L. Paige Marvel

The case involved Cerissa Rene Fortune-Paladino, who received a $135,000 settlement in 2019 from her former employer to resolve claims of sexual harassment and discrimination but did not report the amount as income on her tax return. The IRS issued a notice of deficiency treating the full settlement as taxable gross income and asserting an income tax deficiency plus a penalty. After concessions, the Tax Court addressed whether the payment qualified for exclusion from gross income under Internal Revenue Code section 104(a)(2). The court held that the settlement was taxable because the settlement agreement and underlying complaint made clear that the payment compensated for emotional distress rather than any physical injury or sickness, and section 104(a)(2) excludes only damages received on account of personal physical injuries or physical sickness.

taxeslabor & employmentcivil rights

The case involved taxpayers Bobby G. Glaser and Cathleen A. Glaser challenging the IRS's filing of a Notice of Federal Tax Lien to secure unpaid income taxes for 2015 and 2021, despite an existing installment agreement. They sought review in the Tax Court after the IRS Office of Appeals denied their request to withdraw the lien. The court upheld the IRS determination, finding that the Appeals officer properly balanced the government's interest in collection with the taxpayers' concerns, that the lien was not more intrusive than necessary, and that the taxpayers provided no information warranting withdrawal.

taxes

This Tax Court case involved petitioner John Joseph Bauche, who had unpaid income tax liabilities for 2014 and 2015 after filing late returns showing balances due; the IRS filed a Notice of Federal Tax Lien to collect them, prompting Bauche to request a collection due process hearing and submit an offer-in-compromise under effective tax administration grounds, including economic hardship and non-economic hardship (public policy/equity). The court addressed the IRS's motion for summary judgment seeking to sustain the lien filing, which Bauche opposed on grounds that his offer should be deemed accepted under section 7122(f) or that the IRS had inadequately considered it. The court granted the motion in part, holding that the offer was not deemed accepted under section 7122(f), but denied it in part because the administrative record showed incomplete consideration of the offer on economic hardship grounds and no consideration on non-economic hardship grounds requested by Bauche's representatives. It therefore remanded the case to the IRS Independent Office of Appeals for a supplemental hearing to properly evaluate the offer-in-compromise. The decision rested on review of the administrative record, IRS procedures under the Internal Revenue Manual, and requirements for balancing collection needs with taxpayer concerns under section 6330.

taxesprocedure

This U.S. Tax Court case consolidated petitions from several related individuals and their companies regarding IRS audits of their 2012-2016 tax returns. The petitioners, who operated two jewelry businesses and real estate investment entities, disputed determinations of unreported income from undisclosed bank accounts, disallowed net operating loss carryforward deductions, and associated penalties. The court upheld the Commissioner's findings of substantial unreported income based on bank records and canceled checks, rejected the NOL claims due to lack of substantiation and inadequate records, and sustained fraud penalties for 2012-2014 against some petitioners as well as accuracy-related penalties for 2015-2016 on grounds of negligence and substantial understatement. Core reasoning centered on petitioners' failure to provide credible evidence or documentation rebutting the IRS reconstructions of income and their admissions of sloppy bookkeeping practices.

taxesbusiness & regulatory

This case involves taxpayers Terry and Cheryl Wright who claimed a large short-term capital loss for their 2002 tax year from a foreign currency option transaction conducted through their wholly owned LLC, which they assigned to charity and treated as qualifying for mark-to-market treatment under IRC section 1256. The IRS disallowed the loss and determined a deficiency, which the Tax Court initially upheld before the Sixth Circuit reversed and remanded. On remand, the Tax Court again ruled for the Commissioner, holding that the loss was not allowable because the transactions were tax-motivated and fell outside the congressional intent of section 1256, which was enacted to align tax treatment with economic realities in commodity futures rather than permit avoidance, as well as the profit-seeking requirement of section 165(c)(2). The court therefore upheld the deficiency but, per the IRS concession, did not sustain the accuracy-related penalty.

taxes

The case involved Gayle Gaston, a former Mary Kay national sales director, who challenged IRS determinations of tax deficiencies for 2013 and 2014 stemming from disallowed deductions for acting expenses, jewelry sales losses through her S corporation, and contributions to a sole proprietor profit-sharing plan funded by her Mary Kay Family Security Program retirement distributions. After concessions, the Tax Court addressed whether she was engaged in qualifying trades or businesses and entitled to the claimed deductions, particularly under sections 401 and 404 for the retirement plan. The court held that she could not deduct the plan contributions because the plan was not established with respect to any trade or business generating the FSP income, as the plan document and testimony confirmed it was not tied to her prior Mary Kay activity or any other specific business, and her acting activity produced no taxable income. It sustained the disallowance of the retirement deductions while noting the limited scope of her other post-retirement activities.

taxesbusiness & regulatory

This case involved a married couple who challenged the IRS's notice of intent to levy to collect unpaid federal income taxes reported on their joint returns for tax years 2013 through 2017. The petitioners requested a collection due process hearing and discussed an installment agreement as a collection alternative but did not return the signed agreement form despite being given several months to do so. The Tax Court reviewed whether the IRS Appeals Office abused its discretion in sustaining the levy. The court decided to sustain the IRS determination, reasoning that the settlement officer had verified compliance with legal requirements, considered the issues raised, balanced collection needs appropriately, and closed the case only after the taxpayers failed to submit the requested information by the deadline.

taxes

The case concerned petitioner Jesse C. Morreale's motion under Internal Revenue Code section 7430 for recovery of reasonable litigation and administrative costs after he prevailed in a dispute with the IRS over his 2011 and 2012 individual income tax returns and related business returns for his Denver hotel and restaurant operations. Respondent conceded that petitioner was a prevailing party but opposed the motion on grounds that the government's position during the examination was substantially justified and that the claimed fees were not reasonable. The court reviewed the procedural history, including the referral from bankruptcy court, the revenue agent's examination of delinquent returns, disputes over substantiation of basis in Sketch LLC and the proper accounting method, and detailed billing records submitted in support of the fee request.

taxes

The case concerned two married couples who owned and operated an S corporation, Phoenix Construction & Remodeling, Inc., that built houses and developed real estate; the IRS determined deficiencies in their 2013 federal income taxes along with accuracy-related penalties after finding the corporation underreported gross receipts by over $183,000 and disallowing various deductions. The disputed issues included whether Phoenix had to include a $250,000 client payment in income, the deductibility of $121,903 in car-racing expenses, rent and vehicle expenses, Schedule C deductions claimed by one couple, and the penalties themselves. The court reviewed the facts surrounding the unreported receipts, the personal nature of the racing activity, the lack of business records supporting some expenses, and the timing of managerial approval for the penalties under section 6751(b). It ultimately held that the penalties were invalid because written approval occurred after the initial determination and communication to the taxpayers.

taxesbusiness & regulatoryprocedure

This consolidated U.S. Tax Court case involved two related couples who owned an S corporation, Phoenix Construction & Remodeling, Inc., and challenged IRS determinations of federal income tax deficiencies and accuracy-related penalties for 2013. The court addressed whether the corporation underreported gross receipts by $183,202 from a client payment deposited in a separate account, whether it could deduct $121,903 in car racing expenses, rent and vehicle expenses, and related Schedule C deductions, as well as the penalties. It found that petitioners had conceded certain underreported amounts from the account and that the racing activity was personal rather than a deductible business or advertising expense for the company. The court also ruled that the accuracy-related penalties were invalid because managerial approval occurred after the penalties were initially communicated to petitioners, violating procedural requirements under section 6751(b).

taxesbusiness & regulatoryprocedure