Christian N. Weiler

This consolidated U.S. Tax Court case addressed IRS determinations of tax deficiencies and civil fraud penalties under I.R.C. § 6663 against Albert and Wendy Hee for tax years 2004–2012, and against Waimana Enterprises, Inc., for tax years 2003, 2004, and 2006–2008, along with an addition to tax under § 6651(a)(1) for Waimana in 2003. The deficiencies stemmed primarily from the Hees' failure to report constructive dividend income received from Waimana, a C corporation holding company, as well as overstated deductions and omitted income by both petitioners. The court held that the IRS proved by clear and convincing evidence that the underpayments were due to fraud, citing multiple badges of fraud including inadequate records, implausible explanations, and incomplete information provided to tax preparers, which kept the years open under § 6501(c)(1) and allowed assessment of the deficiencies and penalties.

taxesbusiness & regulatory

The case involved partners of an architecture firm, AS+GG, challenging the IRS disallowance of research tax credits under section 41 claimed for six sample sustainable architectural projects in tax years 2008-2010, with the credits flowing through to the partners' personal returns. The Tax Court found that the research activities met the qualified research requirements but addressed whether any projects involved funded research under section 41(d)(4)(H), concluding that payments under four contracts were not contingent on research success and that AS+GG retained substantial rights, permitting partial credits, while the other two were ineligible. The court also held that the partners' 2008 compensation was reasonable under the independent investor test for purposes of section 174(e) deductibility. Precise credit amounts could not be determined from the record, and the parties were directed to apply the sample project findings pro rata to the remaining projects.

taxesbusiness & regulatory

The case involved William P. Wells and Ruth E. Wells challenging an IRS Notice of Deficiency that disallowed carryover charitable contribution deductions claimed for tax years 2019, 2020, and 2021 based on a 2016 noncash donation of real property (land and structures) to Chamberlain-Hunt Academy. The Tax Court ruled that the taxpayers did not satisfy the contemporaneous written acknowledgment requirements under IRC section 170(f)(8), so the deductions were disallowed. The court also held that section 6662 accuracy-related penalties did not apply because the taxpayers established a reasonable cause defense through good-faith reliance on their long-time CPA's advice regarding the donation documentation. The decision focused on whether the donation letter and related documents met the specific statutory substantiation rules for noncash charitable contributions of property.

taxesproperty

This U.S. Tax Court case involved petitioners who had claimed deductions for payments made by their S corporation to microcaptive insurance companies, which the court in a prior opinion (Kadau I) had already ruled were not deductible because the arrangements were not insurance in the commonly accepted sense and lacked legitimate business purpose. The remaining issue was whether the IRS could impose a 40% accuracy-related penalty under sections 6662(b)(6) and (i) for tax years 2012-2015 on the ground that the underpayments resulted from transactions lacking economic substance under section 7701(o) and were not adequately disclosed. Following the precedent set in Patel v. Commissioner, the court held that the microcaptive arrangement lacked economic substance and that the returns (Forms 1120S and individual returns) failed to include sufficient details or required disclosure forms to alert the IRS to the nature of the transactions. The court therefore sustained the increased 40% penalties for those years while continuing to apply the 20% penalties for 2016 and 2017 as previously determined.

taxesbusiness & regulatory

The case involved partnerships that claimed large charitable contribution deductions on their 2016 federal tax returns for granting conservation easements over land in Meriwether County, Georgia, to the Oconee River Land Trust. The IRS disallowed the deductions through notices of final partnership administrative adjustment, and after concessions the Tax Court addressed the fair market values of the easements and applicable penalties. The court determined the values to be $81,000 for one property and $145,000 for the other, far below the amounts claimed, and held that the 40% gross valuation misstatement penalty under section 6662(h) applied because the claimed values exceeded the determined values by more than 200%. The decision rested on the court's evaluation of expert testimony and evidence concerning the properties' highest and best uses, with other penalties deemed inapplicable once the correct values were established.

taxesenvironmentproperty

The case concerned a limited partnership, Otay Project LP, that claimed a deduction exceeding $743 million on its 2012 tax return, primarily stemming from a prior positive basis adjustment under section 743(b) made to a partner's outside basis in the partnership. The IRS issued a final partnership administrative adjustment disallowing over $713 million of the deduction, relying on the subchapter K anti-abuse rule, the economic substance doctrine, and other theories, while also asserting accuracy-related penalties. After concessions, the Tax Court sustained the disallowance, holding that the partnership had incorrectly determined the section 743(b) basis adjustment and that the transactions lacked economic substance as shams. The court rejected the penalties, however, because the partners had demonstrated reasonable cause through reliance on multiple substantial-authority tax opinions addressing the complex basis and partnership tax issues.

taxesbusiness & regulatory

This U.S. Tax Court case involved Kenneth and Juli Walker challenging an IRS proposed levy to collect an additional $20,904 tax assessment for tax year 2018 related to excess advance premium tax credits for health insurance, along with their request for abatement of penalties. The court held that the IRS was required to issue a Notice of Deficiency before making the assessment because the adjustment did not qualify as a mathematical or clerical error under IRC section 6213, making the assessment invalid. The court further determined that the IRS Appeals Office abused its discretion in upholding the levy during the collection due process hearing by failing to verify compliance with deficiency procedures. As a result, the court ruled that the IRS could not proceed with the collection action.

