Tag Archive for Tax Court

New Developments (As of December 23, 2014)

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Recently, there have been several important IRS and court opinions affecting various areas of taxation.

A. Distribution of benefits to estate beneficiaries.

An executor was aware that the estate would owe significant taxes but instead of distributing the assets to the beneficiaries, he had the estate distribute money to himself and other heirs. As a result, the estate did not have enough funds to pay the taxes. The IRS put a lien against other property owned by the executor. The executor appealed the IRS decision to a Pennsylvania District court. The court upheld the IRS decision stating that the executor is personally liable for depleting the assets of the estate [Stiles, D.C., PA]. Read more

Self-Directed ERISA Plan Prohibited Transaction Chinese Walls

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Two 2013 United States Tax Court decisions, Peek[1]and Ellis,[2] evince a clear mandate for taxpayers seeking protection from the plan asset look-through rule’s operating company exception: STOP THE CONSTRUCTIVE OWNERSHIP DISQUALIFIED PERSON ENTITY CHAIN!!!!! In Peek, the self-directed Peek IRA and the self-directed Fleck IRA each owned 50% capital equity interest of the fire extinguisher sales operating company. In Ellis, the taxpayer’s self-directed IRA owned 98% of the used car sales operating company.

In both cases, the Tax Court’s holdings distill the proposition operating company section 4975(e)(2)(G) disqualified person status preempts the operating company exception to the plan asset look-through rule.[3] My paper, “Changes in Form 5498 Reporting And Read more

Odujinrin v. IRS Commissioner – Reinforces The Significance of Engaging A Reputable Enrolled Agent

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In Wole Odujinrin v. IRS Commissioner the petitioner, a hematology oncologist who represented himself, did not have adequate substantiation to support his petition and was not entitled to claim a net operating loss. He was also liable for an accuracy-related penalty under IRC 6662 – the expensive kick in the shorts.

This petitioner moronically showed up with little documentation in support of his claimed deductions and had inadequate evidence to show that he correctly assessed his 2009 tax liability. He testified that he relied on the advice of a tax practitioner but that person was not present to testify at trial nor provide an affidavit.

The Tax Court ultimately ruled in this case that the petitioner failed to establish a defense Read more

Tax Court – Taxpayer Was Not A Chinese Resident Pursuant to the US/China Tax Treaty

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The Tax Court has ruled that a Chinese citizen who had lived in the U.S. and filed a 2005 U.S. return as a resident alien, then filed an amended 2005 return, then, in 2009, received a 2005 refund and interest on that refund, was neither a Chinese resident nor a nonresident alien in 2009 and therefore was subject to tax on the interest income at regular U.S. graduated rates.

Article 10.1 of the tax treaty between the U.S. and China (the treaty) provides that interest arising in a Contracting State (in this case, the U.S.) and paid to a resident of the other Contracting State (China) may be taxed in the other Contracting State (China). Article 10.2 provides that the interest may also be taxed in the Contracting State (U.S.) according to its laws—but if the recipient is the beneficial owner of the interest, the tax may not exceed Read more

It’s Not The End of The World! Statutory Notice of Deficiency: Part 6

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Taxpayer’s Other Payment Options

Determining other payment options for your client takes serious research, compilation of records and information, and then sitting the client down and having a coming to reality meeting with them. Of course, you already did all of this when reviewing for the case, but let’s do a quick review of the options and the statute tolling events:

1. The Fresh Start Initiative – Full Pay Installment Agreement or Partial Pay Installment Agreement
2. Offer in Compromise
3. Letting the CSED run and letting the levy be foreclosed Read more

It’s Not The End of The World! Statutory Notice of Deficiency: Part 5

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Collection Appeal Program (CAP) and Collection Due Process (CDP)

Assuming we have not been able to get involved before the case goes to collections, we start on a different path. There are very specific things the IRS must do, in order, on the correct time line, and document to be able to make collections against a taxpayer.

