Mar 09, 2010 06:47PM

IRS acquiesces in decision holding LLC interest not equivalent to a limited partnership interest for PAL purposes - Category : Federal Tax Updates

IRS has acquiesced, in result only, in the Court of Federal Claims' decision in Thompson v. U.S., (Fed. Cl. 2009) 104 AFTR 2d 2009-5381, which concluded that a taxpayer's interest in a limited liability company (LLC) was not a ?limited partnership interest? for purposes of Reg. § 1.469-5T(e)(3)(i).

Mar 09, 2010 06:47PM

Court finds inherited IRAs aren't exempt retirement accounts under Bankruptcy Code - Category : Federal Tax Updates

In a case of first impression, a Bankruptcy Court has concluded that, unlike a debtor's own traditional individual retirement account (IRA), a debtor's inherited IRA isn't an exempt asset of her bankruptcy estate under Bankruptcy Code §522(d)(12).

Mar 09, 2010 06:47PM

Chile earthquake designated as disaster under disaster payment exclusion - Category : Federal Tax Updates

IRS has designated the Chile earthquake occurring on Feb. 27, 2010, as a qualified disaster for purposes of the Code Sec. 139 exclusion for qualified disaster relief payments. Thus, employer-sponsored private foundations can assist certain victims in areas affected by the Chile earthquake, and recipients of this assistance can exclude the relief payments from gross income.

Mar 09, 2010 06:47PM

Code Section 61?Income exclusions?what constitutes income?damages on account of personal physical injury or sickness?settlements?constitutional claims.

Tax Court properly determined that married couple had taxable income from payment wife received to settle false imprisonment and other tort claims against bank, whose incorrect depiction of one of wife's checks as bad check led to arrest. Argument that her personal injury/compensatory damage award couldn't amount to gross income under Code Sec. 61 because it just made taxpayers whole rather than enriched them was belied by gross income's longstanding broad definition. Alternative argument that award should be excluded from income pursuant to Code Sec. 104(a)(2) also failed where record indicated that award was for emotional injuries and taxpayers showed no direct causal connection to any physical injuries. Fact that false imprisonment involved involuntary physical restraint didn't necessarily mean that physical injuries resulted. Also, taxpayers' constitutional attacks on Code Sec. 104(a)(2), construing same as violating 16th Amendment or as amounting to otherwise unallowable direct tax that required apportionment or wasn't uniform, were meritless and belied in part by fact that tax on receipt of damage award wasn't direct tax on property and was uniform. (Stadnyk v. Comm., CA 6, 105 AFTR 2d ¶2010-537Stadnyk v. Comm., CA 6, )

Mar 09, 2010 06:47PM

Code Section 61?Unreported income?wages?frivolous arguments.

IRS's deficiency determination of pro se taxpayer's unreported income from wages and other items for year he claimed zero wages on return and substitute Form W-2 was upheld: taxpayer's arguments that wages weren't taxable were groundless and frivolous. (Scott R. Holmes v. Commissioner, (2010) TC Memo 2010-42, 2010 RIA TC Memo ¶2010-42 )

Mar 09, 2010 06:47PM

Code Section 72?10% additional tax on early retirement plan distributions.

Code Sec. 72(t) 10% additional tax on early retirement plan distributions was upheld against pro se taxpayer for year during which he was less than age 59 and admitted receiving distribution: no Code Sec. 72(t)(2) exception applied. (Scott R. Holmes v. Commissioner, (2010) TC Memo 2010-42, 2010 RIA TC Memo ¶2010-42 )

Mar 09, 2010 06:47PM

Code Section 139?Disaster relief payments?qualified disaster?earthquake in Chile.

IRS announced that earthquake in Chile is event of catastrophic nature for purposes of Code Sec. 139. Specific application of this conclusion is detailed in Notice 2010-26, 2010-14 IRB. ( IR 2010-28 )

Mar 09, 2010 06:47PM

Code Section 139?Disaster relief payments?qualified disaster?earthquake in Haiti.

As announced in IR 2010-28 (3/9/2010), IRS has designated 2/27/2010 earthquake in Chile as ?qualified disaster? within meaning of Code Sec. 139(c)(3). Employer-sponsored private foundations may provide assistance to victims, and relief payments so received are excludable from gross income. (Notice 2010-26, 2010-14 IRB )

Mar 09, 2010 06:47PM

Code Section 6011?Return requirements?assistance for struggling taxpayers.