taxesprocedure

This U.S. Tax Court case involved petitioner Carl B. Barney's challenge to an IRS notice of deficiency for tax year 2012, which asserted a $31 million tax deficiency and a $12 million accuracy-related penalty stemming from his claimed noncash charitable contribution deduction of $132 million from a bargain sale of five S corporations operating for-profit colleges to the nonprofit Center for Excellence in Higher Education. Barney also sought a refund of nearly $25 million, asserting an overpayment. The court found that the fair market value of the transferred S corporations was $300 million against $267 million in consideration received, confirming the transaction as a bargain sale (part sale, part donation) and holding that Barney was entitled to a corresponding charitable contribution deduction, while partially sustaining and overruling the IRS's adjustments. The court deferred rulings on any underpayment, penalties under section 6662, and potential overpayment pending further computations, after analyzing appraisals, valuation methods, and the transaction's terms.

taxesbusiness & regulatory

The case involved a taxpayer challenging IRS notices of deficiency for tax years 2016 and 2017, which assessed additional income taxes, accuracy-related penalties, and disallowed the Earned Income Tax Credit. The Tax Court ruled in favor of the Commissioner, denying the taxpayer's claims for various deductions including unreimbursed employee business expenses, depreciation under section 179, and section 179D energy efficiency deductions, as well as upholding the penalties and the denial of the EITC. The court reasoned that the taxpayer, as a full-time employee, failed to provide sufficient evidence to substantiate the deductions, was not eligible to claim the section 179D deductions allocated to him, and his income exceeded the limit for the EITC.

taxesbusiness & regulatory

The case involved the Mira Vista Homeowners Association, a nonprofit governing a gated community in Texas with private streets, greenbelts, and recreational facilities, which applied for federal tax exemption under IRC section 501(c)(4) as a social welfare organization. The IRS denied the application, determining that the Association primarily benefited its members and guests rather than the broader community on an unrestricted basis. The Tax Court upheld the IRS determination after reviewing the administrative record, finding that the Association's activities and access privileges, including to an unrelated country club, served private interests similar to those in prior cases like Flat Top Lake Association. The court concluded that the Association failed to qualify for exemption because its operations did not promote social welfare as required by the statute.

taxesbusiness & regulatory

This U.S. Tax Court case concerned petitioners Curtis K. Kadau and Lori A. Kadau, who claimed deductions on their returns for tax years 2012 through 2017 for amounts paid by an S corporation, Surface Engineering & Alloy Co., Inc., to a purported microcaptive insurance arrangement involving affiliated entities Risk & Asset Protection Services, Ltd. and RMC Property & Casualty, Ltd. The IRS issued notices of deficiency disallowing the deductions on the grounds that the arrangement did not constitute actual insurance for federal income tax purposes and asserted accuracy-related penalties under section 6662. The court addressed whether the transactions qualified as insurance, whether the expenses were ordinary and necessary business deductions under section 162, whether certain amounts should be treated as subpart F income, and whether penalties applied for substantial understatements of income tax. After reviewing stipulated facts, trial evidence, and applicable law, the court rejected the petitioners' defenses, including substantial authority, and sustained the penalties.

taxesbusiness & regulatory

This U.S. Tax Court case involved petitioners Alan Hamel and the Estate of Suzanne Hamel challenging IRS deficiency notices and penalties related to partnership tax items from Palm Canyon, specifically contesting the court's jurisdiction over section 6662 penalties and the validity of assessments under sections 6229 and 6230. The court had previously dismissed the penalty claims for lack of jurisdiction, granted the Commissioner's motion for summary judgment upholding the notices, and denied the petitioners' cross-motion. On reconsideration prompted by the Supreme Court's Loper Bright decision overruling Chevron deference, the court granted the motion in part but reaffirmed its rulings, holding that its statutory interpretation of the relevant Code provisions and temporary regulations remained valid without reliance on agency deference, that the petitioners had not properly identified themselves as partners to close the limitation periods, and that the notices were timely and valid.

taxes

This consolidated Tax Court case involved four partnerships that claimed nearly $90 million in noncash charitable contribution deductions on their 2014 and 2015 returns for donating conservation easements on adjoining properties in North Carolina. The IRS disallowed the deductions in full via notices of final partnership administrative adjustment, determining that the claimed fair market values—based on a highest and best use as construction aggregate quarries—were grossly overstated. The court found that while a single hypothetical quarry might have been physically possible, developing three adjoining mines was not financially feasible or maximally productive, and the petitioners failed to show reasonable cause for the valuations, which increased the land's per-acre value from roughly $2,500 to over $160,000 within three years. It therefore sustained the disallowance of the deductions and imposed accuracy-related penalties, including a 40% gross valuation misstatement penalty under section 6662(h) for the primary underpayment and a 20% penalty for substantial understatement or negligence in the alternative. The other partnerships agreed to be bound by the penalty holdings.

