Emin Toro

This U.S. Tax Court case addressed the computation of a dividends-received deduction (DRD) under IRC §245A and the related disallowance of foreign tax credits under §245A(d)(1) for Varian Medical Systems' 2018 tax year, following a prior ruling that Varian was entitled to the DRD but subject to credit limitations. The parties filed cross-motions for summary judgment disputing whether §246 disallowed part of the DRD, the proper formula for calculating the credit disallowance (specifically involving the net section 965 inclusion amount), and whether certain arguments had been forfeited. The court held that neither party forfeited its arguments, that §246 disallows a portion of the DRD, and that the credit disallowance formula must use the post-§965(c) amount in the denominator. It granted the Commissioner's motion and denied Varian's, resolving the disputes based on the statutory text and purpose of the relevant TCJA provisions.

taxesbusiness & regulatory

This U.S. Tax Court case involved a German holding company that issued a $610 million promissory note to its German subsidiary, which then elected to be disregarded as a separate entity and contributed the note to a U.S. partnership subject to TEFRA procedures. The IRS issued a Final Partnership Administrative Adjustment determining that the contributor's basis in the note and partnership interest was zero, and the partnership's basis in the note was also zero. The tax matters partner challenged these determinations, arguing for recognition of basis based on the subsidiary's separate existence before its election. The court granted the Commissioner's motion for partial summary judgment, holding that the check-the-box entity classification regulations required treating the contribution as if made directly by the owner of its own note, resulting in zero basis under section 722 and prior precedent, and that the partnership likewise took a zero basis under section 723.

taxesbusiness & regulatory

The case concerned petitioners The Diversified Group Incorporated and James Haber, who marketed tax avoidance strategies from 1999 to 2002 without registering them as required by I.R.C. § 6111, leading the IRS to assess penalties under I.R.C. § 6707. After the Commissioner offered a conference with IRS Appeals to contest the penalties, petitioners declined the meeting to preserve their ability to challenge the liabilities later; they then requested collection due process hearings where they attempted to dispute the underlying penalties. The Tax Court granted the Commissioner's motion for partial summary judgment, holding that the offered conference qualified as an "opportunity to dispute" the liabilities under I.R.C. § 6330(c)(2)(B), which barred petitioners from raising those challenges in the CDP hearings or in court. The court further determined that the settlement officer conducting the hearings was properly appointed under the Appointments Clause and declined to resolve petitioners' Fifth and Eighth Amendment arguments as unnecessary or moot.

taxesprocedure

This U.S. Tax Court case involved Apache Corporation, which reported net operating losses (NOLs) for 2016 and 2017 that included specified liability losses (SLLs) eligible for a ten-year carryback under IRC section 172(f). Apache elected under section 172(b)(3) and related regulations to waive the standard two-year carryback period for its consolidated NOLs but expressly did not elect to relinquish the longer carryback for its SLLs, leading it to claim tentative refunds for 2006 and 2007; the IRS disallowed the carrybacks and asserted deficiencies. The court addressed cross-motions for partial summary judgment on whether Apache's waiver election applied only to the non-SLL portion of the NOL or to the entire NOL. The court held that the election relinquished the carryback only for the portion of the NOL exceeding the reported SLL, granting Apache's motion and denying the Commissioner's, based on the statutory structure allowing distinct treatment for SLLs and the taxpayer's express intent in the election statements.

taxesbusiness & regulatory

The case involved a tax dispute over a charitable contribution deduction claimed by Paul-Adams Quarry Trust, LLC, for a conservation easement granted on a 207-acre Georgia property that had briefly been used for granite quarrying. The LLC deducted over $10 million based on an appraisal assuming the highest and best use was active granite mining, but the IRS disallowed the deduction after determining the easement's value was only $612,000 and imposed a gross valuation misstatement penalty. The Tax Court ruled that the petitioner had the burden of proof, the appraisal met qualified appraisal requirements, but the highest and best use was not granite mining, so the correct easement value was the lower amount proposed by the IRS. The court upheld the accuracy-related penalty under section 6662 and rejected the argument that the penalty provision was unconstitutionally vague.

