Paul L. Caron
Dean




Tuesday, July 5, 2022

Lesson From The Tax Court: No §163 Deduction From Foreclosure Proceeds

Camp (2021)It’s not just Death and Taxes that are certainties in life.  Having lived through the economic downturns in 1973, 1981, 2001, and 2008, I now believe we can add Recessions to the list.  And another one seems to be coming.  So this may be a good time to pay attention to Ronald W. Howland, Jr. and Marilee R. Howland v. Commissioner, T.C. Memo. 2022-60 (June 13, 2022) (Judge Weiler), where we learn some of the obstacles taxpayers face in taking a §163 interest deduction when foreclosure proceeds only partially pay off a loan balance that includes principal and accrued interest.

In Howland, the Court did not permit any §163 deduction.  This week and next I'm going to try something new and compare the Tax Court case with a recent Circuit Court case.  I think the comparison is instructive.  This week, we compare Howland to the recent 9th Circuit opinion in Milkovich v. U.S. 24 F.4th 1 (9th Cir. 2022), where the 9th Circuit did permit a §163 deduction from foreclosure proceeds.  Both Howland and Milkovich arose from the Great Recession.  Looking at the similarities and difference of the two cases gives us the lesson, which is in part a cautionary tale on how at least some of the obstacles to deduction may be self-created.

Details below the fold

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July 5, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (2)

Monday, June 27, 2022

Lesson From The Tax Court: A Reasonable Basis For Deducting Scrubs?

6a00d8341c4eab53ef02a2eec9be35200d-800wiMy students—especially those with accounting backgrounds—come to class expecting that tax law is all about bright line rules and lots of calculations.  They are either disappointed, frustrated, or relieved to find that tax law is like other law: it’s words, words that are generally complex, often opaque, and frequently mysterious.  That’s why taxpayers need competent tax practitioners to advise them!

Some tax practitioners are more aggressive and some are more cautious.  Today’s lesson is for the more aggressive ones.  In Raul Romana and Maria Corazon Romana v. Commissioner, T.C. Sum. Op. 2022-9 (June 16, 2022), Judge Carluzzo generously allowed a taxpayer to deduct the cost of a her “scrublike clothing.”

Those of us who are more cautious will disregard this decision.  It’s an outlier and, no, I certainly would not advise my client to start deducting the cost of this type of clothing!  At the same time, however, the opinion may well provide aggressive taxpayers and their advisors protections from penalties if and when they try this trick at home.  The substantive tax lesson is short and sweet.  The penalty lesson is more complex, opaque, and mysterious.

Details below the fold.

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June 27, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Tuesday, June 21, 2022

Lesson From The Tax Court: How To Tell When Land Is Held As A Capital Asset

Camp (2021)When a taxpayer buys land and later sells it, the character of the resulting gain or loss will depend on whether taxpayer held the land as an investment or instead held it like inventory, to be sold to customers as part of a trade or business.  It is not always easy to tell how the land is being held and courts look at a variety of factors.

The lesson I take from William E. Musselwhite Jr. and Melissa Musselwhite v. Commissioner, T.C. Memo. 2022-57 (June 8, 2022) (Judge Ashford), is that how the taxpayer self-reports the activity in years prior to the year of disposition is one important factor in determining when land is held as investment.  There, Mr. Musselwhite acquired four lots in what was to become a residential development.  No development happened.  For years he consistently reported holding the lots for investment.  But when he eventually sold them for a big loss he and his wife reported the loss as ordinary, claiming on that return that he held the land for development.  In an informative opinion, Judge Ashford held Mr. Musselwhite to his prior reporting position.  Details below the fold.

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June 21, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (2)

Monday, June 13, 2022

Lesson From The Tax Court: Ask The Right Court

Camp (2021)It’s sweet to beat the tax man.  It’s even sweeter when you can make the government pay your litigation costs and attorneys fees under §7430.  But the bitter lesson for today is that you must be careful to ask the right court.  Law is hierarchical.  You can appeal a lower court’s adverse decision to a higher court.  But you cannot appeal a higher court’s adverse decision to a lower court!

In Celia Mazzei v. Commissioner, T.C. Memo. 2022-43 (May 2, 2022) (Judge Thornton), the taxpayer asked the wrong court for attorneys fees and because of that had nowhere to go when the court denied fees.  Ms. Mazzei had fought the IRS for over 10 years, losing in Tax Court in a reviewed opinion in 2018.  Undaunted, she appealed to the Ninth Circuit.  She won!  Yay!  Her attorneys then filed a “protective” motion with the Ninth Circuit for both her appellate litigation costs (about $70,000) and her trial court litigation costs (some $330,000).  The government argued that its litigating position was substantially justified.

The Ninth Circuit’s response was disappointingly succinct: “denied.”  Undaunted, Ms. Mazzei’s attorneys then asked the Tax Court for the $330,000 in trial court litigation costs.  The government opposed the motion for the same reason it gave the Ninth Circuit.  Judge Thornton, however, rejected the §7430 request for a different reason.  He ruled that the  Ninth Circuit’s single word left the Tax Court powerless to act on the request.  Appeals go up the hierarchy, not down.  The taxpayer had asked the wrong court.  Details below the fold.

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June 13, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, June 6, 2022

Lesson From The Tax Court: Taxpayer Held To His Word(s) Regarding Alimony

Camp (2021)Congress eliminated the deduction for alimony in the December 2017 Reconciliation Act (informally called the Tax Cuts and Jobs Act, or TCJA).  The concept is still important, however.  First, the legislation grandfathered in alimony payments made pursuant to divorce or separation instruments executed on or before December 31, 2018.  So the question of whether a payment qualifies as alimony will thus still be important for many taxpayers for years to come.  Second, the definition continues to play an important role in analyzing the support requirements for dependents.  See §152(d)(5).

Determining whether payments constitute alimony is not always easy and errors can lead to §6662 penalties for careless taxpayers and their advisors.  Jihad Y. Ibrahim v. Commissioner, T.C. Summ. Op. 2022-7 (May 16, 2022) (Judge Weiler), teaches us the importance of the words used in divorce instruments. There, Dr. Ibrahim sought to deduct $50,000 in payments to his ex-wife.  He called them as alimony on his return.  But the marital separation agreement and the divorce decree did not call them that.  The IRS disallowed the deduction as contrary to the plain language in the divorce decree.  Despite Dr. Ibrahim’s ingenious arguments, the Tax Court agreed with the IRS and held the taxpayer to his word(s).  Details below the fold.

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June 6, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Tuesday, May 31, 2022

Lesson From The Tax Court: The Sharp Corners Of The §170 Substantiation Requirements

Camp (2021)The sainted Justice Holmes once wrote:  “Men must turn square corners when they deal with the Government.”  It is no accident that Justice Holmes wrote that in a tax case.  Rock Island R.R. v. United States, 254 U.S. 141, 143 (1920).  Of all the corners in all the laws governing citizen interaction with government, tax laws contain some of the squarest.  This is a lesson we’ve seen before.  See Lesson From The Tax Court: The Structure Of Substantiation Requirements of §170, TaxProf Blog (Sept. 24, 2018).  But I think it’s a lesson worth repeating: the substantiation rules in §170 contain some very sharp corners.  The lesson is important for high-end donations such as the one in today’s case.  And it is not just a lesson for taxpayers, but also for charities.

In Martha L. Albrecht v. Commissioner, T.C. Memo. 2022-53 (May 25, 2022) (Judge Greaves), the taxpayer made a very large donation to a museum and claimed a §170 charitable donation deduction on her return.  The IRS said that the 5-page document memorializing the gift did not meet the statutory substantiation requirements for such a gift.  The Tax Court agreed.  Thus, no §170 deduction.  Details below the fold.

