Kathleen Kerrigan

The case involves Bryan Edward Menge challenging an IRS Notice of Determination that upheld a proposed levy to collect unpaid income taxes for 2015-2018 after he failed to pay amounts reported on his self-filed returns. The Tax Court considered whether the IRS settlement officer abused discretion in sustaining the levy following a Collection Due Process hearing under IRC sections 6320 and 6330. Menge did not submit required financial documentation such as Form 433-A, did not fully participate in the hearing, and attempted to raise challenges to his underlying liabilities based on prior years that had already been resolved against him. The court found that the settlement officer verified legal requirements, considered all relevant issues, and properly balanced the need for tax collection against intrusiveness, with no abuse of discretion shown. It therefore sustained the determination and upheld the proposed levy action.

taxes

This case involved Jones Bluff, LLC, a partnership under the Bipartisan Budget Act of 2015 (BBA) centralized audit regime, which claimed a large charitable contribution deduction for a conservation easement donation on its 2019 tax return. The IRS issued a Notice of Final Partnership Adjustment (FPA) disallowing the deduction and asserting penalties, prompting the partnership to file a petition in Tax Court and move for summary judgment on the ground that the BBA procedures violated the due process rights of its individual members by denying them notice and opportunity to be heard. The court denied the motion, holding that the partnership lacked standing to assert the constitutional due process claims of its members as third parties. It further upheld the validity of the FPA, noting that analogous prior partnership audit rules under TEFRA had withstood similar due process challenges even where non-notice partners were bound by outcomes. The decision relied on principles that a partnership representative receives notice on behalf of the entity, and any internal communication failures do not invalidate the federal procedures.

taxescivil rightsfederal power

The case concerned a limited liability company treated as a partnership for tax purposes that challenged an IRS Notice of Final Partnership Adjustment disallowing a charitable contribution deduction, arguing that errors in the prior Notice of Proposed Partnership Adjustment regarding the designated partnership representative and address caused the limitations period under I.R.C. § 6235(a) to expire and rendered the FPA invalid. The Tax Court held that the FPA issued on January 5, 2024, was timely and valid. The court reasoned that the partnership received actual notice through the NOPPA, continued to participate in the audit process by filing timely modification requests, and suffered no prejudice from any defects, as actual receipt and ongoing communications cured potential mailing or designation issues under precedents like Clovis I and Dees. The decision turned on the Bipartisan Budget Act's centralized partnership audit rules applicable to post-2017 returns.

taxesprocedure

The case concerned whether a 2000 securitization transaction among Aventis, its French affiliate, an advisor, and a bank qualified as a financial asset securitization investment trust (FASIT) under former I.R.C. §§ 860H–860L, which remained in place through 2015 under a grandfather clause. The Tax Court held that the arrangement was not a valid FASIT because the preferred stock issued to the affiliate failed to qualify as a regular interest—it did not unconditionally entitle the holder to a specified principal amount or to interest payments at a fixed or permitted variable rate—and the transaction also failed to meet the grandfather clause requirements. The court further ruled that the substantial compliance doctrine did not excuse these deficiencies, that Aventis remained the beneficial owner of the assets, and that the preferred stock was in substance equity rather than debt. As a result, Aventis was required to recognize the income generated by the FASIT assets and could not deduct the amounts paid to the affiliate as business interest.

taxesbusiness & regulatory

The case involved a TEFRA partnership that donated a conservation easement and claimed a large charitable contribution deduction on its 2017 tax return; the IRS issued a Final Partnership Administrative Adjustment disallowing the deduction and imposing an accuracy-related penalty under I.R.C. § 6662. The tax matters partner petitioned the Tax Court and moved for partial summary judgment, arguing that the penalty determination violated the Seventh Amendment right to a jury trial under SEC v. Jarkesy and could not be assessed. The court denied the motion, holding that the Seventh Amendment does not apply to suits against the sovereign and that Congress has not consented to jury trials in TEFRA partnership-level proceedings. It further concluded that the accuracy-related penalty falls within the public rights exception to the Seventh Amendment because it is remedial and tied to revenue collection rather than punitive.

