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Tax Court In Brief: Charitable Contribution Deduction Regarding Champions Retreat Golf Course Conservation Easement

Champions Retreat Golf Founders, LLC v. Comm’r, T.C. Memo. 2022-106 | October 17, 2022 | Pugh, J. | Dkt. No. 4868-15

Summary: This 43-page opinion is another lengthy chapter in over ten years of litigation regarding a charitable contribution deduction for the donation of a conservation easement given in 2010 by Champions Retreat to North American Land Trust (NALT) that covered about 348 acres of a private golf course designed by Gary Player, Arnold Palmer, and Jack Nicklaus. This opinion (we will call Champions III) supplements Champions Retreat Golf Founders, LLC v. Comm’r (Champions I), T.C. Memo. 2018-146, the latter of which was vacated and remanded by the U.S. Court of Appeals for the 11th Circuit in Champions Retreat Golf Founders, LLC v. Comm’r (Champions II), 959 F.3d 1033 (11th Cir. 2020). The focus of Champions III is the determination of the proper amount of the charitable deduction applicable to the charitable contribution, which required that the Tax Court value the conservation easement at the time of the donation.

Champions Retreat and the IRS’s experts agreed that the before and after method applied. However, Champions Retreat claimed a $10,427,435 charitable contribution deduction on its Form 1065, U.S. Return of Partnership Income, for the 2010 taxable year, for its grant of the easement to NALT. Champions Retreat’s claim was supported by an appraisal performed by Claud Clark III, which relied on the “before and after” method to value the easement. See Treas. Reg. § 1.170A-14(h)(3)(i), (ii). Clark concluded that the highest and best use of the property unencumbered by the easement was as a residential subdivision. The IRS, on the other hand, engaged an expert real estate appraiser, David G. Pope, who concluded that the highest and best use of the property before and after the easement grant was the operation of the golf course. Pope opined that the fair market value of the conservation easement was $20,000.

Key Issues:

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Tax Court In Brief: Burdens Applicable To Both Taxpayers And The IRS In Tax Court

Catlett v. Comm’r, No. 13058-14, T.C. Memo 2021-102 | August 16, 2021 | Lauber | Dkt. No. 13058-14

Short Summary:  The taxpayer was convicted in 2011 on Federal criminal charges, including tax crimes and conspiracy to defraud the United States. In March 2011 he was sentenced to 210 months in prison. After he was remanded to custody, the IRS completed a civil examination of his 2006-2010 tax years.  The IRS subsequently assessed substantial deficiencies, along with additions to tax and penalties.  The taxpayer timely petitioned the Tax Court in June 2014.  However, because of his incarceration, the case was repeatedly continued.  The taxpayer died in January 2020, and the IRS filed a motion to dismiss the case based on lack of prosecution.

Key Issue:  The key issue is the standard for dismissal when a taxpayer fails to prosecute their case.  Various burdens come into play that the IRS must still meet despite the failure of the taxpayer to prosecute his case.

Primary Holdings

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Tax Court In Brief: Government Contractor In Afghanistan Who Earned All Income On U.S. Military Base

Deborah C. Wood v. Comm’r; T.C. Memo. 2021-103 | August 18, 2021 Lauber, J. | Dkt. Nos. 23239-18, 23260-18

Short Summary The IRS determined that Wood, a government contractor who earned all her income on a U.S. military base in Afghanistan, owed roughly $95,000 in income tax deficiencies, plus additional tax and accuracy-related penalties. Wood petitioned the tax court, which mainly found in her favor. The court held that she qualified for section 911(a)(1)’s “foreign earned income” exclusion and that she was not liable for a late-filing addition to tax under section 6651(a)(1) because she was serving in support of the military in a combat zone during the relevant time.

Key IssuesThe two requirements for qualifying for the foreign earned income exclusion turn on a variety of factors. Here, the taxpayer’s somewhat unique work circumstances easily qualified her for the exclusion.

Primary Holdings:

Section 61(a) provides that gross income means “all income from whatever source derived.”  Section 911(a)(1) provides that a “qualified individual” may elect to exclude from gross income, subject to certain limitations, “foreign earned income.” Foreign earned income is “the amount received by such individual from sources within a foreign country or countries which constitute earned income attributable to services performed by such individual.” Sec. 911(b)(1)(A).

There was no dispute that Wood’s compensation for her work as a contractor in Afghanistan was “foreign earned income.” The issue was whether she was a “qualified individual” and eligible to exclude that compensation from her gross income. The court agreed with Wood that she was.

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The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

Plentywood Drug, Inc. | April 26, 2021 | Holmes| Dkt. No. 17753-16

Short Summary:  The Tax Court was asked to decide whether rent paid by the Taxpayer was reasonable.  The Taxpayer was owned by four related individuals (the “Shareholders”).  The Shareholders owned the building where the the Taxpayer was operating.  The Taxpayer paid rent of $83,584, $192,000, and $192,000 for 2011, 2012 and 2013, respectively.

The IRS disallowed certain rent deductions by the Taxpayer to the Shareholders because the IRS stated that the rent paid by the Taxpayer was greater than what the fair market rent would have been paid at an arm’s length transaction.  The IRS recharacterized the excess rent as dividends, therefore, the Taxpayer would not be able to deduct the dividends.

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Tax Court In Brief: Freeman Law

Catania v. Commissioner, T.C. Memo. 2021-33 | March 15, 2021 | Vasquez, J. | Dkt. No. 13332-19

Short Summary

Petitioner worked for Home Depot and participated in its section 401(k) plan. In 2014 he retired from Home Depot and transferred his section 401(k) plan account balance to a traditional individual retirement account (IRA) held at Vanguard Fiduciary Trust Co. (Vanguard). Petitioner was 55 years old at that time.

