The Tax Court in Brief November 15 – November 19, 2021

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The Tax Court in Brief November 15 – November 19, 2021

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of November 15 – November 19, 2021


Ruhaak v. Comm’r, 157 T.C. No. 9 | November 16, 2021 | Gale, J. | Dkt. No. 21542-17L

Opinion

Short Summary:  Pursuant to section 6330(d)(1), Petitioner sought review of the determination of the IRS Office of Appeals to sustain a proposed levy to collect Petitioner William Ruhaak’s (“Petitioner”) unpaid Federal income tax for taxable year 2013.  The IRS sent Petitioner a Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice).  Petitioner requested a hearing regarding the proposed levy by submitting a Form 12153 to Appeals.  Petitioenr mailed and Appeals received the Form 12153 before the expiration of the 30-day period following the mailing of the levy notice.  Petitioner also checked the box to request an equivalent hearing in the event his request for a CDP hearing was untimely.  Appeals determined that Petitioner timely requested a CDP hearing and thus was not entitled to an equivalent hearing.

Key Issues:

Primary Holdings

Key Points of Law:

InsightBecause of the ability to appeal the decision from a CDP hearing, CDP hearings are usually preferred over equivalent hearings.  This case demonstrates that only one or the other is available to a taxpayer.  If a request is timely, it will be heard as a CDP hearing.  Only if the request is untimely will it be heard as an equivalent hearing.


McNulty v. Comm’r, 157 T.C. No. 10 | November 18, 2021 | Goeke, J. | Dkt. No. 1377-19

Short Summary: During tax year 2015, Mr. and Mrs. McNulty (the “Petitioners”) decided to establish self-directed IRAs. In particular, the Petitioners wanted to invest in certain assets through LLCs owned by the self-directed IRAs. In August 2015, Mrs. McNulty (1) established a self-directed IRA, naming Kingdom Trust Co. the IRA custodian; and (2) formed Green Hill Holdings, LLC (“Green Hill”), a single-member LLC with Mrs. McNulty’s IRA serving as Green Hill’s sole initial member (and the Petitioners serving as Green Hill’s initial managers).

Mrs. McNulty funded the IRA with direct transfers from two qualified retirement accounts during 2015 and 2016. She also instructed Kingdom Trust to use the IRA funds to purchase membership interests in Green Hill. Then, Mrs. McNulty, as manager, used the Green Hill funds to purchase American Eagle coins, and the coins were received and held by the Petitioners at their personal residence.

On October 30, 2018, the Internal Revenue Service issued to Petitioners a notice of deficiency for 2015 and 2016, determining (1) the Petitioners received distributions from their IRAs, and (2) the Petitioners were liable for Section 6662(a) and (b)(1) and (2) accuracy-related penalties for both years. The Petitioners petitioned the Tax Court and submitted the case for decision without trial under Rule 122.

Key Issues:

Primary Holdings:

Key Points of Law:

Insight: McNulty underscores the basic requirements for IRAs under Section 408 of the Internal Revenue Code. In particular, taxpayers should be mindful of the restrictions on IRAs—e.g., owners of self-directed IRAs may not take actual and unfettered possession of IRA assets. Further, the Tax Court notes that, with respect to the reasonable cause defense to accuracy-related penalties, failure to disclose pertinent facts to a taxpayer’s CPA shows a lack of good faith in tax reporting.


Holland v. Comm’r, T.C. Memo. 2021-129 | November 18, 2021 | Lauber, J. | Dkt. No. 7115-20

Opinion

Short Summary: Petitioner Holland misreported income he received in 2017 (while retired) in the form of Social Security Benefits, a normal distribution from his retirement plan, and a normal distribution from his pension fund. Only the pension fund payment had taxes deducted. In preparing his Form 1040, Holland did not use the information reported to him on the Forms 1099-R. Instead, he attached two Forms 4852 (Substitute for Form W-2 or Form 1099-R), which he drafted. The instructions for Form 4852 state that the form is to be used if the payor doesn’t issue a Form 1099-R or has issued an incorrect Form 1099-R. On the Forms 4852 petitioner drafted, he claimed that his retirement account and pension fund had each made distributions to him of zero. He also overstated the amount of taxes withheld by the pension fund and request a refund of the purported overpayment. While it was unclear from the record when Holland submitted his unsigned tax return, he did not submit a signed tax return until the IRS requested it on May 3, 2018.

Key Issues:

Primary Holdings:

Key Points of Law

Insight: The IRS publishes and occasionally updates “The Truth About Frivolous Tax Arguments,” a compendium of frivolous positions and the case law refuting them. Petitioner’s arguments are included in that compendium. The Truth About Frivolous Tax Arguments, Internal Revenue Service (March 2018), https://www.irs.gov/pub/taxpros/frivolous_truth_march_2018.pdf.


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