tag:blogger.com,1999:blog-304722168185282572Thu, 16 Feb 2012 07:21:06 +0000'innocent spouse''settlement proceeds'hobby loss'innocent spouse' 'divorce decree'US Tax Court cases in a nutshell. There are so many ambiguous areas of the tax code in which the IRS falls back on the old stand by "we'll consider all the facts and circumstances to determine if your position on a tax return should be supported." Tax court cases show us the IRS in action doing just that! (Please note that blogs may include sections copied directly from court case decisions found at ustaxcourt.gov)http://taxcourtcases.blogspot.com/noreply@blogger.com (First State CPAs LLC)Blogger4112539.16426-75.511633tag:blogger.com,1999:blog-304722168185282572.post-4734635110709842524Tue, 14 Feb 2012 13:51:00 +00002012-02-14T05:51:48.054-08:00A taxpayer successfully made a case that the IRS collections agent had abused her discretion in not adequately factoring into her assessment of his offer in compromise request that the taxpayer: was diagnosed with a brain tumor; his doctors had urged that the tumor be surgically removed and he had no health insurance; he had no significant assets and had been denied charity care, and that he http://taxcourtcases.blogspot.com/2012/02/have-heart-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-1961560426591965913Fri, 10 Feb 2012 13:59:00 +00002012-02-10T05:59:00.072-08:00http://www.ustaxcourt.gov/InOpHistoric/TaoXu.SUM.WPD.pdf Taxpayer was denied an AGI adjustment for a $5000 contribution to his IRA. he was phased out for a deductible IRA contribution due to their AGI and the fact that he participated in a work sponsored retirement plan. Taxpayer thought an IRA in his name naming his spouse as the beneficiary was the same thing as a spousal IRA – an IRA in the http://taxcourtcases.blogspot.com/2012/02/the-i-in-ira-stands-for-individual-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-5252573130203993661Thu, 09 Feb 2012 13:57:00 +00002012-02-09T05:57:00.558-08:00http://www.ustaxcourt.gov/InOpHistoric/PhilemondMemo.TCM.WPD.pdf Taxpayer was denied the dependency exemption, head of household status, EIC, and CTC for her son. The boys father had also (appropriately) claimed him as a dependent in this year. A new custody agreement gave the father primary custody, she acknowledged he lived with his father all year, and the support agreement required her to http://taxcourtcases.blogspot.com/2012/02/oops-my-bad-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-2903537743902877683Wed, 08 Feb 2012 13:54:00 +00002012-02-08T05:54:00.201-08:00http://www.ustaxcourt.gov/InOpHistoric/fosterDiv.TC.WPD.pdf Taxpayers were denied a first time homebuyer credit because they had an ownership interest in a principal residence within 3 years of the date they acquired the new house. (This preceded the long term homeowner credit.) They sold their former residence on 6/6/07 and purchased their new residence on 7/28/09/ They listed the former http://taxcourtcases.blogspot.com/2012/02/mi-casa-no-es-su-casa-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-3598095182369053817Tue, 07 Feb 2012 13:52:00 +00002012-02-07T05:52:00.215-08:00http://www.ustaxcourt.gov/InOpHistoric/ColvinMemo.TCM.WPD.pdf Taxpayer unsuccessfully fought the disallowance of considerable per diem payments/expenditures. Taxpayers operated a trucking co and paid drivers per diem for meals, motels, and other expenses. Sioux calculated per diem amounts on the basis of the number of travel days. Those amounts were recorded in payroll books that indicated http://taxcourtcases.blogspot.com/2012/02/less-indignation-and-more.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-7799168196491027511Mon, 06 Feb 2012 12:52:00 +00002012-02-06T04:54:09.344-08:00http://www.ustaxcourt.gov/InOpHistoric/HUDGINSSumm.SUM.WPD.pdf Taxpayer was found ineligible for: dependency exemptions, head of household status, earned income credit, AND additional child tax credit. Children claimed were the grandchild and nephew of TP’s wife. On the bright side, he did prevail in reducing the assessment for unreported unemployment benefits by showing he did not actually http://taxcourtcases.blogspot.com/2012/02/wrong-on-so-many-levels-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-1475608207936711682Thu, 02 Feb 2012 13:30:00 +00002012-02-02T05:30:01.569-08:00http://www.ustaxcourt.gov/InOpHistoric/BrooksMemo.TCM.WPD.pdf 1/26/2012 Taxpayer received a $500k sum of money from his employer, in 1998. The employer deemed this a loan which would be forgiven if taxpayer stayed employed with the company for five years. Taxpayer included the forgiven loan and accrued interest on his tax return in the year forgiven (since it was in his W2) however sought to http://taxcourtcases.blogspot.com/2012/02/interest-ed-broker-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-3807958649663302453Tue, 31 Jan 2012 13:45:00 +00002012-01-31T05:45:00.907-08:00http://www.ustaxcourt.gov/InOpHistoric/MylesLorentzInc.TC.WPD.pdf 1/25/12 The code allows for a credit of highway taxes on fuel purchased for off road business use. Taxpayer used highway-legal vehicles that had been modified to become more heavy duty to haul belly-dump trailers for off-road work in the course of their business. The vehicles would travel from job to job around the country on http://taxcourtcases.blogspot.com/2012/01/onand-off-road-again-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-2655907137929295624Fri, 27 Jan 2012 13:50:00 +00002012-01-27T05:50:00.211-08:00http://www.ustaxcourt.gov/InOpHistoric/OwenMemo.TCM.WPD.pdf 1/19/12 A complicated case with very little that would be relevant to our clients. I did like that the court noted that taxpayer should not blame the preparer when ‘a cursory review of the return should have revealed errors. Even if all data is furnished to the preparer, the taxpayer still has a duty to read the return.’ TP’s regularlyhttp://taxcourtcases.blogspot.com/2012/01/i-wouldnt-know-what-i-was-looking-at.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-2882735869036699699Thu, 26 Jan 2012 13:31:00 +00002012-01-26T05:31:00.528-08:00http://www.ustaxcourt.gov/InOpHistoric/PerrinMemo.TCM.WPD.pdf 1/18/12 The IRS was able to assess a company’s in-house accountant who was NOT an owner for the unpaid payroll taxes of the company because he; (1) had signature authority on the bank account, (2) signed payroll checks, (3) signed the employment tax returns, and (4) signed checks in payment to other creditors while the employment http://taxcourtcases.blogspot.com/2012/01/guilt-by-association-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-2168675357740281950Wed, 25 Jan 2012 13:56:00 +00002012-01-25T05:56:00.449-08:00http://www.ustaxcourt.gov/InOpHistoric/Samarasinghe.TCM.WPD.pdf 1/18/12 Taxpayer’s income from a commercial rental was recharacterized as active and was not available to be offset by passive losses. This recharacterization was upheld under the self-rent exception to the rule that rental activities are by definition passive activities. (Taxpayer rented the property to his wholly owned corp.) http://taxcourtcases.blogspot.com/2012/01/renter-of-my-rental-is-me-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-3393356958831924547Tue, 24 Jan 2012 13:03:00 +00002012-01-24T07:28:23.267-08:00http://ustaxcourt.gov/InOpHistoric/BronsonMemo.TCM.WPD.pdf 1/17/12 Anyone running a business that is something others may list as a hobby can learn a lot from this case! An endeavor (breeding Welch ponies and cobs) that taxpayer’s treated as a business was found to be a ‘an activity not engaged in for profit’ (a.k.a a hobby) and therefore 5 years of losses were disallowed. The court ruled that http://taxcourtcases.blogspot.com/2012/01/just-horsing-around-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-6459788088308899680Mon, 23 Jan 2012 12:23:00 +00002012-01-23T04:24:23.763-08:00http://www.ustaxcourt.gov/InOpHistoric/IversenOpinion.TCM.WPD.pdf 1/18/12 Taxpayers were denied six-figure losses from a ranch they owned because they were not active participants in the business venture. They had spent some minimal time on phone calls and had visited the ranch a number of times throughout the year. These visits were deemed to be recreational in nature.(I.e bringing the http://taxcourtcases.blogspot.com/2012/01/who-killed-your-chances-to-deduct-these.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-4189403367596847040Sun, 22 Jan 2012 13:00:00 +00002012-01-31T17:37:33.691-08:00http://www.ustaxcourt.gov/InOpHistoric/vandegriftopn.TCM.WPD.pdf   Taxpayer was an established landlord who owned 6 actively rented properties. In one year he acquired 3 additional properties to rent but wound up selling them before the year was out without ever renting them. He wound up at odds with the IRS because he claimed to be real estate professional eligible to deduct passive losses http://taxcourtcases.blogspot.com/2012/01/split-difference-case_22.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-6924152041129112888Sat, 21 Jan 2012 13:00:00 +00002012-01-21T05:00:10.008-08:00http://ustaxcourt.gov/InOpHistoric/PatelMemo.TCM.WPD.pdf In this case the taxpayer tried to deduct as a business loss the income he expected to receive but did not receive. His description on the return was: “Cost; Refunded + no income. Bankrupt.” Even though this description made me chuckle, I have to admit that it is not uncommon for people to believe fervently that forfeited or lost income ishttp://taxcourtcases.blogspot.com/2012/01/double-negative-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-4610289032193391738Fri, 20 Jan 2012 13:00:00 +00002012-01-20T05:00:00.719-08:00http://ustaxcourt.gov/InOpHistoric/GallantSummary.SUM.WPD.pdf Taxpayers were both active participants in their employers’ retirement plans yet spouse also made a $5000 IRA contributions and deducted it on the tax return. In fairness, spouse had only contributed approx $200 to employer’s plan. Taxpayer’s income precluded the deductibility of the IRA contribution under the circumstances. Taxpayerhttp://taxcourtcases.blogspot.com/2012/01/any-means-any-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-6019678822163622859Thu, 19 Jan 2012 13:00:00 +00002012-01-19T05:00:00.336-08:00http://ustaxcourt.gov/InOpHistoric/FEDERMemo.TCM.WPD.pdf The TP definitely gets my sympathy in this case. She