taxespropertyprocedure

The case involves electing small business trusts and individuals who own shares in an S corporation (Hobby Lobby) that claimed large noncash charitable contribution deductions in 2011 and 2012 for donating over 1,200 historical artifacts to a museum. The IRS disallowed the deductions and asserted gross or substantial valuation misstatement penalties under section 6662, leading the taxpayers to challenge the penalties via motions for partial summary judgment. The Tax Court granted the Commissioner's motion in part, holding that the IRS satisfied the supervisory approval requirement of section 6751(b) because the examiner's immediate supervisor signed a workpaper approving the proposed penalties before issuing the notice to the corporation. The court denied the motions in part, finding a genuine dispute of material fact on whether the taxpayers had reasonable cause for any valuation misstatements, which could provide a defense under section 6664(c). The taxpayers' motion was denied in full.

taxesbusiness & regulatoryprocedure

This U.S. Tax Court case involved electing small business trusts and individuals who owned shares in Hobby Lobby, an S corporation, and claimed pro rata deductions for the corporation's charitable contributions of artifacts on their 2011 and 2012 returns. The IRS disallowed the deductions in notices of deficiency and asserted gross or substantial valuation misstatement penalties. The parties filed cross-motions for partial summary judgment on substantiation requirements under I.R.C. § 170 and on rules governing charitable contribution deductions by trusts under several Code sections. The court denied both sets of motions, holding that genuine issues of material fact existed regarding the reasonable cause defense to substantiation requirements and that neither party had shown entitlement to judgment as a matter of law on the trust deduction issues.

taxesbusiness & regulatoryprocedure

The case involved two individual taxpayers who were shareholders in S corporations engaged in activities subject to I.R.C. § 280E, which disallows certain deductions when computing taxable income. For 2018 and 2019, the taxpayers claimed qualified business income deductions under I.R.C. § 199A, treating all wages paid and reported by the S corporations as W-2 wages without regard to deductibility after application of § 280E. The IRS determined that only wages deductible after § 280E could be used in computing the § 199A deduction and reduced the claimed amounts accordingly. The Tax Court held that the Commissioner correctly applied the statute, concluding that a straightforward reading of I.R.C. § 199A(b)(4) and (c) limits W-2 wages to amounts deductible in determining taxable income.

taxesbusiness & regulatory

In this U.S. Tax Court case, AbbVie Inc. and Shire plc entered a Co-operation Agreement in 2014 to pursue a corporate combination, under which AbbVie agreed to pay Shire a $1.6 billion termination fee if its board failed to recommend the deal to shareholders. After adverse Treasury guidance led AbbVie to terminate the agreement via a separate Termination Agreement and pay the fee, AbbVie deducted the payment as an ordinary expense on its 2014 tax return. The IRS disallowed the deduction and recharacterized it as a capital loss under IRC section 1234A(1), prompting cross-motions for summary judgment. The court granted AbbVie's motion, holding that the Co-operation Agreement created rights and obligations fundamentally in the nature of services rather than a right or obligation with respect to property, so section 1234A(1) did not apply.

taxesbusiness & regulatory

In this U.S. Tax Court deficiency case, James and Valerie Root contested the IRS's disallowance of net operating loss carryovers claimed for tax years 2017 and 2018, which they said stemmed from losses on the 2014 closure or abandonment of a guest lodge built on their Klamath County, Oregon property. The court held that the Roots were not entitled to the carryovers because they had not been engaged in a trade or business with respect to the lodge under sections 165(c)(1) and 172(d)(4). The court further sustained accuracy-related penalties under section 6662(a) for each year, finding that the Roots had not shown reasonable reliance on competent tax advice or otherwise established a basis for the claimed losses.