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May 31, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, May 23, 2022

Lesson From The Tax Court: Counting The Days

Most people know that the IRS generally has three years to audit a return. Calculating the proper three-year period, however, requires close attention to both the start date and the end date.  You need to count those days properly.  I tried to drill into my students the practice of always consulting a calendar when attempting to calculate the proper dates.  Christian Renee Evert v. Commissioner, T.C. Memo. 2022-48 (May 9, 2022) (Judge Marshall), reinforces that teaching: to calculate the period in which the IRS can assess a tax, you need to properly count the days in the three year period.

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May 23, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Thursday, May 19, 2022

Texas Tax Faculty Workshop

Texas tax workshopsTax faculty from all Texas Law Schools were invited to gather yesterday for an informal workshop at Texas A&M. As is our tradition, lunch doubled as a half-baked idea brainstorming session for all participants to share ideas and seek input on projects in very early stages. Below the fold is the list of who presented works in progress and who were the official commentators.

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May 19, 2022 in Bryan Camp, Tax Conferences, Tax Scholarship, Tax Workshops | Permalink

Monday, May 16, 2022

Lesson From The Tax Court: Only One Exclusion For Military Retiree Disability Payments

Camp (2021)My dad served as a doctor in the military for 30 years, 23 days. Starting this week, he will have been retired for longer than he served. When he first retired, he received a monthly pension check from the Defense Finance and Accounting Service (DFAS) and that was all.  A few years later he learned that his hearing loss, likely from his time in Vietnam, qualified him for disability payments from the Department of Veterans Affairs (VA).  He applied for, and received, a 30% disability rating.  He then started receiving two checks each month, one from DFAS and one from the VA.

My dad’s DFAS check is included in gross income but his VA check is not, thanks to §104(a)(4).  If he had never applied for the disability rating, however, §104 would still permit him to exclude part of his DFAS check to the extent he would have be entitled to a disability check from the VA.  Confused?  Today’s lesson will help! 

In Tracy Renee Valentine v. Commissioner, T.C. Memo. 2022-42 (Apr. 28, 2022) (Judge Gustafson), the taxpayer was a veteran and received two checks per month, one from DFAS and one from VA for disability compensation.  She wanted to exclude not only the VA disability check, but she also wanted to exclude part of her DFAS check.  But she mis-read §104(a)(4)’s interplay with §104(b).  Judge Gustafson teaches us the proper way to read the rules.  Basically, veterans get only one exclusion for their disability payments.  Details below the fold.

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May 16, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (1)

Monday, May 9, 2022

Lesson From The Tax Court: Avoiding The 2-Year Lookback Period In Bankruptcy

Pope 3Today’s lesson is about how to maximize the discharge of tax liabilities through bankruptcy.  It's a lesson on timing.  Last year I blogged two cases showing how a bankruptcy tolls both the collection and assessment limitation periods in the Tax Code.  See Lesson From The Tax Court: For Whom The Bankruptcy Tolls, TaxProf Blog (July 19, 2021).  Today’s lesson is the flip side: we learn how taxpayers who want to discharge old tax liabilities through bankruptcy need to be careful about how the two-year lookback exception to discharge may be tolled by provisions in the Tax Code.

I offer today’s lesson in honor of Bob Pope, who died on April 29th.  Bob was one of those remarkable attorneys who could navigate the complex interplay of bankruptcy and tax law.  He was one of the founders of the Tax Collections, Bankruptcy and Workouts Committee in the ABA Section of Taxation, along with Paul Asofsky, Fran Sheehy, Ken Weil, and Mark Wallace.  He will be missed.

Bob would appreciate today’s lesson.  In Robert J. Norberg and Debra L. Norberg v. Commissioner, T. C. Memo 2022-30 (Apr. 5, 2022) (Judge Lauber), the taxpayers filed their 2016 return in February 2019 without paying the tax they reported due.  When the IRS started collection, the Norbergs asked for a CDP hearing.  When they got to Tax Court in September 2020 they filed a bankruptcy petition, hoping to wipe out the liability.  They failed because they mis-timed their bankruptcy petition.  An irony is that these taxpayers could have likely gotten their desired discharge if they had ignored the siren song of CDP.  Bob could have taught them that.  And, if you click below the fold, you too can learn this lesson on how to maximize the discharge of tax liabilities in bankruptcy.

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May 9, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (3)

Monday, May 2, 2022

Lesson From The Tax Court: Distinguishing Employees From Independent Contractors

Camp (2021)Pro Publica has proudly proclaimed that “If You’re Getting a W-2, You’re a Sucker.”  I know lots of workers who would strongly disagree.  For them, being a W-2 worker (a/k/a “employee”) is far more beneficial than their realistic alternative, which is being a 1099 worker (a/k/a “independent contractor”).  The Pro-Publica story was channeling this Brookings Institution study which noted how business owners can often hide their income but workers cannot because their employers rat them out with W-2s.

But most workers have no realistic choice.  Just ask your next Uber or Lyft driver.  For them, as for many others in various industries—from child-care to health-care to landscaping and construction—the choice is not whether or not to hide income.  Their choice is only whether their income gets reported to the IRS on a Form W-2 or a Form 1099.  The upside of being an employee is lower employment taxes and eligibility for unemployment benefits.  The potential downside is no §199A and no ability to deduct unreimbursed job expenses, given the current nastiness codified in §67(g).

And the choice of status is often on the employer.  Employers must decide whether and when to treat their workers as employees or as independent contractors.  Today’s lesson shows how they might be on the hook if they make the wrong classification.  Pediatric Impressions Home Health, Inc. v. Commissioner, T.C. Memo. 2022-35 (Apr. 12, 2022) (Judge Greaves), teaches us how Tax Court distinguishes employees from independent contracts.  It also shows us a potential safe harbor that employers can use to escape the unpaid obligations if it turns out they erroneously classified employees as independent contractors.  Details below the fold.

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May 2, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, April 25, 2022

Lesson From The Tax Court: The Unforeseen Circumstances Rule For §121 Home Sale Exclusions

Camp (2021)The Tax Code gives homeowners many tax breaks.  Chief among them is the ability to exclude up to $500k of gain from the sale of a principal residence (for married taxpayers filing jointly).  Taxpayers seeking this exclusion must meet some basic requirements, set out in §121.  Taxpayers who fail the requirements, however, may still qualify for an exclusion under the unforeseen circumstances rule in §121(c).

Steven W. Webert and Catherine S. Webert v. Commissioner, T.C. Memo. 2022-32 (Apr. 7, 2022) (Judge Gustafson), teaches a lesson on the operation of the unforeseen circumstances rule.  There, unforeseen circumstances arguably forced the taxpayers to move out of their home during a real estate bust in 2009.  Apparently unwilling to sell short, they rented out the home until the market recovered and eventually sold it for a gain of about $195k in 2015.  They attempted to exclude the gain under §121, claiming they were entitled to do so because of the unforeseen circumstances rule in §121(c).  The IRS thought the claim had no merit.  Curiously, the Tax Court did not (yet) agree.  Beats me on why.  I explore the rule, and the mystery of why the IRS lost its Summary Judgment motion, below the fold.

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April 25, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (0)

Saturday, April 23, 2022

The Top 15 Law Schools For Jobs Contain Some Surprises

The ABA recently released data on job placement 10 months after graduation. In These Law Schools Crushed the Job Market in 2021, Reuters uncovered expected and unexpected results.  At the top was Columbia University. Expected. But also among the Top 15 schools were University of Montana and Texas Tech University. Here's the complete list of the Top 15 Schools:

Reuters

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April 23, 2022 in Bryan Camp, Law School Rankings, Legal Ed News, Legal Ed Rankings, Legal Education, Tax | Permalink

Monday, April 18, 2022

Lesson From The Tax Court: What’s Excluded From The §132 Exclusion?

Rosty1Tax Day is here! And what better way to observe the day than a lesson on §132, a lesson that evokes the ghost of Dan Rostenkowski, whose curmudgeonly visage appears to the right.  For those who don’t know, Rostenkowski was the chairman of the House Ways and Means Committee from 1981 until 1994 when, in the great tradition of Illinois politicians, he was indicted on various counts of fraud, eventually pleading guilty to mail fraud.  Yes, political corruption in Illinois actually has its own Wikipedia entry.