taxesprocedurefederal power

The case involved petitioners John R. Graham and Nicole Graham challenging a deficiency determination by the IRS for the 2022 tax year regarding their claim for an earned income tax credit (EITC) based on Nicole Graham's sister, Angela Davis. The Tax Court held that the petitioners were not entitled to the EITC for Ms. Davis. The court reasoned that while Ms. Davis satisfied the relationship and joint return requirements, the petitioners failed to provide sufficient evidence beyond testimony to establish that she shared their principal place of abode for more than half the year or met the age requirements through permanent and total disability, thus not meeting their burden of proof under the relevant tax code provisions.

taxes

This U.S. Tax Court case involved petitioner Joseph J. Zajac III challenging IRS determinations of federal income tax deficiencies and accuracy-related penalties under section 6662(a) for tax years 2007 through 2009. The IRS had disallowed numerous Schedule C business expense deductions, a moving expense, a charitable contribution, and miscellaneous job expenses, while also requiring inclusion of settlement proceeds from a 2007 claim against the Town of Bolton arising from a 2004 arrest. After concessions by both parties, the court held that petitioner must include $17,501 of the $35,001 settlement in gross income but could exclude the remainder, sustained the disallowance of the claimed deductions due to lack of substantiation or proper qualification, and upheld the penalties because petitioner lacked reasonable cause. The court's reasoning centered on the requirement that taxpayers prove entitlement to exclusions and deductions with adequate records, along with the applicability of penalty provisions to substantial understatements of tax.

taxesbusiness & regulatory

In this U.S. Tax Court case, CF Headquarters Corporation, a subsidiary of Cantor Fitzgerald, challenged the IRS determination that it must include in its 2007 gross income approximately $3.1 million in grant proceeds received under a New York State program to aid businesses affected by the September 11 attacks, along with a substantial understatement penalty. The court held that the grant proceeds were includible in gross income under section 61 because they did not qualify for exclusion as a contribution to capital under section 118, as a gift under section 102, or as a qualified disaster relief payment under section 139. The reasoning was that the taxpayer failed to show the proceeds became part of its working capital as required by United States v. Chicago, Burlington & Quincy Railroad Co., governmental transfers expecting only incidental benefits are not gifts, and section 139 applies only to individuals and not corporations. However, the court found substantial authority supporting the taxpayer's exclusion position based on prior Supreme Court precedent and the Code as it existed in 2007, so no accuracy-related penalty applied.

taxesbusiness & regulatory

This U.S. Tax Court case involved Eaton Corporation, a domestic parent of foreign controlled corporations structured with a domestic partnership (EW LLC) interposed between upper-tier and lower-tier CFCs. For tax years 2007 and 2008, the partnership included subpart F income and section 956 amounts from the lower-tier CFCs in its gross income under section 951, but made no distributions, and Eaton did not report corresponding income or claim deemed-paid foreign tax credits for taxes paid by those lower-tier entities. Eaton sought partial summary judgment allowing credits under sections 901, 902, and 960, arguing the inclusions should be treated as dividends, while the IRS countered that the partnership structure blocked such credits. The court denied Eaton's motion and granted the IRS's, holding that the plain language of sections 902 and 960 does not permit deemed-paid credits in this setup because Eaton had no direct section 951 inclusion with respect to the lower-tier CFCs. The decision emphasized that taxpayers must accept the tax consequences of their chosen ownership structure.

taxesbusiness & regulatory

This U.S. Tax Court case involved Denham Capital Management LP, an investment advisory firm organized as a Delaware limited partnership, and whether the IRS could adjust the partnership's net earnings from self-employment (NESE) for 2016 and 2017 at the partnership level. The court addressed two issues: (1) whether NESE adjustments are partnership items subject to partnership-level determination, and (2) whether the distributive shares of five limited partners qualified for exclusion from NESE under the limited partner exception in section 1402(a)(13). The court held that the adjustments were partnership items and that the exception did not apply, because a functional analysis showed the partners actively managed the firm's core operations, made investment decisions, and were not mere passive investors. The partners' roles, compensation structure, and control over the business meant they functioned more like self-employed participants than limited partners as understood under the statute.