attempted to cancel a whole life policy by sending a letter but instead of cancelling, the insurer started loaning the TP the money to pay the premiums because the policy had cash value. After 20 years of this, the insurer seized the cash value to pay off the premium loan. Part of the http://taxcourtcases.blogspot.com/2012/01/getting-of-stick-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-8147603758348370762Wed, 18 Jan 2012 13:00:00 +00002012-01-18T05:00:07.262-08:00http://ustaxcourt.gov/InOpHistoric/DavilaSummary.SUM.WPD.pdf The taxpayer claimed his cousin’s two minor children as dependents for head of household status, exemptions, child tax credit, and earned income credit even though they did not reside with him for the ENTIRE year. Take aways: • Unless the children bear one of the relationships to the taxpayer specified by code they must live with thehttp://taxcourtcases.blogspot.com/2012/01/relationships-count-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-7291242763489901883Tue, 17 Jan 2012 13:00:00 +00002012-01-17T05:00:01.288-08:00http://ustaxcourt.gov/InOpHistoric/WalkerMemo.TCM.WPD.pdf The taxpayer followed the advice of an attorney and organized his dental practice as an LLC with himself, the only generator or revenue, as a 1% owner and another LLC as 99% owner. The 2nd LLC was owned by the taxpayer’s children. In this manner the taxpayer sought to take advantage of the children’s lower tax rates and avoid http://taxcourtcases.blogspot.com/2012/01/what-is-mine-is-yours-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-6355644388358897436Mon, 16 Jan 2012 13:00:00 +00002012-01-16T05:00:08.066-08:00http://ustaxcourt.gov/InOpHistoric/BrownSum.SUM.WPD.pdf This court stems from a state issue that is becoming more and more common. Normally unearned income is only taxed in the state of your primary domicile. A number of taxpayers from New York who also have homes in other states (with lower tax rates) attempt to attribute this income to the state where their second home is located. The extent http://taxcourtcases.blogspot.com/2012/01/its-all-residential-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-5689162906942432090Sun, 15 Jan 2012 15:42:00 +00002012-01-15T07:42:00.849-08:00http://www.ustaxcourt.gov/InOpHistoric/BLACKBURN.SUM.WPD.pdf Barely into 2012 and we already see vehicle deductions being disallowed. This is a no brainer folks – keep a log or don’t bother fighting the deficiency notice! TP who clearly drove his automobile a substantial number of miles as part of his employment (as a traveling sales person) was denied $19k of unreimbursed employee expenses http://taxcourtcases.blogspot.com/2012/01/woulda-shoulda-coulda-1-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-1199908737215763363Sat, 14 Jan 2012 15:40:00 +00002012-01-14T07:40:01.152-08:00http://www.ustaxcourt.gov/InOpHistoric/HamGeorge.SUM.WPD.pdf Taxpayer unsuccessfully fought the full inclusion of dividends in his taxable income under his self-developed “return of capital” theory. (A theory that the court deemed “without statutory basis” by the way.) TP claimed that a portion of the purchase price represented “accrued dividends” that had accumulated since the last record date.http://taxcourtcases.blogspot.com/2012/01/im-in-love-with-sound-of-my-own-theory.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-2552903116821496527Fri, 13 Jan 2012 15:37:00 +00002012-01-13T07:37:00.842-08:00http://www.ustaxcourt.gov/InOpHistoric/Oros.TCM.WPD.pdf The taxpayer was denied a deduction for the $19k of travel and meals expenses he claimed on a schedule C for the trade of being an author. TP had no experience working as an author, had not yet published a book, had a full-time W-2 position in a completely different field, and had no income from the trade in that year. The expenses were http://taxcourtcases.blogspot.com/2012/01/close-but-no-cigar-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-6309970825187314078Thu, 12 Jan 2012 15:31:00 +00002012-01-12T07:31:01.053-08:00TP conveyed an easement to 501(c)3 conservation fund. Generally the difference between the value of the property with the easement vs. without the easement constitutes a charitable deduction for the conveyor. TP is permanently sacrificing that value even though they still own the property. (Note that this is an exception to the general rule that only the contribution of an enitre interest will http://taxcourtcases.blogspot.com/2012/01/im-from-govt-and-im-here-to-help-case.htmlnoreply@blogger.com (First State CPAs LLC)0tag:blogger.com,1999:blog-304722168185282572.post-1952566934626437519Wed, 11 Jan 2012 15:29:00 +00002012-01-11T07:29:00.172-08:00http://www.ustaxcourt.gov/InOpHistoric/GAITAN.TCM.WPD.pdf Taxpayers were assessed a deficiency on the total disallowance of all $134k of cost of good sold expenses claimed against $161k of income because they did not keep adequate records. Taxpayers’ business was to buy clothing in the US and export it to Columbia. Take Aways: • The IRS filed the notice of deficiency about 2 years after the http://taxcourtcases.blogspot.com/2012/01/columbian-laundry-ing-case.htmlnoreply@blogger.com (First State CPAs LLC)0