During his time as head of the House tax writing committee, Rostenkowski oversaw multiple major legislative changes. Perhaps his crowning glory was his role in the 1986 Tax Reform Act, which has long been viewed as a triumph (however short-lived) of sound tax reform.

Today’s lesson has its genesis in the earlier Deficit Reduction Act of 1984, PL 98-369, 98 Stat. 494.  There, Congress wrote a new §132 to exclude from gross income a long list of traditional employee fringe benefits.  In Douglas Mihalik and Wendy J. Mihalik v. Commissioner, T.C. Memo. 2022-36 (Apr. 13, 2022) (Judge Gustafson), Mr. Mihalik received free airline tickets for himself and members of his family. He sought the exclusionary shelter of §132.  While §132 is very broadly written to cover various family members of an employee, Judge Gustafson teaches us how some family members are excluded from the exclusion.  Details below the fold.

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April 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, April 11, 2022

Lesson From The Tax Court: 50 Ways To Lose Your Interest Abatement Request

50 WaysObtaining an abatement of interest reminds me of Paul Simon’s song 50 Ways to Leave Your Lover.  Sure, the “50 ways” in the song title is misleading.  By my count, Simon gives us only four.  And some are singularly unhelpful for real life advice.  I mean, “make a new plan, Stan”?  Really?  But the hyperbole does it’s job: it draws attention to idea there are the multiple ways to break off a relationship.

My Lesson title is also hyperbolic, but serves the same purpose.  When a taxpayer wants the IRS to abate interest charges, there are lots of ways to lose.  Jeremy Edwin Porter v. Commissioner, T.C. Memo 2022-23 (March 28, 2022)(Judge Greaves) gives us a nice review of some of them.  There, the hapless taxpayer was trying to get interest abated for, among other periods, a 34 month period where the Tax Court did not rule on pending discovery motions.  The Court sustained the IRS rejection of the abatement request because, even if the delay was unreasonable, and even if it was not attributable to Mr. Porter, it was caused by the Tax Court, not the IRS.  Ouch.

This gives us a good excuse to review the many ways the IRS can reject an interest abatement request.  And perhaps learn how to be a diligent litigant so as to keep your client’s case moving along during Tax Court litigation.  I hope today’s lesson is more helpful than Simon’s song.  At least it won't be an earworm.  Details below the fold. 

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April 11, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, April 4, 2022

Lesson From The Tax Court: Penalty Approval In Conservation Easement Cases

Camp (2021)The §6751(b) supervisory approval requirement for penalties has been a thorn in the side of both the IRS and the Tax Court.  Today’s lesson shows us how the IRS penalty approval process in conservation easement audits has forced taxpayers to reach for wilder and less credible attacks in their attempts to avoid penalties by finding IRS procedural foot-faults.

First, in Pickens Decorative Stone LLC v. Commissioner, T.C. Memo. 2022-22 (Mar. 17) (Judge Lauber), the taxpayer argued that when the IRS had publicly committed in a general Notice to seeking penalties against the types of syndicated conservation easement scheme it had engaged in, the IRS was disabled from complying with §6751(b) because the supervisor in the audit had not signed off on that public Notice.  Yeah, pull your eyebrows down; the argument lost.

Second, in Oxbow Bend, LLC v. Commissioner, T.C. Memo. 2022-23 (Mar. 21, 2022) (also Judge Lauber), the taxpayer similarly argued the IRS failed to comply with §6751(b) when the Revenue Agent (RA) had failed to secure supervisory approval before telling the taxpayer during a status conference that penalties were “under consideration” when in fact the RA was completing an internal document recommending penalties that very day.  That was a loser as well.  Details below the fold.

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April 4, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (5)

Monday, March 28, 2022

Lesson From The Tax Court: Take The Administrative Appeal

Camp (2021)Taxpayers famously focus on trying to get their “day in court” against the evil IRS.  The Independent Office of Appeals (Appeals) is no court.  It is not surprising, then, that taxpayers’ myopia often leads them down the dangerously wrong path of ignoring their opportunity to go to Appeals.  Today’s lesson teaches us one reason that is a mistake.

In Mahammad A. Kazmi v. Commissioner, T.C. Memo. 2022-13 (Mar. 1, 2022) (Judge Paris), the IRS was seeking to collect a §6672 Trust Fund Recovery Penalty (TFRP) assessed against the taxpayer.  In a Collection Due Process (CDP) hearing, Mr. Kazmi attempted to explain why the assessment was improper against him.  He relied on the rule that a taxpayer can challenge a liability in a CDP hearing if the taxpayer had not had a prior opportunity to do so.  While Mr. Kazmi had been given the opportunity to take an administrative appeal during the prior §6672 assessment process, he said that should not count because it did not give him a day in court.  While that argument might have traction in other situations, it failed in this one.  Details below the fold.

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March 28, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink

Monday, March 21, 2022

Lesson From The Tax Court: What Constitutes A CDP 'Hearing'?

Camp (2021)Before the IRS can start collecting unpaid tax liabilities by levy, §6330(b)(1) requires it to give taxpayers an opportunity for a Collection Due Process (CDP) hearing with the IRS Independent Office of Appeals.

Many taxpayers do not fully understand how CDP hearings work. First, they erroneously expect that a CDP hearing is a discrete and physical event where they (finally!) confront the evil IRS.  Second, they erroneously expect that the point of the hearing is for the evil IRS to justify collection, including proving the correctness of the assessment.  Finally, they expect that they can go to Tax Court and get a do-over if they don't like the result they get from the CDP hearing.  Taxpayer with those expectations are doomed to disappointment.

Today’s lesson is for them. In Brian K. Bunton and Karen A. Bunton v. Commissioner, T.C. Memo. 2022-20 (Mar. 10, 2022), Judge Morrison gives a nice short lesson on what constitutes a CDP hearings.  The taxpayers complained that their CDP hearing was defective because (1) the Settlement Officer (SO) had not given them an in-person hearing, and (2) the IRS did not show the assessment was correct.  The Court rejected those complaints and in so doing, shows us what constitutes a CDP hearing. Details below the fold.

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March 21, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, March 14, 2022

Lesson From The Tax Court: The Finality Rule For §7430 Qualified Offers

Camp (2021)When you litigate against the IRS you may win but not prevail.  That is, even though §7430(a) promises that a “prevailing party” can recover costs and attorneys fees, it’s hard to be a "prevailing party" within the meaning of the statute.  If the government's ultimately losing position was substantially justified at the relevant time, the winning taxpayer won't be a prevailing party.  Sometimes that leads to a seemingly strange result that even if the Office of Appeals badly messes up, the taxpayer will not be a prevailing party if Chief Counsel catches the error and promptly concedes.  Keith Fogg blogged a good example of this over at Procedurally Taxing last week.

The Qualified Offer process is a substitute for being a prevailing party.  Making a properly qualified offer to settle a case removes the government's "substantially justified" defense.  Thus, if you make the offer during the administrative process, you can set up a recovery even if Chief Counsel concedes.

But making a effective Qualified Offer has its own difficulties.  Today’s lesson looks at one of the key rules for making a qualified offer: the finality rule.  In Gina C. Lewis v. Commissioner, 158 T.C. No. 3 (Mar. 3, 2022) (Judge Pugh), the taxpayer offered to settle an audit of her joint return by agreeing to 100% of a proposed deficiency.  But on a closer examination, she really just crossed her fingers, reserving the right to contest that liability through the §6015 spousal relief provisions at some unspecified later date.  So it was not really an offer to settle.  It was an offer to kick the can down the road.  Indeed, many years later, in Tax Court, the IRS agreed she was entitled to full relief under §6015(c).  Ms. Lewis then asked for costs and fees under §7430 on the grounds that the IRS had ended up worse off than if it had accepted her offer.  The Tax Court said no, for reasons discussed below the fold.