taxesbusiness & regulatory

This U.S. Tax Court case involved petitioners Gregory and Laura Schnackel challenging IRS determinations of federal income tax deficiencies, accuracy-related penalties, and related adjustments for tax years 2012-2014 stemming from their S corporation SEI's claimed deductions for New York condominium rental expenses, depreciation on personal property and a Range Rover, and net operating loss carryovers, as well as unreported income items. After respondent conceded that petitioner wife qualified for innocent spouse relief under section 6015 and the parties settled several issues, the court addressed whether SEI's deductions were allowable, whether the NOLs required adjustment, whether penalties applied, and whether the wife was entitled to relief over the husband's objection. The court granted the wife innocent spouse relief under section 6015(f), finding she lacked actual or constructive knowledge of the understatements due to her limited role in the business and her husband's concealment of personal matters, and that she received no significant benefit beyond normal support. The remaining issues concerning the corporation's deductions, NOL adjustments, and penalties were resolved based on the parties' concessions and stipulations regarding income reporting and officer compensation.

taxesfamily law

This U.S. Tax Court case involved Parkway Gravel, Inc., which faced a $1.41 million tax deficiency and $282,056 penalty for 2013 after the IRS determined that a transaction with a related entity, V&N partnership, was a sham or improper income assignment, requiring the company to recognize $4.2 million received by V&N. The court ruled for the petitioner, finding no deficiency and no accuracy-related penalty. The core reasoning was that the Option Contract had a substantial nontax business purpose tied to the group's longstanding division of labor among entities, with V&N handling real estate development and rezoning based on its expertise and relationships, which meaningfully altered the parties' economic positions and justified respecting the transaction's form.

taxesbusiness & regulatory

The case involves IRS notices of deficiency against Edward Westwealth Lew for unreported income and related additions to tax for tax years 2015, 2016, and 2017. Lew, a dentist who owned an LLC operating a restaurant franchise in 2015-2016, filed a return only for 2015 and omitted most income shown on third-party forms such as W-2s, K-1s, and 1099s from S corporations and other sources; the IRS prepared a substitute return for 2016. After trial, the Tax Court found that the Commissioner had established the deficiencies and the additions to tax under sections 6651(a)(1), 6651(a)(2), and 6654(a), with limited concessions by the government, and directed the parties to file computations under Rule 155 for entry of decision.

taxes

This U.S. Tax Court case concerned whether taxpayer James Forrest Willetts was entitled to a credit or refund of a $1,553 overpayment on his 2014 federal income taxes. The IRS had determined a deficiency and additions to tax but conceded an overpayment after payments exceeded liability; the sole dispute was whether Willetts timely filed a claim under the section 6511 limitations periods. The court held that the Form 1040 Willetts mailed in April 2018, which was delivered and recorded by May 2, 2018, constituted a valid return under the Beard test and was filed within the three-year period running from the October 15, 2015 extended due date, making the embedded refund claim timely. It therefore ruled that Willetts could receive the overpayment credit or refund.

taxesprocedure

This case involved a married couple who received an advance premium tax credit (APTC) of $15,348 in 2018 to help pay for health insurance obtained through the Marketplace but did not reconcile it on their tax return. The IRS determined a deficiency requiring repayment of the full APTC amount plus a late-filing addition to tax and an accuracy-related penalty. The Tax Court held that the couple was required to repay the APTC because their modified adjusted gross income of $181,183 exceeded 400% of the federal poverty line for a household of two, making them ineligible for any premium tax credit. The court also upheld the addition to tax under section 6651(a)(1) due to the untimely filing without reasonable cause shown and the section 6662(a) penalty because the understatement met the substantial understatement threshold and no reasonable cause was established.