taxes

This case concerns petitioner Alberto Garcia, Jr.'s challenge in Tax Court under I.R.C. § 7345(e) to the IRS Commissioner's 2022 certification to the Secretary of State that Garcia owes a seriously delinquent tax debt based on unpaid liabilities assessed between 2007 and 2010. The Commissioner moved for summary judgment, arguing the certification was valid because a 2014 default judgment in district court extended the collection limitations period under I.R.C. § 6502 until at least 2034, making the debts legally enforceable. Garcia responded that he was never served in the district court action, rendering the judgment void and the debts unenforceable due to the expired ten-year limitations period. The court held that its review is not confined to the administrative record and may include new evidence developed at trial, that a tax liability is not legally enforceable if the collection period has expired, and that a genuine dispute of material fact exists over whether Garcia was served, precluding summary judgment.

taxesprocedurefederal power

This case concerned a syndicated conservation easement deduction claimed by Seabrook Property, LLC on its 2017 tax return. Seabrook granted a perpetual easement over roughly 622 acres in Georgia to a qualified organization and deducted $32.58 million, based on an appraisal valuing the land at about $58,000 per acre before the easement. The IRS disallowed the deduction entirely and asserted accuracy-related penalties. After trial, the Tax Court held that Seabrook had the required donative intent and that its appraisal was qualified, but determined the easement's fair market value was only $4.718 million. Because the claimed value substantially exceeded the correct amount, the court imposed a 40% gross valuation misstatement penalty under section 6662.

taxesenvironmentproperty

The case concerned the gift tax consequences of commuting a QTIP trust established under a decedent's will, distributing its assets to the surviving spouse, and the spouse's subsequent sale of some assets to trusts benefiting the children in exchange for promissory notes. The Tax Court, applying principles from Estate of Anenberg, ruled that the surviving spouse made no taxable gifts under sections 2519 and 2501 because no gratuitous transfers occurred, but the children made taxable gifts to the spouse under section 2511 by relinquishing their remainder interests via the commutation agreement. The court further held that the transactions did not produce offsetting reciprocal gifts and granted the parties' cross-motions for summary judgment in part and denied them in part.

taxesproperty

The case involved Varian Medical Systems claiming a deduction under I.R.C. § 245A for amounts treated as dividends under I.R.C. § 78 in its fiscal year 2018 tax return, stemming from an effective date mismatch in the Tax Cuts and Jobs Act amendments to those provisions. Varian moved for partial summary judgment on its entitlement to the deduction, while the Commissioner cross-moved and alternatively argued for limits on related foreign tax credits under § 245A(d)(1). The Tax Court held that Varian was entitled to the § 245A deduction for the § 78 amounts because the plain statutory text and effective dates allowed it during the relevant window, and that Treas. Reg. § 1.78-1 could not override this result. The court further held that § 245A(d)(1) required a corresponding reduction in Varian's foreign tax credits to the extent they were attributable to the deducted amounts. It granted each party's motion in part.

taxesbusiness & regulatory

This case involved petitioner Suzanne Jean McCrory's whistleblower claims under Internal Revenue Code section 7623, in which she submitted information to the IRS Whistleblower Office alleging that several target taxpayers had failed to report settlement or arbitration awards as taxable income. The IRS processed the claims, conducted limited actions on two of them, and ultimately issued a discretionary award of $1,694.31 based on collected proceeds of approximately $180,000 from one audited target. The Commissioner moved for summary judgment on the ground that the proceeds in dispute fell below the $2 million statutory threshold of section 7623(b)(5)(B), while McCrory cross-moved for partial summary judgment arguing abuse of discretion by the Whistleblower Office. The Tax Court granted the Commissioner's motion and denied McCrory's, holding that the threshold requirement was not met and that this affirmative defense precluded further review of the award determination or related arguments about regulations and IRS actions.