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March 14, 2022 in Bryan Camp, News, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, March 7, 2022

Lesson From The Tax Court: Generally Is Not Always—Or—That’s The Way The Ball Bounces

Camp 3We law professors are often accused of hiding the ball of legal analysis.  Teaching the basic tax law course presents a particular challenge because of the multiplicity of statutory rules that the ball bounces against.  We try to teach students the general rules of what constitutes income, what gets allowed as deductions, when both must be reported and who must report them.  That’s the stuff of the basic course.   We try to spare them from having to learn all the various exceptions and special cases that hit the ball on its journey.

Methods of tax accounting are a case in point.  Generally, taxpayers choose their method of accounting.  That's good enough for the basic tax course.  But generally is not always.  Practitioners need to be able to follow the ball as it bounces around the various timing statutes.  They not only need to know the general accounting rules, they must always be sensitive to the exceptions and the exceptions to the exceptions, and the gaps between all the exceptions!

In Hoops LP v. Commissioner, T.C. Memo. 2022-9 (Feb. 23, 2022) (Judge Nega), the taxpayer was an accrual-method taxpayer.  It sold a basketball team.  It then attempted to deduct $10 million in accrued but unpaid deferred compensation obligations, relying on a general rule for accrual-method taxpayers, albeit one buried in the regulations.  The Tax Court found, however, that the ball landed on a different statute, one forcing accrual-method taxpayers into the cash-method of accounting for deferred compensation deductions. It thus sustained the IRS’s disallowance of the deduction.   That’s just the way the ball bounces.

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March 7, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (0)

Monday, February 28, 2022

Lesson From The Tax Court: A New Twist On Travel Away From Home Deductions?

Camp (2021)When I teach the §162 travel away from home deductions I tell my students to distinguish between transportation costs (on the one hand) and meals/lodging costs (on the other hand).  Transportation costs are covered by Rev. Rul. 99-7.  Their deductibility turns on job site location.  To deduct meals and lodging expenses, however, the taxpayer must meet an overnight rule as well.  United States v. Correll, 389 U.S. 299 (1967).  I have never taught that the overnight rule applies to transportation costs.

After reading today’s case, I may have to change how I teach this issue.  In James P. Harwood and Connie J. Harwood v. Commissioner, T.C. Memo. 2022-8 (Feb. 15, 2022) (Judge Urda), Mr. Harwood worked at various temporary job sites located in cities away from his tax home in Yakima, Washington.  Sometimes he stayed overnight at the job sites, coming home on weekends.  Sometimes he drove there and back in the same day.  If I’m reading the opinion correctly, Judge Urda applied an overnight rule to hold that when Mr. Harwood chose to drive to and from his job site in the same day, he could not deduct the transportation costs.  That’s a new twist on the law from what I can tell.  So we should pay attention.  Details below the fold.

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February 28, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (1)

Tuesday, February 22, 2022

Lesson From The Tax Court: The Tax Liabilities You Leave Behind

Camp (2021)We all know you can’t take it with you.  But what happens to the “it” after you die?  Ideally, you will have paid all your debts, and your Estate will distribute your “it” to the objects of your affection. The IRS will probably not be one of the objects of your affection.

However, few of us do everything ideally.  If you leave behind unpaid tax obligations, Congress has ensured that the federal government gets priority over the objects of your affection.  And tax claims also take priority over most other creditors.  But most is not all.  Some creditors get paid before the Tax Dude.  Thus, if your unpaid tax obligations exceed the assets in your Estate, then the objects of your affection will take bupkis ... unless they also happen to be one of the few types of creditors that get priority over the unpaid taxes.

That is what we learn from Estate of Anthony K. Washington v. Commissioner, T.C. Memo. 2022-4 (Feb. 2, 2022) (Judge Toro).  There, the decedent died with unpaid federal tax liabilities that exceeded the assets in his Estate.  The decedent’s ex-wife tried to convince the Tax Court that her claim against the Estate took priority over the tax claim.  Alternatively, she argued that the IRS erred when it did not account for her claim in evaluating the Estate’s Offer In Compromise (OIC), because ignoring her claim simply was not fair because paying the tax claim would leave the Estate with nothing.

Both arguments failed.  The case teaches us a lesson about the federal tax lien and about the difficulty Estates face in obtaining OICs.  Details in the usual space, below the fold.

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February 22, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, February 14, 2022

Lesson From The Tax Court: The Proper Baseline For Offers In Compromise

Camp (2021)Paying taxes can be painful.  When money is tight and other needs are pressing, sending money to the federal government understandably sinks on the taxpayer’s priority list.  But not the government’s!  Congress wants to make sure that paying taxes remains at the top of every taxpayer’s priority list.  That is why it gives the IRS really awesome collection powers.  If that duty to pay taxes is not uniformly enforced, the thinking goes, then voluntary compliance goes out the window and soon that window will be smashed by rocks thrown by rioting mobs.  Don’t want that.

At the same time, Congress recognizes that, sometimes, circumstances  should permit payment of less than the full amount.  The Offer In Compromise (OIC) process is designed to address those situations. The ability to secure an OIC, however, must always be evaluated against a default of full payment, not against a default of no payment.  That is what we learn from Edmund Gerald Flynn v. Commissioner, T.C. Memo. 2022-5 (Feb. 3, 2022) (Judge Urda).  There, the Court held that the taxpayer was not entitled to an OIC just because the full-pay obligation would be financially painful.  Details below the fold.

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February 14, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, February 7, 2022

Lesson From The Tax Court: The Innocence Requirement In § 6015(c) Proportional Relief

Camp (2021)Section 6015 allows taxpayers to obtain relief from an otherwise joint and several liability.  The statute contains three related provisions allowing relief.  Siblings.  First is the eldest child, traditional innocent spouse relief.  It was formerly in §6013(e) and is now found in §6055(b).  Second is the quite middle child, a proportionate relief provision that basically permits unwinding the jointly filed return.  That’s in §6015(c).  Third is the wild child, an equitable relief provision that permits relief when it would be unfair to impose joint liability.  That’s in §6015(f).

Of these three spousal relief provisions, the wild child §6015(f) gets most of the attention, at least in court, because it is a very facts-and-circumstances determination and so leads to the most disputes between a requesting spouse and the IRS.  There is also robust case law on the bossy oldest child §6015(b) because it has been around the longest, since 1971.

Today’s lesson is about §6015(c), the oft overlooked middle child.  While, arguably, all three provisions involve some concept of innocence, we learn today a crucial difference between how that concept works for (c) relief and (b) relief.  In Tara K. Tobin (Petitioner) and Jeffrey Tobin (Intervenor) v. Commissioner, T.C. Summ. Op. 2021-36 (Nov. 16, 2021) (Judge Guy), an IRS audit disclosed multiple items of unreported income.  Ms. Tobin asked for §6015(c) relief, agreeing to take responsibility for her unreported income items and leaving Mr. Tobin responsible for his.  Mr. Tobin objected, claiming that Ms. Tobin was not innocent enough to qualify for proportional relief.  In a short but useful lesson, we learn why the Tax Court decided for Ms. Tobin.  Details below the fold.

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February 7, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, January 31, 2022

Lesson From The Tax Court: The Presumption Of Regularity

Camp (2021)No, today’s lesson has nothing to do with your gastrointestinal system.  But it does relate to what comes out of the bureaucratic process.  The presumption of regularity affects a broad range of IRS work product, such as Notices of Deficiencies, Certificates of Assessments and, in today’s case, Penalty Approval forms.

In Long Branch Land LLC v. Commissioner, T.C. Memo. 2022-2 (Jan. 13, 2022) (Judge Lauber), the taxpayer attempted to take a very large charitable deduction for donation of a conservation easement.  In its Notice of Deficiency, the IRS not only disallowed the deductions but also proposed to assess penalties under §6662 and §6662A.  In Tax Court the IRS moved for partial summary judgment on the issue of whether it complied with the supervisory approval requirements of §6751(b)(1).

