Richard T. Morrison

This U.S. Tax Court case involved petitioner Michael D. Brown challenging a Notice of Determination from the IRS Independent Office of Appeals that sustained proposed levies to collect income taxes for 2009, 2011, and 2014, plus penalties for several earlier years. The sole disputed issue was whether Brown's April 2018 offer-in-compromise had been deemed accepted by operation of Internal Revenue Code section 7122(f) because the IRS had not formally rejected it within 24 months. The court held that its prior reviewed opinion in a related case, Brown v. Commissioner, 158 T.C. 187 (2022), which found the same offer had been rejected in November 2018, was binding precedent and therefore the offer was not deemed accepted. On that basis, the court denied Brown's motion for summary judgment, awarded summary judgment to the Commissioner under Tax Court Rule 121(g), and sustained the Notice of Determination while withholding entry of decision pending further proceedings on Brown's state of residence at the time the petition was filed.

taxesprocedure

This case involved Anaheim Arena Management, LLC (AAM), which claimed a large bad-debt deduction on its 2015 tax return for advances it made to fund operations at the Honda Center arena. The IRS issued a final partnership administrative adjustment disallowing the $51 million deduction and asserting an accuracy-related penalty. The Tax Court sustained the disallowance, holding that the advances did not qualify as bona fide debts under the multi-factor test because they lacked a fixed maturity date, enforceable repayment rights, and other debt characteristics, and were instead more like equity contributions. However, the court rejected the penalty, finding that AAM had reasonable cause and acted in good faith by relying on advice from tax professionals who had analyzed the deductibility of the advances.

taxesbusiness & regulatory

This United States Tax Court case involved a TEFRA partnership-level proceeding in which H&S Investments I, LP challenged an IRS Final Partnership Administrative Adjustment that disallowed a $51,465,228 bad-debt deduction claimed by Anaheim Arena Management, LLC (AAM) for advances it made to fund the Honda Center’s operations in 2015 and that also asserted an accuracy-related penalty. The court sustained the disallowance of the deduction, holding that the advances did not qualify as bona fide debts under the multi-factor analysis of factors such as the instruments’ names, maturity dates, repayment sources, enforcement rights, management participation, creditor status, parties’ intent, capitalization, identity of interest, and ability to obtain outside financing. The court rejected the accuracy-related penalty, however, because AAM had reasonable cause and acted in good faith by relying on the advice of tax professionals who had concluded the deduction was allowable.

taxesbusiness & regulatory

This Tax Court case concerned whether Kirk and Shannon Stevens could claim interest deductions on their 2014, 2015, and 2016 federal income tax returns based on two promissory notes issued in 2014 and 2016. The court held that the notes did not constitute true indebtedness, disallowing over $34 million in claimed interest deductions across the years and upholding negligence penalties under section 6662. The core reasoning was that the notes were structured with accompanying option agreements in a way that eliminated any realistic duration-gap scenario where the debt would remain outstanding independently, rendering the arrangements economically equivalent to equity rather than debt. The court also found that the penalties had been properly approved in writing by a supervisor before the notices of deficiency were issued.

taxes

The case involved petitioners Kirk and Shannon Stevens challenging IRS notices of deficiency that disallowed large interest deductions claimed on their joint income tax returns for 2014, 2015, and 2016, along with related accuracy-related penalties. The Tax Court held that the 2014 and 2016 notes did not qualify as true indebtedness, so the claimed interest deductions were properly disallowed. The court reasoned that potential duration-gap scenarios were nonexistent, that analogies to instruments like Formosa bonds or interest-rate caps were unpersuasive, and that the notes lacked the characteristics of genuine debt. The court also upheld the penalties, concluding that petitioners were negligent without reasonable cause and that supervisor approval of the penalties was timely under applicable Ninth Circuit precedent.

taxes

The case involved the valuation of the Bankhead Property, consisting of 136.4 acres and buildings in Mississippi, which the Leos contributed to charity in 2013 and for which they claimed a charitable contribution deduction carried over to 2016 and 2017. The Leos valued the property at $12,425,000 (with $15,800,000 reported on the return), while the Commissioner determined a value of $4,050,000, resulting in tax deficiencies and a 40% gross valuation misstatement penalty. The Tax Court held that the correct value was $4,050,000, based on the persuasive expert testimony supporting that figure over the petitioners' experts, thereby sustaining the deficiencies. The court also upheld the penalty because the claimed value exceeded 200% of the determined value, with no reasonable cause exception available for gross valuation misstatements.