taxesprocedure

This Tax Court case concerns petitioner Bobby Lee Rogers' appeal of the IRS Whistleblower Office's (WBO) determination denying him an award under IRC section 7623 after he submitted claims alleging that individuals had committed tax violations by converting his mother's assets. The WBO issued a letter that purported to reject the claims because the IRS decided not to pursue the information, following a classifier's recommendation that the claims failed threshold regulatory criteria. The court held that the monetary thresholds in section 7623(b)(5) are affirmative defenses that must be pleaded and proved rather than jurisdictional bars, that the WBO abused its discretion because its letter mixed rationales associated with rejection and denial under the regulations without providing a coherent basis consistent with those rules, and that involvement of an operating division classifier did not preclude review. The court therefore denied the Commissioner's motion for summary judgment and remanded the matter to the WBO.

taxesprocedure

This case concerned whether the Estate of Semone Grossman could claim a federal estate tax marital deduction under IRC section 2056(a) for assets left to Ziona Grossman, based on her status as the decedent's surviving spouse. The IRS argued that a prior Mexican divorce from the first wife was invalid under New York law, making the later Israeli marriage to Ziona ineffective and leaving the first wife as the surviving spouse. The Tax Court granted the estate's motion for partial summary judgment, holding that New York courts would recognize the Israeli marriage under the longstanding place-of-celebration rule, which validates marriages lawfully performed in another jurisdiction. The court focused on the unchallenged 27-year marriage in New York, the couple's joint tax filings and family life, and the absence of any New York court ruling invalidating the marriage or any claim by the first wife against the estate.

taxesfamily lawreligious liberty

This case involved petitioner Daniel S. Jacobs, a college professor and attorney, who sought an award of reasonable litigation and administrative costs from the IRS under Internal Revenue Code section 7430 after the agency disallowed Schedule C business expense deductions he claimed for tax years 2014 and 2015 related to his Visiting Scholar position at UCLA, home office use, travel, and professional fees. The Tax Court denied the motion, holding that Jacobs was not a prevailing party entitled to costs. The court reasoned that the United States' litigating position was substantially justified because, after Jacobs filed his petition, the Commissioner promptly referred the case to IRS Appeals for an in-person conference and then conceded the deductions without delay once Appeals returned the matter. The court applied Ninth Circuit precedent requiring a bifurcated analysis of the government's administrative and litigation positions and found that any earlier examination errors did not render the overall position unjustified.

taxesprocedurebusiness & regulatory

The case concerned taxpayer Robert Rowen, who owed over $474,000 in unpaid federal taxes for years including 1994, 1996, 1997, and 2003-2007. The IRS certified him under IRC section 7345 as having a seriously delinquent tax debt, triggering potential passport-related actions by the State Department, and Rowen petitioned the Tax Court to challenge the certification as erroneous. He argued that section 7345 violates the Fifth Amendment Due Process Clause by infringing the right to international travel and contravenes the Universal Declaration of Human Rights. The court granted summary judgment to the Commissioner, ruling that the provision merely certifies tax facts without restricting travel rights and thus raises no constitutional or human rights violation, that Rowen had abandoned a separate due process hearing claim, and that the debts remained enforceable with no error in the certification.

taxesfederal powercivil rights

The case involved San Jose Wellness, a California medical cannabis dispensary operating under state law, which claimed federal tax deductions for depreciation, charitable contributions, and other operating expenses on its returns for 2010, 2011, 2012, 2014, and 2015. The IRS disallowed all deductions under IRC section 280E and imposed an accuracy-related penalty for 2015. The Tax Court held that section 280E barred the deductions because the business consisted of trafficking in controlled substances, depreciation qualified as an amount incurred during the taxable year, and the charitable contributions were made in carrying on the trade or business. The court sustained the 2015 penalty after finding the taxpayer failed to demonstrate reasonable cause and good faith.

taxesbusiness & regulatorycriminal law