The taxpayer argued that the IRS failed to comply with the penalty approval requirements because the IRS employee who approved the penalty was not the “immediate supervisor” of the IRS employee who proposed the penalty.  Judge Lauber rejected the argument, invoking the presumption of regularity.  His use of the doctrine, however, demonstrates it chameleon-like quality: it is both a rule of law and a rule of evidence.  Details below the fold.

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January 31, 2022 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, January 24, 2022

Lesson From The Tax Court: The Qualifying Child Misnomer

Camp (2021)Like last week’s lesson, this week deals with how the Tax Code treats families as economic units and the difficulty in determining the scope of the proper family group.

Section 151 permits taxpayers a deduction for dependents.  Section 152 defines that term.  It divides the general concept of dependent into two buckets: one is labeled “Qualifying Child” (QC) and the other is labeled “Qualifying Relative” (QR).  The QC bucket is then used—more or less—to determine eligibility for the various child-rearing-related tax benefits in the Tax Code, such as the child credit, the earned income tax credit, etc.

Both labels are misnomers, but today’s lesson is about two common issues that arise with determining who is a QC.  In Carol Denise Griffin v. Commissioner, T.C. Sum. Op. 2021-26 (Aug. 16, 2021) (Judge Vasquez), we learn that a taxpayer can claim a deduction for a Qualifying Child who is not, actually, the taxpayer’s literal child.  However, in Nowran Gopi v. Commissioner, T.C. Sum. Op. 2021-41 (Dec. 2, 2021) (Judge Panuthos), we learn that a taxpayer may not do that when the Qualifying Child’s actual parent also files a tax return claiming the same QC.  Details below the fold.

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January 24, 2022 in Bryan Camp, New Cases, Scholarship, Tax | Permalink | Comments (1)

Tuesday, January 18, 2022

Lesson From The Tax Court: The Tacit Consent Rule

Camp (2021)Every marriage requires trust.  In my own marriage my DW trusts me to handle our finances.  I’m sort of the CFO of our marriage.  As part of my duties I prepare our taxes.  I try to explain them to my DW before I file, but more often than not she just waves me away with a smile, saying “I trust you.”  Back in the day when we filed paper returns I at least was able to ensure she signed the returns.  But now that we file electronically, I just make a few clicks and, boom!, it’s filed.

I have sometimes questioned whether we are really filing a joint return when it’s only me doing all the clicking for the electronic submission.  When one files electronically there is nothing analogous to an actual signature to show that both spouses have even seen, much less approved, of what is submitted.  You just need to create two 5-digit numbers, one for each spouse. Tax return preparers at least get to secure a wet signature on Form 8879 to show both spouses consented to the return preparer submitting the electronic return.  I got nothing like that.  Just a smile and a “I trust you.”

Today’s lesson answers my question.  In Om P. Soni and Anjali Soni v. Commissioner, T.C. Memo. 2021-137 (Dec. 1, 2021) (Judge Copeland), we learn that a spouse can tacitly consent to a joint return even when the spouse does not actually sign the return and even when someone else forges the spouse’s signature!  Whether there is tacit consent depends on the facts and circumstances of the filing.  And perhaps the most important factor is a history of one spouse’s trust in the other.  Details below the fold.

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January 18, 2022 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, December 20, 2021

A Year Of Lessons From The Tax Court (2021)

Here is a chronological listing of all the Lessons From The Tax Court I posted in 2021, with links to, the Lesson, the primary case discussed and its author.  I have also listed the primary Code sections mentioned or discussed in the Lesson.  At the end of the chronological listing, you will find a table listing the posts by which Tax Court Judge authored the Court's opinion.

Camp (2021)January 11: Too Much Control Over IRA Distribution Makes It Income (Brett John Ball v. Commissioner, T.C. Memo. 2020-152 (Nov. 10, 2020) (Judge Halpern) — §72, §408, §451, §671, §4975)

January 19, 2021: The CDP Silver Linings Playbook (Wiley Ramey v. Commissioner, 156 T.C. No. 1 (Jan. 14, 2021) (Judge Toro) — §6320, §6330)

January 25, 2021: No Deduction for Disguised Dividends (Aspro, Inc. v. Commissioner, T.C. Memo. 2021-8 (Jan. 21, 2021) (Judge Pugh) — §162)

February 1: No Product? No §162 Deduction! (William Bruce Costello and Martiza Legarcie v. Commissioner, T.C. Memo. 2021-9 (Jan. 25, 2021) (Judge Halpern) — §162, §212)

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December 20, 2021 in Bryan Camp, Miscellaneous, Tax, Tax News, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, December 13, 2021

Lesson From The Tax Court: Taxpayers Behaving Badly (2021)

This will be my last new post until January.  I will be spending my days (except for Christmas Day) grading exams.  Grades are due Monday, January 3th and then I resume teaching on January 11th, so you will likely see my next Lesson From The Tax Court on January 18th (the day after MLK holiday).

Santa

For the fourth year, my last new blog of the year presents cases where something in the facts made me just shake my head (SMH in texting parlance).  You can find the previous lists here (for 2018), here (for 2019) and here (for 2020).  This year I have six to share with you.  I present them in chronological order.  I invite you to consider which of theme may be examples of just an empty head and which are examples of something worse.

This year I also continue giving the Norm Peterson Award.  You will find more explanation below the fold.

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December 13, 2021 in Bryan Camp, New Cases, Tax, Tax News, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (4)

Monday, December 6, 2021

Lesson From The Tax Court: Taxpayer 'Filed' Return Even Though IRS Could Not Process It

Camp (2021)Case law gets made when things go wrong.  When things go right, a taxpayer will file a return, the IRS will process the return, and the taxpayer will receive any claimed overpayment as a refund.  Today's lesson arises from a breakdown between filing and processing.  It teaches us the difference between those concepts.

In James Forrest Willetts v. Commissioner, T.C. Sum. Op. 2021-39 (Nov. 22, 2021) (Judge Kerrigan), the taxpayer sought refund of an overpayment on the basis of a Form 1040 the IRS had refused to accept for processing because of concerns about identify theft.  The IRS was not sure whether the return was genuine.  By the time the taxpayer demonstrated the genuineness of the Form 1040, it was too late to get the refund unless the taxpayer’s submission of the rejected Form 1040 constituted the “filing” of a “return.”  The Tax Court framed the question as follows: “whether the Form 1040 petitioner mailed...constitutes a properly filed return.”  Op. at 5.  But do you see there are two questions presented in this framing?  First, did the rejected Form 1040 qualify as a “return.”  The Court said yes.  Second, was the rejected Form 1040 “filed” when the IRS could not process the Form? Again, the Court said yes.

The holdings in this non-precedential opinion are consistent with the recent Tax Court precedential opinion Fowler v. Commissioner, 155 T.C. No. 7 (2020), curiously uncited by Judge Kerrigan.  Fowler held a taxpayer had validly filed electronically even though the taxpayer had not supplied his Identify Protector Taxpayer Identification Number (IP-TIN) and thus the IRS could not process the return because, as in today’s case, it did not know who had submitted the return.

In this age of computer processing, especially as taxpayers and the IRS wrestle with such issues as identify theft and the complications created by COVID regarding return filing requirements, discerning whether and when a taxpayer “files” a document that qualifies as a “return” becomes all the more critical.  This Lesson helps us understand the issues at play.  Details below the fold.

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December 6, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 29, 2021

Lesson From The Tax Court: Who Is An IRS Employee's Immediate Supervisor For §6751 Penalty Approval?