taxes

This U.S. Tax Court case involved petitioner Paul V. Applegarth challenging IRS notices of deficiency for tax years 2014 and 2015, with the parties stipulating the amounts of deficiencies and overpayments along with the inapplicability of certain additions to tax. The court addressed whether Applegarth could obtain refunds of the stipulated overpayments despite the limitations periods in sections 6511(b)(2) and 6512(b)(3), and whether the cases had been settled prior to trial. The court held that the refunds were barred by those statutory provisions, which are not subject to equitable tolling, and that no valid settlement agreement existed because essential terms were never agreed upon and no evidence of a binding agreement was presented. The decision rested on the plain language of the tax code provisions limiting overpayment refunds and the lack of proof regarding any purported settlement at or before the calendar call.

taxes

Patients Mutual Assistance Collective Corporation, Inc. (PMACC), a California medical cannabis dispensary, challenged an IRS notice of deficiency for its 2016 tax year, which disallowed various business deductions under section 280E due to its involvement in trafficking marijuana, a controlled substance under federal law. The Tax Court addressed cross-motions for summary judgment on whether section 280E is unconstitutional as an unapportioned direct tax or excessive fine, and whether the Controlled Substances Act is unconstitutional as applied to state-legal marijuana activities. The court decided that section 280E applies, resulting in a substantial tax deficiency, and upheld its constitutionality based on prior Tax Court precedent, while also affirming the constitutionality of the Controlled Substances Act under Supreme Court precedent in Gonzales v. Raich. It granted the Commissioner's motion for summary judgment and denied PMACC's.

taxesbusiness & regulatorycriminal lawfederal power

This case involves petitioners Krishan K. Gossain and Kavita Gossain challenging a Notice of Deficiency issued by the IRS for tax years 2018 and 2019, which determined deficiencies totaling over $23,000 and accuracy-related penalties. The Tax Court withdrew its prior oral findings, granted the IRS's motion for reconsideration, and denied the petitioners' motion. The court upheld the deficiencies based on adjustments to income and deductions, including medical expenses and real estate losses as stipulated or conceded by the parties, found that penalties were properly approved by a supervisor, and ruled that petitioners waived any defenses to the penalties by not presenting arguments at trial. Additionally, the court rejected claims for first-time abatement of penalties as it is not provided in the tax code and was raised untimely.

taxesprocedure

This case involved a whistleblower who submitted information to the IRS about a taxpayer's alleged failure to report gift certificates as income and related employment tax issues. The IRS used portions of that information during income tax and employment tax examinations, resulting in disallowed deductions and assessments, but the Whistleblower Office initially calculated an award under section 7623(a) by limiting the disputed amounts to those directly tied to the whistleblower's tips. Following a 2017 Tax Court opinion holding that all amounts in dispute count toward the $2 million threshold for section 7623(b), the WBO on remand determined a 15% award based only on proceeds from the five general ledger categories connected to the information, plus sequestration. The court granted the IRS's motion for summary judgment, finding that the WBO's calculations of the award base, percentage, and sequestration were not arbitrary, capricious, or contrary to law.

taxesprocedure

The case involved petitioners Damian Peter Daly and Jeanne Daly challenging IRS notices of deficiency for tax years 2016 and 2017 that disallowed portions of their claimed child tax credits and additional child tax credits, as well as various deductions for travel mileage and state income taxes. The United States Tax Court held that the IRS's determinations were correct, sustaining the deficiencies but not imposing accuracy-related penalties under section 6662. The court's reasoning centered on the statutory limits of the child tax credit under section 24(d), the failure to meet the strict substantiation requirements of section 274(d) for travel expenses due to insufficient evidence of mileage and business purpose, and the lack of documentation for state income tax withholdings, which would not have exceeded the standard deduction anyway.

taxes

The case involved petitioners Damian Peter Daly and Jeanne Daly challenging notices of deficiency issued by the IRS for tax years 2016 and 2017, which determined deficiencies and section 6662 penalties related to adjustments in child tax credits and disallowed deductions. The Tax Court sustained the deficiencies but determined that the petitioners were not liable for the penalties. The court reasoned that the additional child tax credits were properly disallowed due to increased tax liabilities exceeding limits under the Internal Revenue Code, that mileage deductions for travel to work were not allowable due to failure to meet strict substantiation requirements under section 274(d), and that no deduction for state income taxes was proven or usable given the standard deduction claimed.

taxes