taxesenvironmentproperty

This case involved a dispute over Christopher Aubuchon's 2017 federal income tax return, where the IRS issued a notice of deficiency for unreported wages of $73,796 from his employment as CEO of Filld, Inc., plus rental income of $13,800 and other sources totaling $95,842 in additional taxable income. The taxpayer, who filed his return late in 2021 and reported zero wages while claiming a full refund of withholdings, raised various defenses but the court addressed whether he was liable for the increased deficiency, a late-filing addition to tax under section 6651(a)(1), and an accuracy-related penalty under section 6662(a). The court sustained the deficiency and both penalties, finding that the IRS met its burden of proof through third-party reporting forms like W-2s and 1099s, the taxpayer's own filings, and evidence of his education and lack of reasonable cause or good faith, while deeming his tax protester arguments meritless.

taxes

This case involved two Georgia LLCs, Jackson Crossroads and Long Branch Investments, that claimed charitable contribution deductions for donating perpetual conservation easements on adjacent properties totaling over 500 acres to the Oconee River Land Trust in 2016. The IRS disallowed the deductions, leading to Tax Court challenges where the court examined whether the contributions met section 170 requirements, the fair market values of the easements, and applicable penalties. The court held that the partnerships satisfied the statutory requirements for the deductions, allowing Jackson Crossroads a deduction of $1,169,797 and Long Branch $1,571,226. However, because the claimed values exceeded the court's determined fair market values by more than 200%, each partnership was liable for a 40% gross valuation misstatement penalty under section 6662(h).

taxesenvironmentproperty

This case involves Joseph and Louise Spiezio disputing IRS notices of deficiency for their 2015 and 2016 joint federal income taxes, which asserted deficiencies of $147,807 and $461,217 respectively along with accuracy-related penalties. The petitioners conceded the underlying income adjustments but claimed entitlement to a net operating loss of $3,700,000 from 2017, stemming from pension liabilities of their S corporation waste services business, that could be carried back to offset the earlier years' taxes. The U.S. Tax Court held that the Spiezios failed to substantiate the NOL and thus could not carry it back. The court further determined that the petitioners were liable for the section 6662 penalties because they did not prove reasonable cause or good-faith reliance on their tax preparer in light of their education, business experience, and prior IRS audits disallowing similar NOL claims.

taxesprocedure

This U.S. Tax Court case involved petitioners Alan Hamel and the Estate of Suzanne Hamel challenging two IRS notices of deficiency for tax years 1996 and 2001 that assessed additional taxes and accuracy-related penalties based on adjustments to partnership items from Palm Canyon X Investments, LLC. The court granted the IRS's motion to dismiss the penalties for lack of jurisdiction and its motion for summary judgment while denying the petitioners' cross-motion. The core reasoning was that the Tax Court has limited statutory jurisdiction, the periods of limitations for assessment under section 6229 remained open because the petitioners had not complied with the identification requirements of Temporary Treasury Regulation § 301.6223(c)-1T as required by section 6229(e), and the notices of deficiency were therefore valid.

taxesprocedure

This case from the U.S. Tax Court concerns a notice of deficiency issued to petitioner Joseph C. Honer, Jr. for tax year 2017, proposing an additional tax liability of $6,491 due to unreported dividends of $9,775 and additional gains from securities sales of $26,255. The parties stipulated to the underreported amounts before trial, the IRS conceded the accuracy-related penalty, and the remaining issues were whether a deficiency existed and whether an overpayment from 2018 could offset it. The court entered decision for the respondent Commissioner, holding that the petitioner is liable for the deficiency based on the third-party reports and stipulations, while ruling it lacked jurisdiction to direct the IRS to apply the 2018 overpayment to the 2017 liability. The court also denied the petitioner's motions for sanctions and contempt, finding no evidence of bad faith or noncompliance by the IRS.

taxes

The case concerned a notice of deficiency issued by the IRS to Douglass W. Pegues for the 2016 tax year, proposing an increase in taxable retirement income of $20,000 from a $45,000 distribution from his employer retirement plan, of which $25,000 was rolled over. Pegues had reported only $9,000 as taxable on his return and disputed the adjustment in Tax Court. The court decided for the Commissioner, sustaining the deficiency. It reasoned that gross income includes pension distributions under IRC section 61, the rollover was properly nontaxable, the remaining $20,000 was includable, and the taxpayer did not meet his burden to show otherwise after facts were deemed admitted under Tax Court Rule 90.

taxes

This case involved Brian K. Bunton and Karen A. Bunton challenging the IRS's decision to levy their state tax refund to collect unpaid taxes from 2016. The Tax Court reviewed the IRS Office of Appeals' determination sustaining the levy under section 6330. The court held that Appeals did not abuse its discretion because the petitioners had raised only frivolous arguments, failed to file required returns or provide financial information, and were given opportunities for a hearing but did not properly participate. The settlement officer appropriately conducted the collection due process hearing through correspondence and balanced the need for tax collection with the petitioners' concerns.

taxes