Camp (2021)Today’s lesson involves yet more litigation over IRS compliance with the penalty approval process required by the formerly toothless §6751(b)(1).  In Sand Investment Co., LLC, et al. v. Commissioner, 157 T.C. No. 11 (Nov. 23, 2021) (Judge Lauber), the Tax Court continues teaching us the scope and operation §6751(b), a series of lessons it started back in 2017 when its decision in Graev v. Commissioner, 149 T.C. 485 (2017), gave the statute sharp teeth.  Among other requirements, the statute says approval must come from an IRS employee's “immediate supervisor.”  In today’s case, the IRS employee who proposed a bunch of penalties had two supervisors but only one definitely signed timely.  Judge Lauber finds that function trumps form in identifying which of the two supervisors was the right one to approve the proposed penalties.  This is a short lesson, and also one that will may be rendered moot.  Legislation passed by the House and now before the Senate de-fangs §6751(b).  Details below the fold.

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November 29, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 22, 2021

Lesson From The Tax Court: How To Mess Up Your Checkbook IRA

Camp (2021)The idea that freedom means control over your own destiny s arguably the most defining characteristic of American culture.  It is most certainly the basis on which various companies promote “checkbook IRAs.”  If you Google that term you will find a gaggle of companies urging people to take full control of their retirement funds, to free themselves from restrictive IRA custodians. The companies promote structures that purport to allow taxpayers maximum freedom over their investment decisions.  Freedom equals control. 

In Andrew McNulty and Donna McNulty v. Commissioner, 157 T.C. No. 10 (Nov. 18, 2021)(Judge Goeke) we learn that too much control messes up a checkbook IRA.  There, Mr. and Ms. McNulty created a checkbook IRA, funded it with transfers from their other retirement accounts, and then used the money to buy gold coins which they stored in their home.  The Tax Court said that last bit—storing the physical coins in their home—was too much control and thus the receipt of the coins was a taxable distribution to them.  While the taxpayers crossed the line in this case, it may not be altogether clear where that line is.  How far can a taxpayer go before they mess up their checkbook IRA?  Let’s see what we can learn.  Details below the fold.

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November 22, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, November 15, 2021

Lesson From The Tax Court: Not Every Decision Comes With An Opinion

Camp (2021)Once a taxpayer petitions the Tax Court to contest a Notice of Deficiency (NOD), the Tax Court will issue a decision in the case.  The taxpayer has no option to nonsuit the case like plaintiffs can do in state courts or in federal district courts.  It’s what I call the Hotel California rule: the taxpayer might check out (e.g. by abandoning the case), but can never leave (the Court's decision will issue).  For details, see Lesson From The Tax Court: The Hotel California Rule, TaxProf Blog (Nov. 12, 2018).

Today we learn that even though the Tax Court will issue a decision, it may not issue an opinion.  More, we learn why that is so.  In Paul Puglisi & Ann Marie Puglisi, et. al., v. Commissioner (4796-20, 4799-20, 4826-20, 13487-20, 13488-20, 13489-20) (Nov. 5, 2021) (Judge Gustafson), the IRS conceded all of a proposed deficiency (except for a small part that the taxpayers had conceded).  It asked the Court to enter decisions in favor of the taxpayers.  The taxpayers objected!  They wanted more than a victory.  They wanted fries with that: an opinion to go with the decision.  Judge Gustafson decided to accept the IRS concession and enter a decision for the taxpayers without an accompanying opinion on the merits.  In a 17-page Order he teaches us that while the Tax Court has the discretion to issue an opinion even when the IRS concedes a case, it will do so only under extraordinary circumstances.  Details below the fold.

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November 15, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, November 8, 2021

Lesson From The Tax Court: A Hard Choice Is Still A Choice

Camp (2021)I have a strict attendance policy in that a student is either either there or not.  I don't do excused absences.  Students get six absences with no penalty and with no questions asked.  Their seventh absence, however, results in a one-increment reduction of their final grade (B+ to B, e.g.), again with no questions asked.  Further absences lead to more severe consequences.

One year, a student who had missed six classes came to me and asked if I would excuse him for a seventh absence.  He was a key member of his University’s Cheer Squad and he would have to miss class in order to participate in their State finals competition.

I explained to him the concept of a hard choice: a situation where any decision carries some significant downside.  But the difficulty of the choice would not excuse the penalty.  I suggested that he consider what would be more important to him in 10 years: getting a lower grade in one law school course, or missing the chance to help his team win a State championship.  He decided to take the grade hit.  Good choice, IMHO.

In Pamela Cashaw v. Commissioner, T.C. Memo. 2021-123 (Oct. 27, 2021) (Judge Greaves), we learn that taxpayers cannot be excused from the §6672 Trust Fund Recovery Penalty just because they face hard choices on how to use their company’s limited cash, no matter how sympathetic we may be to their difficulties.  If they have funds to pay the taxes withheld from their employees’ paycheck, their choice to instead pay off more immediately threatening creditors opens them to personal liability for the unpaid trust fund taxes.  Details below the fold.

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November 8, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (5)

Monday, November 1, 2021

Lesson From The Tax Court: Whistleblower Died, But His Claim Survived

Camp (2021)The IRS has long been authorized to award informants a fee for information.  Informants unhappy with their awards, however, have not always had easy access to judicial review.  That changed in 2006 when Congress modified §7623 to permit taxpayers to ask the Tax Court to review “any determination regarding an award.” §7623(b)(4).  Tax Reform and Health Care Act of 2006, 120 Stat. 2922, 2959.  For a description of how the program works, see Lesson From The Tax Court: The Slippery Slope Of Tax Court Review, TaxProf Blog (Oct. 12, 2020).

Getting that Tax Court determination can take a long, long time.  That is because awards are first determined by the IRS Whistleblower Office (WBO) as a percentage of the proceeds collected from the taxpayer and collection can take a long, long time (hello CDP!).  At the end of all that time, if the whistleblower is not happy with the award, they can petition the Tax Court.  And obtaining a final decision from Tax Court can take a long, long, time as well.  Put those two long processes together and you are easily looking at 20 years from the first blow of the whistle to the final strike of the judicial gavel.

So what happens to the whistleblower’s claim if the whistleblower dies during that long, long time?  In Joseph A. Insinga v. Commissioner, 157 T.C. No. 8 (Oct. 27, 2021) (Judge Gustafson), we learn that a whistleblower’s Estate can continue to assert a claim for an award even after the whistleblower dies.  It's a seemingly simple lesson, but one that not as straightforward as you might expect, requiring the Tax Court to discern and apply common law doctrines.  Details below the fold. 

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November 1, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, October 25, 2021

Lesson From The Tax Court: Of Distributive Shares And The CDP Mashup

Camp (2021)Sometimes our biggest problems are self-created. In Taryn L. Dodd v. Commissioner, T.C. Memo. 2021-118 (Oct. 5, 2021) (Judge Lauber), the taxpayer was attempting to repudiate a tax liability she had self-reported but had not paid.  Her multi-year slog through Collection Due Process (CDP) involved three trips to the Tax Court.  Only in the third trip do we learn this basic lesson about passthrough entities: a partner must report as income her distributive share of partnership income, whether or not that share is actually received.  So now Ms. Dodd not only has her 2013 liability to pay off, she also has all the additions to tax and interest that continues to accrue.

We also learn a second lesson, a lesson about the structure of CDP.  The difference between Appeals Officers (AOs) and Settlement Officers (SOs) is more than just the title.  Each has different subject matter competencies but only SO's conduct CDP hearings, which are generally all about collection issues.  Sometimes, however, taxpayers can raise substantive tax issues, creating a CDP mashup.  When a taxpayer uses CDP to contest the merits of a liability, the lesson here is to be sure to ask the SO to confer with an AO.  Otherwise you get stuck like Ms. Dodd.  Details below the fold.   

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October 25, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, October 18, 2021

Lesson From The Tax Court #200: The Great Divide

Camp (2021)Today's Lesson is an appropriate one for my 200th post.  While the line separating my 199th from my 201st post is not big—not a great divide—the line does make visible a degree of effort and consistency that might otherwise be obscure.  So, yeah, I'm kinda proud about crossing this line.

The concept of Adjusted Gross Income (AGI) also creates a line, one that confuses my students enormously.  They have trouble understanding that the ability to take a deduction is affected not simply by the statute that authorizes the deduction but also by the statutes that tell you where to take the deduction in the process of calculating taxable income.  And not only does the concept of AGI create a line—dividing deductions taken above the line from those taken below the line—it sometimes creates a great divide.

