The Tax Court in Brief November 8 – November 12, 2021

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The Tax Court in Brief November 8 – November 12, 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 8 – November 12, 2021

  1. Peak v. Comm’r, T.C. Memo 2021-128
  2. Knox v. Comm’r, T.C. Memo. 2021-126
  3. Smaldino v. Comm’r, T.C. Memo 2021-127

Tax Court Case:

Peak v. Comm’r, T.C. Memo 2021-128
November 10, 2021 | Ashford, J. | Dkt. No. 10444-20
Opinion

Short Summary:  This case involves unreported tax stemming from a distribution from a retirement plan.  The primary issue is whether such distribution was taxable

Key Issues:

Primary Holdings

Key Points of Law:

InsightThis case reflects the well-established principle that the IRS has the right, within applicable statutes of limitations, to assess additional tax where it is found to be owed.  And unfortunately, advice from an IRS agent does not rise to the level of the law that can be relied upon in excluding taxable income.


Tax Court Case:

Knox v. Comm’r, T.C. Memo. 2021-126
November 9, 2021 | Jones, J. | Dkt. No. 14687-17

Opinion

Short Summary:

For 2015, the Knoxes reported $59,228 in Social Security Benefits, of which $16,829 and $14,523 were attributable to lump-sum payments relating to 2013 and 2014, respectively. In 2015, they received a benefit of $7,332 in advance premium tax credit (APTC) payments. In 2015, they did not file the required Form 8962, used for reconciling APTC (received in advance, throughout the tax year) with their eligible premium tax credit (PTC) at the end of the year. (As the court explained, if someone cannot afford monthly health insurance premiums during the year, providing the credits after the end of the year is of little use. Accordingly, APTCs are paid directly to an insurance provider during the year, and taxpayers are required to reconcile any APTCs received with the eligible credit amount on Form 8962.)

By notice of deficiency, the Commissioner determined a deficiency of $7,332 in the Federal income tax of petitioners, Ronald E. Knox and Joan S. Knox, for the 2015 taxable year, and an accuracy-related penalty under section 6662 of $1,466. The parties submitted this case for decision without trial under Rule 122. The court considered whether the Knoxes were entitled to a premium tax credit and, if they are not, whether they are required to repay advance premium tax credit (APTC) payments of the PTC. The court determined that they were not entitled to a PTC and confirmed the Commissioner’s deficiency determination.

Key Issues: 

Primary Holdings:

The court applied its holding in Johnson and, therefore, the Knoxes’ MAGI for PTC eligibility included the lump sum payments they received in 2015, which brought their income above 400% of the poverty line and made them ineligible for PTC.

Key Points of Law:

Insight: There is no real insight here, other than, perhaps, to observe that the Knoxes proceeded pro see.


Tax Court Case:

Smaldino v. Comm’r, T.C. Memo 2021-127

November 10, 2021 | Thornton, J. | Dkt. No. 5437-18

Opinion

Short Summary:  The taxpayer owned and operated numerous rental properties.  He placed 10 of these properties in Smaldino Investments, LLC (SI, LLC), which he owned through a revocable trust.  Later, the taxpayer transferred approximately 8% of the SI, LLC class B member interests to the Smaldino 2012 Dynasty Trust (Dynasty Trust), an irrevocable trust that he had created for the benefit of his children and grandchildren.  Around the same time, the taxpayer also transferred approximately 41% of the SI, LLC class B member interests to his wife, who transferred them to the Dynasty Trust the next day.

The taxpayer filed a gift tax return and reported as a taxable gift the 8% SI, LLC class B member interests he had transferred to the Dynasty Trust.  The IRS determined that the taxpayer had made a taxable gift to the Dynasty Trust of approximately 49% of the class B member interests, i.e., the IRS determined that the taxpayer had made a taxable gift of the 41% interest transferred from his wife and later to the Dynasty Trust.  On the basis of these determinations, the IRS asserted that the taxpayer had a $1,154,000 gift tax deficiency for 2013.

Key Issues:

Primary Holdings

Key Points of Law:  

InsightThe Smaldino case shows the potential dangers of filing a petition with the United States Tax Court.  Specifically, in this case, after the petition was filed, the IRS asserted additional gift tax deficiencies than originally asserted in the notice of deficiency.  As a result, the taxpayer actually owed more gift tax than if he had simply accepted the IRS’s determinations in the notice of deficiency.


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