Again, assuming we are brought on board before time lines expire, the CAP is our first avenue of protest at this point. The CAP can be requested via Form 9423 before or after the filing of a NFTL, levy, or seizure, or upon rejection or termination of an installment agreement.

Once Appeals makes a decision regarding your case on a CAP hearing, that decision is Read more

It’s Not The End of The World! Statutory Notice of Deficiency: Part 4

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Judicial Review On A SNOD

The taxpayer has the option, as long as they are filing in a timely manner, to Petition the Tax Court when they receive a SNOD. Be sure the client understands that there is a filing fee, currently $60, and that they must either represent themselves or have a representative who is admitted to practice before the Court. For a non-attorney that means passing the U.S. Tax Court Practitioners Exam, the highest accreditation awarded to a Tax Professional. Let’s delve a little more deeply into the petition process.

The U.S. Tax Court allows taxpayers to file a Petition in the following cases under the “Small Cases” provision: Read more

It’s Not The End of The World! Statutory Notice of Deficiency: Part 3

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Audit Reconsideration

Audit Reconsideration is allowed when you disagree with the results of only two specific events:

1. The assessment of tax liability by the IRS because of an audit of their filed return or
2. The assessment of a tax liability by the IRS because they have filed an SFR for the taxpayer.

This will usually occur when the case is still in the Examinations Division and is a much more informal version of a CAP. The IRS considers the Audit Reconsideration when there is information that was not considered in the original assessment. Representatives Read more

It’s Not The End of The World! Statutory Notice of Deficiency: Part 2

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Client Receives “The Letter”

Best case scenario; we see the client as soon as that first CP2000 letter arrives at their door. Unfortunately, many times we don’t see a client until they have actually received the SNOD. This puts us at the disadvantage as some of the taxpayers time lines have already been blown by this point.

A quick review of the basics of any representation contact:

1. Engagement letters for specific situations (i.e consultation only, representation, etc)
2. Review of all IRS correspondence, taxpayer’s return and documentation, time lines in play and IRS transcripts. Read more

It’s Not The End of The World! Statutory Notice of Deficiency: Part 1

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Your client calls you in a panic because they have just received a letter from the IRS and it says they owe money and talks about having to go to Tax Court! For most of us this is an everyday occurrence, however, for the client, it can be panic inducing. At the other extreme is the client who just ignores the letters until the certified letter comes talking about liens and levies, but that’s another blog post entirely.

The IRS even has a Tax Tip titled: Eight Tips for Taxpayers Who Receive an IRS Notice. Tip #1 is Don’t panic! Of course, none of the other tips include the advice to consult a tax professional, but that’s what we’re here for.

Once your client receives a Statutory Notice of Deficiency (SNOD) the clock is running and Read more

Recent Important IRS And Court Rulings

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1. If an employer offers both a FSA and a HSA, the IRS indicated that a participant covered by a health FSA during the year, solely as a result of a carryover, cannot make payments to a HSA during the year. This is the case even for months of the year after the balance of the FSA is fully liquidated.

2. Low income earners receive a refundable tax credit to purchase health insurance through an exchange. If the taxpayer is married, they must file a joint return to claim the credit. But the IRS said it will allow victims of domestic abuse to file separately if the victim is not living with his or her spouse at the time their return is filed.

3. To be able to deduct passive losses, the Tax Court previously ruled that real estate Read more



A casualty is a sudden unusual and unexpected event that damages or destroys your property. A sudden event is one that is swift. Unexpected is an event that is not anticipated and is unintended. An unusual event is one that is not-day-to day and is not typical of the activity for which the asset is normally used. To have a casualty, chance or a natural phenomenon must be present. Examples include fires, windstorms, tornadoes, hurricanes, floods, sudden landslides, vehicle accidents, theft, broken water pipes, and vandalism. Loses that are progressive and occur gradually over a period of time are not qualifying casualty losses. Examples are rust, erosion, drought, water damage from leaking windows or gutters, and termite damage. Lost items are also not casualties. Read more