In Carl L. Gregory and Leila Gregory v. Commissioner, T.C. Memo. 2021-115 (Sept. 29, 2021)(Judge Jones), the taxpayer’s lawyers had the same trouble my students have.  The case teaches a graphic lesson on the great divide that can exist between treatment of deductions taken above the line and those taken below, not to mention the great divide between the really rich and the rest of us.  There, the taxpayers were unable to deduct a penny their yacht hobby expenses.  While §183 allowed over $340,000 of deductions, this amount did not exceed 2% of the Gregorys' AGI.  Wow.  That fact at least explains why they may have thought it a good idea to pay attorneys to argue that the expenses went above the line.  It does not explain why the attorneys did not advise that such an argument was groundless, bordering on frivolous.  Details below the fold.    

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October 18, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (1)

Monday, October 11, 2021

Classic Lesson From The Tax Court: Sex And Deductions

Camp (2021)I was going to title this week’s blog “The Concept of Inherently Personal.”  But I could not resist trying to put some clickbait in the title.  Today I want to discuss two classic cases from Tax Court.  They explore the never-ending balancing act needed to decide when an expense is deductible when it has both a personal and business aspect.  Between them, the two cases teach us a lesson about life in all its fullness.  That they both involve sex makes the lesson perhaps more memorable, but no less appropriate to any type of mixed business/personal deduction.  And while both cases involve sex, they do so from interestingly different perspectives.

In Vitale v. Commissioner, T.C. Memo. 1999-131 (Judge Fay), the Court denied deduction of certain expenses (payments to prostitutes), finding that the concededly business purpose of the expense was overcome by its inherently personal nature.  Yet in Hess v. Commissioner, T.C. Summary Opinion 1994-79 (Judge Joan Seitz Pate), the Court permitted a depreciation deduction for certain expenses (breast implants), finding that the inherently personal nature of the expense was overcome by its obvious business purpose.

You will find the surprisingly non-salacious details below the fold. 

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October 11, 2021 in Bryan Camp, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, October 4, 2021

Lesson From The Tax Court: The Many Rooms Of Tax Court Power

Camp (2021)All federal courts (except the Supreme Court) are created by Congress.  Congress defines the extent to which each federal court can invoke the power of the federal government to coerce the parties before them.  The fancy legal term for that power is “jurisdiction.”  Like all other federal courts, the Tax Court is a court of limited jurisdiction, limited to the powers that Congress permits it to exercise.

The Tax Court sometimes claims its power is more limited than other federal courts but that idea has been rightly called “fatuous.” Flight Attendants v. Commissioner, 165 F.3d 572, 578 (7th Cir. 1999) (Posner, J.) (“The argument that the Tax Court cannot apply the doctrines of equitable tolling and equitable estoppel because it is a court of limited jurisdiction is fatuous. All federal courts are courts of limited jurisdiction.”).

What is true, however, is that Congress gives the Tax Court much specific grants of powers than other federal courts.  I think of the varied jurisdictional grants as different rooms of power.  When you go to Tax Court, the extent of its powers depends on which door you enter and what room of power you find yourself in.  What the Court can do for you in some cases, it cannot do for you in others because of the way that Congress has written the statute.  It depends on which room of power you are in.  That’s the lesson we learn in Michael D. Brown v. Commissioner, T.C. Memo. 2021-112 (Sept. 23, 2021), where Judge Kerrigan explains that what the Tax Court can do when exercising its CDP jurisdiction is more limited than what it can do when exercising its deficiency jurisdiction.  The taxpayer was in the CDP room and wanted relief that could only be granted in the Deficiency room.  Those different rooms of power are different in scope and do not overlap.   Details below the fold.

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October 4, 2021 in Bryan Camp, New Cases, Scholarship, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, September 27, 2021

Lesson From The Tax Court: Emotional Distress Is Not Physical Illness

Camp (2021)My dad practiced medicine for some 40 years as both a surgeon and family practitioner.  He raised us to believe that someone who did not have objectively detectable causes for their physical symptoms was not really ill: it was “all in their head.”  The medical term for that idea is “psychosomatic disorder.” 

The Tax Code makes the same distinction.  Section 104(a)(2) permits taxpayers to exclude damages recovered for objectively detectible physical injuries or physical sickness.   But they may not exclude damages received for a sickness that is simply “all in their head.”  The legal term for that idea is “emotional distress.” 

Rebecca A. Tressler v. Commissioner, T.C. Summ. Op. 2021-33 (Sept. 13, 2021) (Judge Greaves), teaches us that damages even for severe emotional distress are not excludable unless properly linked to a physical injury.  Ms. Tressler had sued her former employer, alleging a variety of wrongs.  One allegation was that the employer failed to prevent a physical assault by another employee.  Ms. Tressler claimed these wrongs had caused her emotional distress which, in turn, had caused various physical ailments. The employer settled.  Both the IRS and Tax Court denied a §104(a)(2) exclusion because the settlement language failed to properly link the payments she received to physical injuries she sustained; they were just linked to her claim for emotional distress.  It was all in her head.

It did not have to be this way.  I think we can learn from this case how to write better settlement agreements.

Details below the fold.

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September 27, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, September 20, 2021

Lesson From The Tax Court: Failure To Understand Issue Preclusion May Trigger Sanctions

Camp (2021)Some people just cannot take no for an answer.  That is one of the reasons §6673 permits the Tax Court to impose a penalty of up to $25,000 on taxpayers who stubbornly present either frivolous or groundless arguments.

It is sometimes difficult, however, to distinguish a “no” from a “not now.”  Karson C. Kaebel v. Commissioner, T.C. Memo. 2021-109 (Sept. 9, 2021) (Judge Halpern), teaches a good lesson about issue preclusion, which is the important legal doctrine that tells us when “no” means “no.”  The taxpayer there asked the Tax Court to make the IRS take back a certification it had sent to the State Department.  But the reasons the taxpayer offered had already been rejected by both the Tax Court and the Court of Appeals in prior cases brought by the taxpayer about different subjects.  Judge Halpern explains why those no’s were really and truly no’s.  He also considers imposing §6673 penalties for the taxpayer’s intransigence.  So this will be a good lesson to learn, if for no other reason than to avoid penalties!   Details below the fold.

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September 20, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)

Monday, September 13, 2021

Lesson From The Tax Court: Retirement Plan Drafting Error Loses Taxpayer $51k Deduction

Camp (2022)As tax practitioners know, to err is human, but to forgive requires a new set of regs.  Gayle Gaston v. Commissioner, T.C. Memo. 2021-107 (Sept. 2, 2021) (Judge Marvel), teaches us the lesson that if you want to get the §404(a) deduction for contributions to a profit-sharing plan, you need to be sure to properly link the plan to the taxpayer’s trade or business. In this case, the taxpayer received substantial deferred compensation payments from Mary Kay Cosmetics after her separation from that company and made substantial contributions to a retirement plan her tax advisor drafted for her.  Unfortunately, her one-participant profit sharing plan did not identify any trade or business as the source of the plan contributions.  That was error.  Both the IRS and the Tax Court were unforgiving.  Details below the fold.

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September 13, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Tuesday, September 7, 2021

Lesson From The Tax Court: IRS Can Issue Multiple 'Final' Spousal Relief Determinations

Camp (2021)Yogi Berra would have been a great tax practitioner.  In Nilda E. Vera v. Commissioner, 157 T.C. No 6 (Aug. 23, 2021), Judge Buch does his best Yogi Berra imitation by teaching us that just because the IRS issued one “final determination” about an innocent spouse claim does not prevent it from issuing a second “final determination” to the same taxpayer when the taxpayer resubmits the same claim for the same year.  That means taxpayers potentially get a second opportunity to petition the Tax Court for review of an IRS rejection even when the taxpayer missed the first opportunity.  The Tax Court thus interprets the law to encourage taxpayers to keep resubmitting equitable relief claims because one never knows when the IRS might issue a second final determination, either deliberately or, as here, because of a goof-up.  As Yogi might have said: it ain't final until it's final!  So when at first your claim's denied, file, file again.  In the context of §6015(f) relief requests, that is not actually a bad result.  Details below the fold.