In 2016 petitioner withdrew $37,000 from his Vanguard IRA. Petitioner used the funds to pay for the maintenance of his home and other necessary living expenses. Petitioner was 57 years old as of December 31, 2016.

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The Tax Court in Brief: Tax Court Opinions And Decisions

The Week of January 11 – January 15, 2021

Kenneedy v. Comm’r, T.C. Memo. 2021-3 | January 12, 2021 | Copeland, E. | Dkt. No. 5687-17W

Short Summary:  Petitioner appealed, pursuant to § 7623(b)(4), three determinations of the Whistleblower Office (WBO) of the Internal Revenue Service (IRS) that declined to make awards to him.  Petitioner filed a single whistleblower claim, but the WBO split it into three distinct claims. Petitioner’s whistleblower claim alleged that three taxpayers and related subsidiaries owed $150,103,245 in unpaid excise taxes, penalties, and interest. The IRS processed the claims, and it took no action against two of the taxpayers, and no change resulted from the examination of the third taxpayer.  Petitioner challenged the WBO’s determinations. The Tax Court held that the WBO did not abuse its discretion in declining any awards to Petitioner.

Key Issue:  Whether the WBO abused its discretion in declining to award the Petitioner any amount under his whistleblower claims when it took no action against two taxpayers and issued no changes after the examination of the third taxpayer.

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Tax Court In Brief

The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

The Week of October 31 – November 6, 2020

Glade Creek Partners, LLC, Sequatchie Holdings, LLC, TMP v. Comm’r, T.C. Memo. 2020-148 | November 2, 2020 | Goeke, J. | Dkt. No. 22272-17

Short Summary:  In 2012, Glade Creek Partners, LLC (Glade Creek) donated a conservation easement on 1,313 acres of undeveloped real estate in Bledsoe County, Tennessee.  It claimed a $17.5 million charitable contribution deduction for its 2012 short tax year period.  The IRS challenged the charitable contribution deduction and sought penalties.

Key Issue:  Whether Glade Creek is entitled to the charitable contribution deduction under the technical requirements of Section 170 and whether Glade Creek is liable for a 40% gross valuation misstatement penalty under Section 6662(e) and (h) or alternatively the 20% valuation penalty under Section 6662(b)(3).

Primary Holdings

  • Glade Creed is not entitled to a full conservation easement deduction because the easement’s conservation purposes are not protected in perpetuity. However, Glade Creek is entitled to a cash charitable contribution deduction of $35,077.  In addition, Glade Creek is liable for a 20% accuracy-related penalty for a substantial valuation misstatement for any claimed charitable contribution deduction in excess of $8,876,771.

Key Points of Law:

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Freeman Law | The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

The Week of October 10 – October 16, 2020

Jesus R. Oropeza v. Comm’r, 155 T.C. No. 9 | October 13, 2020 | Lauber, J. | Dkt. No. 15309-15

Short Summary:  The case involved the issuance of a notice of deficiency without the proper written supervisory approval provided by I.R.C. sec 6751(b)(1).

The IRS opened an examination to review Mr. Oropeza’s (the “taxpayer”) tax return for the 2011 tax year. The period of limitations for 2011 was set to expired on April 15, 2015.

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Freeman Law: The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

The Week of September 12 – September 18, 2020

Deckard v. Comm’r, 155 T.C. No. 8  | September 17, 2020 | Thornton, J. | Dkt. No. 11859-17

Short Summary:  Waterfront Fashion Week, Inc. (Waterfront) was organized under Kentucky law as a nonstock, nonprofit corporation in 2012.  Mr. Deckard was Waterfront’s president and one of its three directors.  Waterfront never applied for recognition of tax-exempt status with the IRS.

On October 28, 2014, Waterfront mailed to the IRS Form 2553, Election by a Small Business Corporation.  In the Form 2553, Waterfront sought to elect to be an S corporation retroactively as of the date of its incorporation in 2012.  Mr. Deckard signed the Form 2553 in his capacity as Waterfront’s president.  In addition, Mr. Deckard signed the Form 2553 shareholder’s consent statement, indicating that he owned 100% of Waterfront.

In 2015, Waterfront filed Forms 1120S, U.S. Income Tax Return for an S Corporation, for its taxable years 2012 and 2013, reporting operating losses.  Mr. Deckard reported these flow-through losses on his 2012 and 2013 returns.

The IRS disallowed the losses on the ground that Waterfront filed to make a valid S corporation election and alternatively that Mr. Deckard was not a shareholder of Waterfront.  Mr. Deckard filed a timely petition with the United States Tax Court.

Key Issue:  Whether Mr. Deckard can claim the losses from Waterfront on his 2012 and 2013 tax returns?

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Tax Court In Brief

The Tax Court in Brief

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

The Week of September 5 – September 11, 2020

Sutherland v. Comm’r, 155 T.C. No. 6 | September 8, 2020 | Lauber, J. | Dkt. No. 3634-18

Short Summary:  In 2010, Ms. Sutherland’s husband was indicted for tax crimes.  He pled guilty, and as part of his plea agreement he was required to submit delinquent tax returns for 2005 and 2006 (among other years).  Ms. Sutherland signed the returns for 2005 and 2006.

Later, Ms. Sutherland filed an IRS Form 8857, Request for Innocent Spouse Relief, for 2005 and 2006.  The IRS reached a preliminary determination to deny her request for innocent spouse relief, and she appealed.  During the IRS Appeals process, Ms. Sutherland’s attorney determined that the Appeals Officer (AO) was not properly applying the innocent spouse factors.  Because no progress was being made, her attorney chose not to submit additional evidence on the belief that Ms. Sutherland would receive de novo review in the Tax Court.

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