IRS announced additional steps it is taking this filing season to assist taxpayers who are having employment or financial difficulties, including more flexibility for offers in compromise, weekend hours at service centers, and coordination with state agencies for those affected to resolve state and federal tax liabilities in one place. Other options that might be helpful to taxpayers facing financial hardship were highlighted. ( IR 2010-29 )

Mar 09, 2010 06:47PM

Code Section 6320?Collection due process?review of administrative determination?abuse of discretion.

Tax Court decision upholding IRS's administrative determination to proceed with lien filing for married taxpayers' unpaid tax liability was affirmed, based on Court's reasoning. (Willock v. Comm., CA 4, 105 AFTR 2d ¶2010-547Willock v. Comm., CA 4, )

Mar 09, 2010 06:47PM

Code Section 6320?Collection due process?review of administrative determination?Paperwork Reduction Act?hearings?frivolous claims sanctions.

IRS's administrative determination to proceed with lien filing for pro se taxpayer's unpaid interest and failure to timely file returns and to pay tax shown on returns penalties was upheld on summary judgment: taxpayer's attempts to contest interest and return filing requirements on basis of PRA were meritless; and, argument that he was improperly denied CDP hearing failed in face of facts that Appeals Officer spoke on phone and exchanged written correspondence with taxpayer, gave taxpayer ample opportunity to raise non-frivolous issues, and verified that all legal and administrative procedures were followed. Taxpayer was warned that he could be subject to Code Sec. 6673 sanctions if he pursued similar positions in future proceedings. (Patrick R. Turner v. Commissioner, (2010) TC Memo 2010-44, 2010 RIA TC Memo ¶2010-44 )

Mar 09, 2010 06:47PM

Code Section 6651?Penalties?failure to timely file returns, to pay tax or to pay estimated tax?burden of proof and production?frivolous arguments?deemed concessions.

Penalties for failure to timely file returns, to pay tax and to pay estimated tax were upheld against pro se taxpayer for year he earned, but claimed zero, wages: taxpayer, arguing only frivolous protester-type objections to tax but raising no issues pertaining to penalties themselves, was deemed to have conceded, and IRS was deemed to have no burden of production on, same. (Scott R. Holmes v. Commissioner, (2010) TC Memo 2010-42, 2010 RIA TC Memo ¶2010-42 )

Mar 09, 2010 06:47PM

Code Section 6673?Frivolous claims sanctions?repeat litigation.

$10,000 Code Sec. 6673(a)(1) sanction was imposed on pro se taxpayer for pursuing frivolous deficiency petition that he based on same meritless position for which he had been sanctioned in earlier case. (Scott R. Holmes v. Commissioner, (2010) TC Memo 2010-42, 2010 RIA TC Memo ¶2010-42 )

Mar 09, 2010 06:47PM

Code Section 7402?District court procedure?bankruptcy?withdrawal of reference?lien priority?core proceedings.

Chap. 7 debtor/bankrupt corp. pres.'s motion to withdraw reference of his adversary proceeding to determine priority of various liens to funds held for him by trustee to bankruptcy court was denied: motion was untimely filed almost 1 year after such issue arose. And, in any event, taxpayer didn't satisfy requirements for mandatory withdrawal since, because bankruptcy judge had determined to abstain from taxpayer's claims regarding his individual tax liability, taxpayer was unable to show that resolution of his case was dependent upon questions of non-bankruptcy law; and permissive withdrawal was inappropriate because subject proceeding was core proceeding, bankruptcy judge was familiar with parties and better able to ensure uniform administration of proceedings, and withdrawal would neither promote judicial economy nor efficient use of creditors' and taxpayer's resources. (In Re: Marine Energy Systems, Corp., DC SC, 105 AFTR 2d ¶2010-544In Re: Marine Energy Systems, Corp., DC SC, )

Mar 09, 2010 06:47PM

Code Section 7422?Refund actions?jurisdiction?administrative claims.

Pro se taxpayer's refund complaint, contesting tax on stock transfer and that IRS already collected on certain assessment via ?income tax refund interception? or through other means, was dismissed for lack of jurisdiction: taxpayer didn't show that she met administrative claim filing prerequisite to suit. However, dismissal was without prejudice and with leave to amend. Taxpayer was advised that if she was treating purported letter from IRS as part of administrative decision on administrative claim, she should state so explicitly and must specifically allege that her claim had been timely. (Wroblewski v. U.S., DC MD, 105 AFTR 2d ¶2010-549Wroblewski v. U.S., DC MD, )

Mar 09, 2010 06:47PM

Code Section 7602?Summons enforcement?contempt.