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September 7, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, August 30, 2021

Lesson From The Tax Court: The 411 On Section 911

Camp (2021)The pullout from Afghanistan has dominated the news, and many of our lives.  While it is natural to think of the war as fought by U.S. soldiers, we cannot forget the considerable number of defense contractor personnel who provided significant support.  According to this report, there were over 88,000 contractor personnel in Afghanistan nine years ago.  Many were U.S. citizens.  While the number has dropped significantly in recent years, it appears multiple thousands of non-military U.S. citizens needed to be evacuated back to the United States this year.

Today's lesson involves one such contractor and the proper application of the §911 exclusion to her.  Whatever you may think about the tax issue, I know you join me in hoping this taxpayer has made a safe return to the U.S.

Section 911 allows certain taxpayers—called “qualified individuals”—to exclude from their gross income certain amounts of income earned from outside the United States.  The case of Deborah C. Wood v. Commissioner, T.C. Memo. 2021-103 (Aug. 18, 2021) (Judge Lauber), looks at whether a civilian defense contract worker in Afghanistan could use §911 to exclude her wage income.  It teaches a short but complete lesson on what it takes to be a qualified individual for the §911 exclusion.  It is worth your time to read and think about.  Details below the fold. 

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August 30, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (2)

Monday, August 23, 2021

Lesson From The Tax Court: The Refund Lookback Period Trap

Camp (2017)Collection Due Process (CDP) hearings are generally all about collection.  Thus, if a taxpayer says that the IRS failed to apply an available credit to the tax at issue, that is a proper issue to bring up in a CDP hearing.  In Amr M. Mohsen v. Commissioner, T.C. Memo. 2021-99 (Aug. 11, 2021) (Judge Kerrigan), the taxpayer said the IRS should have applied an overpayment credit from a previous year to the tax sought to be collected.  The reason that the claimed credit was not available to be used is the lesson for today: there were no payments within the refund lookback period.  Oh, snap!  The trap!  Details below the fold. 

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August 23, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, August 16, 2021

Lesson From The Tax Court: The Concept Of Reasonable Collection Potential

Camp (2017)"Him that makes shoes go barefoot himself"
        -Robert Burton, The Anatomy Of Melancholy (1641)

One key concept for submitting a successful Offer In Compromise (OIC) is something called the Reasonable Collection Potential (RCP).  RCP is not a hard-and-fast calculation.  It contains lots of wiggle room for savvy taxpayers.  But there are limits.  Jerry R. Abraham and Debra J. Abraham v. Commissioner, T.C. Memo. 2021-97 (Aug. 3, 2021) (Judge Urda), teaches a very useful lesson in both the extent of, and limits to, the wiggle room in RCP calculations.

The irony in this case is that the taxpayer is a very savvy, experienced and successful tax attorney who specializes in OICs.  So he definitely knew what he was doing.  Yet he was unable to secure for himself what he undoubtedly secures for clients.  You could call this the case of the barefoot shoemaker.  Why that is so is the lesson for us all.  Details below the fold. 

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August 16, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (6)

Monday, August 9, 2021

Lesson From The Tax Court: Trailer Home Is Union Electrician’s Tax Home

Camp (2017)The concept of tax home can be elusive because it is so dependent on facts and circumstances. In William Geiman v. Commissioner, T.C. Memo. 2021-80 (June 30, 2021), Judge Urda teaches us which facts and circumstances are important in determining the tax home of a union member.  There, the Court finds that the taxpayer’s trailer home was also his tax home even though he did no work in the town where the trailer home was located.  This case may give us a useful way to approach a tax home determination, by asking where was the taxpayer’s last known tax home and then seeing if the facts of the year in question changed the answer.   See if you agree.  Details below the fold.

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August 9, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (0)

Monday, August 2, 2021

Lesson From The Tax Court: COGS Are Not Deductions

Camp (2017)Today’s lesson is short, but not so sweet for the losing taxpayers in BRC Operating Company LLC, Bluescape Resource Company LLC, Tax Matters Partner v. Commissioner, T.C. Memo. 2021-59 (May 12, 2021) (Judge Pugh).  The taxpayer had claimed $160 million in Cost of Good Sold (COGS) for tax years 2008 and 2009.  But the taxpayer had no sales of goods in those years.  Judge Pugh teaches us a seemingly simple lesson:  you don’t get to claim COGS without any actual goods being sold.  Once again we learn how the concept COGS differs from the concept of deductions.  I last discussed this three years ago in Lesson From The Tax Court: Into The Weeds on COGS, TaxProf blog (June 25, 2018).

The shortness of the lesson, however, belies a metaphysical murkiness lurking underneath it.  Just what the heck is COGS, anyway?  On the one hand it’s not a deduction because it comes in the process of adjusting gross receipts to determine gross income.  On the other hand, it functions like a deduction, to account for the expense of producing income.  Judge Pugh appears to believe it is required by the Constitution.  That may be true if accountants had written the 16th Amendment.  But they didn’t.  So I’m not so sure there is any constitutional basis for the concept (pun intended).   I believe that murkiness is best explained by §1001.  Details below the fold.

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August 2, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Scholarship | Permalink | Comments (1)

Monday, July 26, 2021

Lesson From The Tax Court: No Deduction For Under-The-Table Cash Payments

Camp (2017)When my son took an informal job as a “ranch hand” this past May, he was delighted to receive unrecorded cash payments.  He thinks it means he does not have to report them as income.  He will discover differently next filing season when we prepare his taxes.  But he is not alone in thinking that unrecorded cash payments are like eating someone else's dessert: the calories don't count.

The attractive obscurity of unrecorded and unreported payments for workers, however, presents a problem for those who employ them.  Employers would like to deduct those labor costs under §162.   In Engen Robert Nurumbi v. Commissioner, T.C. Memo. 2021-79 (June 30, 2021) (Judge Pugh), we learn that the Tax Court will not even use the Cohan rule to rescue a taxpayer who seeks to deduct unrecorded cash payments made to workers.  Mr. Nurumbi’s unrecorded cash payments to his workers may have helped them hide their income, but it also bit him on the butt when he tried to deduct the payments.  As part of this short and blunt lesson, I address the question of whether the Cohan rule might actually be mandatory.  Details below the fold. 

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July 26, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (5)

Monday, July 19, 2021

Lesson From The Tax Court: For Whom The Bankruptcy Tolls

Camp (2017)Most tax practitioners are vaguely aware of bankruptcy law.  Today we learn something more.

Bankruptcy can have significant benefits for taxpayers.  First, it can stop IRS collection action.  Second, it can shake off a tax liability sooner than the 10 year time period Congress gives the IRS to collect.  Third, it can be a pre-payment forum, an alternative to the Tax Court, where the taxpayer can contest an unassessed liability.

Along with benefits, however, come costs.  The biggest cost is tolling.  Bankruptcy tolls various time periods for the IRS to assess or collect.  Two recent cases teach us just how costly bankruptcy tolling bad can be for taxpayers.  Dave Andrew Lufkin Sr., v. Commissioner, T.C. Memo. 2021-71 (June 8, 2021) (Judge Greaves), teaches how bankruptcy tolls tax collectionMarc. S. Barnes and Anne M. Barnes v. Commissioner, T.C. Memo. 2021-49 (May 4, 2021) (Judge Lauber), teaches how bankruptcy can also toll assessment:  it illustrates the confusing exception to discharge for tax debts that are unassessed but assessable as of the petition date.   Details below the fold.

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July 19, 2021 in Bryan Camp, New Cases, Scholarship, Tax, Tax Practice And Procedure, Tax Scholarship | Permalink | Comments (1)