taxeshealthcare

This case involved a taxpayer who submitted an offer in compromise (OIC) with a required TIPRA payment of $80,000 to settle federal tax liabilities for multiple years and later challenged IRS collection actions in a collection due process (CDP) proceeding under sections 6320 and 6330. The U.S. Tax Court had previously upheld the IRS's refusal to refund the payment, and on remand from the Ninth Circuit, the issue was whether the Tax Court has jurisdiction to order such a refund. The court granted the IRS's motion to dismiss for lack of jurisdiction, holding that its authority in CDP cases is limited to reviewing the IRS's collection determinations and does not extend to ordering refunds of tax payments. The reasoning emphasized that refund jurisdiction under section 6512 requires a notice of deficiency proceeding, which was absent here, and that sections 6320 and 6330 do not confer refund authority, consistent with prior holdings that TIPRA payments are nonrefundable partial payments of tax.

taxesprocedure

This Tax Court case concerned a taxpayer's challenge to a collection due process determination regarding his unpaid 2004 federal income tax liability. The petitioner sought to recharacterize a 2002 remittance made with his 2001 extension request as a deposit or overpayment that could be applied to offset his 2004 taxes and yield a refund. The court held that it lacked jurisdiction to consider overpayment claims for nondetermination years and that the remittance could not offset the 2004 liability because it fell outside the lookback periods under IRC section 6511. The court reasoned that the payment had been properly treated as a voluntary tax payment for 2001 rather than a deposit, no timely refund claim was filed within the applicable three-year period after the 2001 return, and the settlement officer had not abused discretion in verifying the assessment and sustaining the collection action.

taxesprocedure

This case involved Frank E. Vennes, Jr. and Kimberly Vennes challenging the IRS determination of a $3,655,541 tax deficiency and $731,108 accuracy-related penalty for their 2008 tax year. The dispute centered on the petitioners' claimed passthrough theft loss deductions related to investments in Metro Gem, Inc. and the Palm Beach Entities, which were connected to a Ponzi scheme run by Thomas J. Petters. The Tax Court held that the petitioners were not entitled to the theft loss deductions and were liable for the section 6662(a) penalty. The court's reasoning was that the petitioners failed to substantiate the amount of the loss for 2008 and did not establish reasonable cause because they did not provide their tax return preparer with necessary information about known problems with the investments.

taxes

The case involves Michael Torres challenging IRS determinations of a tax deficiency, addition to tax for late filing, and accuracy-related penalty for 2016, arising from his wholly owned S corporation's reporting of funds allegedly misappropriated by a former associate. The court held that Torres was not entitled to reduce his flowthrough income by claiming either a theft loss deduction under section 165 or a deduction for nonemployee compensation under section 162, because he failed to substantiate the claims or show that the payments were ordinary and necessary business expenses. However, the court determined that Torres was not liable for the section 6651(a)(1) addition to tax, as his serious illness during 2016 established reasonable cause for the untimely filing of his return.

taxesbusiness & regulatoryprocedure

This U.S. Tax Court case involved petitioner Peter M. Adler, who owned a consulting business and claimed deductions on his Schedule C for travel expenses of $16,535 and contract labor expenses of $44,586 in 2016, plus various expenses totaling over $53,000 in 2017. The IRS disallowed these deductions in notices of deficiency, leading to the dispute over whether the expenses qualified as ordinary and necessary business costs under section 162. The court held that Adler was not entitled to the deductions, sustaining the IRS determinations after the penalty concession. The reasoning centered on the requirement under section 6001 and related rules that taxpayers maintain adequate records to substantiate expenses, with strict substantiation mandated for travel under section 274 that overrides the Cohan estimation rule; Adler failed to provide records, some travel was personal (e.g., to inherited land), and contract labor did not align with the reported consulting business.

taxesbusiness & regulatory