Magistrate judge recommended that taxpayer be ordered to show cause why she shouldn't be held in contempt for her violation of summons enforcement order: although specific order existed that required taxpayer to appear before IRS, answer questions, and produce documents pertaining to her tax liabilities, she failed to do so. (U.S. v. Lopez, DC CA, 105 AFTR 2d ¶2010-541U.S. v. Lopez, DC CA, )

Mar 09, 2010 06:47PM

Code Section 7602?Summons enforcement?procedure.

Magistrate judge recommended granting govt.'s petition to enforce IRS summonses on pro se married taxpayers, which IRS issued as part of investigation into collectibility of their joint and husband's employment tax liabilities: govt. established prima enforcement case that summonses were issued in good faith for legitimate purpose, information was relevant to that purpose and not already in IRS's possession, all administrative steps were followed, and no Justice Dept. referral was in effect. (U.S. v. Settle, DC CA, 105 AFTR 2d ¶2010-550U.S. v. Settle, DC CA, )

Mar 09, 2010 06:47PM

Code Section 7602?Summons enforcement?legitimate purpose?overbreadth?5th Amendment privilege against self-incrimination?contempt?sanctions?fines and attorney's fees and costs.

District court orders, granting govt. enforcement of IRS summonses on tax consulting business owner and husband and subsequently holding them in contempt, were affirmed with modifications. Argument that court issued enforcement order without properly considering taxpayers' 5th Amendment privilege claim was belied by fact that court did give taxpayers opportunity to assert and present evidence that privilege covered summoned documents. Also, court correctly determined that ?foregone conclusion? exception applied to production of those documents that related to offshore credit card accounts which were specifically named in summonses; but, exception didn't apply to information concerning additional credit cards that were only identified later. So, that information was privileged and excluded from enforcement order and contempt purgation conditions. However, contempt findings were otherwise appropriate when considering that wife didn't turn over information pertaining to named/pre-identified credit card accounts or show inability to do so and that husband's late-raised claims of having no custody or control of stated information were incredible and insufficient to establish his present inability to comply. Given foregoing, 9th Cir. concluded that sanctions in form of $500 daily fine and govt.'s costs were appropriate. (U.S. v. Bright, CA 9, 105 AFTR 2d ¶2010-536U.S. v. Bright, CA 9, )

Mar 09, 2010 06:47PM

Judicial proceedings?Bankruptcy court procedure?post-confirmation complaints?Chap. 13 plan modification?res judicata?below median debtors.

Trustee was granted motion to modify debtors' confirmed Chap. 13 plan to require them to pay annual tax refunds to him for remainder of term of their plan for distribution to creditors: res judicata wasn't bar to post-confirmation modification of Chap. 13 plans; and argument that taxpayers' prior year refund was asset that was ?earned?/accumulated before and thus wasn't subject to modification motion failed where, unlike in Chap. 7, any refund due to taxpayers on account of income earned in prior year was bankruptcy estate property as it was all earned after commencement of case. Also, argument that as below median debtors, taxpayers weren't required to contribute any disposable income/refunds beyond applicable 3-year commitment period under 11 USCS 1325(b)(1) was misguided insofar as statute didn't set maximum term of Chap. 13 plan; and, claim that any refunds turned over to trustee should be applied first to payment obligations in years 4 and 5 of plan to shorten its term was irrelevant to instant motion and further failed where, as taxpayers voluntarily obtained confirmation of 5-year plan, they could be compelled to pay their disposable income in those years. (In Re: Rodger, Bktcy Ct NH, 105 AFTR 2d ¶2010-543In Re: Rodger, Bktcy Ct NH, )

Mar 09, 2010 06:47PM

Judicial proceedings?Sanctions on repeat and abusive litigants?monetary sanctions?safe harbor?injunctions?filing restrictions.

Govt.'s motion for monetary sanctions and/or filing restrictions on pro se taxpayer, who had filed repeat suits making frivolous arguments against tax and penalties, was denied in part and granted in part. Motion was denied as to monetary sanctions because govt. filed same without complying with F.R.Civ.P. 11(c)(1)(A)'s safe harbor rule. But, motion was granted in respect to filing restrictions, which were necessary in face of facts of taxpayer's litigation history and that he was persisting even in current proceeding with his frivolous positions. (Gardner v. U.S., DC NM, 105 AFTR 2d ¶2010-548Gardner v. U.S., DC NM, )