery and tax evasion and did not report all distributions from an IRA to pay restitution, the court believing that she had reason to know of the understatement of tax based on family living expenses.

PROCEDURE: Watch what you write in your blog

In Thomas v. Commissioner, 162 TC No. 2, the Tax Court, allowing postings in a blog to be used as evidence against a taxpayer, denied equitable innocent spouse relief to a widow who posted about her travels to Europe and her Dior bag.

PROCEDURE: Offers in compromise

In Cloar v. Commissioner, TC Memo 2024-17, the Tax Court found that the IRS was within its discretion in rejecting an offer in compromise of $25 against liability of $107,410 where the taxpayer had no real assets but, if he obtained employment similar to prior, he would have a positive monthly cash flow.

PROCEDURE: Tenant owners

In Morgan v. Bruton, 133 AFTR2d 2024-________, the Fourth Circuit Court of Appeals agreed with a North Carolina Federal District Court that a home owned by tenants by the entirety is not protected from the IRS in an individual bankruptcy as a state law protecting jointly owned homes from individual creditors does not apply to federal tax debts per the 2002 decision of the U.S. Supreme Court in Craft.

PROCEDURE: Recovering payments

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In United States v. Miller, the U.S. Supreme Court agreed to an appeal by the government challenging a decision of the Tenth Circuit Court of Appeals at 131 AFTR2d 2023-2196 which ruled that a trustee in bankruptcy can recover a payment to the Internal Revenue Service if it is part of a "fraudulent transfer;" the IRS agreement was based on the concept of sovereign immunity such that the government is not subject to "claw back."

PROCEDURE: Estimated payments

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In Internal Revenue Service v. Fernandez, 133 AFTR2d 2024-________, a Florida Federal District Court agreed with the Bankruptcy Court that $330,000 in federal taxes was dischargeable by a radiologist despite heavy spending in travel and meals; he went through two divorces and didn't grasp the need for estimated payments when he became an independent contractor for the first time.

PROCEDURE: Bankruptcy not a protection?

In Re: Tampa Hyde Park Café Properties LLC, 134AFTR2d 2024 -____, a Florida Bankruptcy Court concluded that the filing of bankruptcy by a business does not preclude the IRS from bringing an action outside of bankruptcy against another entity on an "alter ego" theory.

PROCEDURE: Scams

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In Information Release 2024–164, the IRS warned about the rising threat of impersonation scams usually directed at older people, reminding the public that the agency will never demand immediate payment by debit cards, gift cards or wire transfers, and will never request credit card and like numbers over the phone.

PROCEDURE: Draft 1099-DA

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Form 1099-DA was released in draft form for usage by crypto brokerages to report information on transactions.

PROCEDURE: Don't rely on AI chatbots

A red stoplight stands in front of the Internal Revenue Service (IRS) headquarters in Washington, D.C., U.S., on Wednesday, May 15, 2013. The widening inquiries into the IRS are focusing less on why employees singled out small-government groups for scrutiny and more on agency executives who didn't inform Congress earlier. Photographer: Andrew Harrer/Bloomberg

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In Tax Tips from the Taxpayer Advocate, the IRS warned that an artificial intelligence chat bot may not provide accurate or complete answers to tax questions and, as a result, taxpayers should not solely rely on AI-generated tax advice.

Roger Russell

Senior Editor, Accounting Today

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