The Tax Court in Brief – January 11 – 15, 2021

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The Tax Court in Brief January 11 – 15, 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.

The Week of January 11 – January 15, 2021

Kennedy v. Comm’r, T.C. Memo. 2021-3 

January 12, 2021 | Copeland, E. | Dkt. No. 5687-17W

Short SummaryPetitioner appealed, pursuant to § 7623(b)(4), three determinations of the Whistleblower Office (WBO) of the Internal Revenue Service (IRS) that declined to make awards to him.  Petitioner filed a single whistleblower claim, but the WBO split it into three distinct claims. Petitioner’s whistleblower claim alleged that three taxpayers and related subsidiaries owed $150,103,245 in unpaid excise taxes, penalties, and interest. The IRS processed the claims, and it took no action against two of the taxpayers, and no change resulted from the examination of the third taxpayer.  Petitioner challenged the WBO’s determinations. The Tax Court held that the WBO did not abuse its discretion in declining any awards to Petitioner.

Key Issue:  Whether the WBO abused its discretion in declining to award the Petitioner any amount under his whistleblower claims when it took no action against two taxpayers and issued no changes after the examination of the third taxpayer.

Primary Holdings

Key Points of Law:

InsightThe Kennedy decision demonstrates the basic process for appealing WBO decisions on whistleblower claims.  Of important note, the Tax Court pointed out that it will not review specific actions of the WBO and IRS, such as a decision to not audit a targeted taxpayer. All that the Tax Court will do is review the WBO’s final determination of the award for an abuse of discretion—generally a high standard to meet as the petitioner.

Ramey v. Comm’r, 156 T.C. No. 1

January 14, 2021 | Toro, J. | Dkt. No. 6986-19L 

Short SummaryThe IRS mailed to the taxpayer’s actual and last known address a notice of intent to levy for the taxpayer’s 2012 and 2016 tax years.  The notice was sent by certified mail, return receipt requested.  The notice advised the taxpayer of his right to seek a Collection Due Process (CDP) hearing within 30 days after the date of the notice.

The taxpayer had the same address as several businesses.  Three days after the IRS mailed the notice, the United States Postal Service (USPS) left the notice at the taxpayer’s address with a person who was neither the taxpayer’s employee nor authorized to receive mail on the taxpayer’s behalf.

The taxpayer requested a CDP hearing, and the IRS treated the request as untimely.  After the IRS sustained the levy action, it issued a decision letter.  The taxpayer filed a petition with the United States Tax Court.

Key Issue:  Whether the Tax Court had jurisdiction over the petition?

Primary Holdings

Key Points of Law:

Insight:  As the Ramey decision shows, taxpayers should ensure that they file timely responses to IRS notices, including a notice of proposed levy.  Because Mr. Ramey missed the deadline to file a request for a CDP hearing, he will be required to either pay the full amount of tax due and sue the government for a refund or attempt to negotiate with the IRS’ collection officers outside the purview of the Tax Court.

Filler v. Comm’r, T.C. Memo. 2021-6

January 13, 2021 | Copeland, J. | Dkt. No. 23581-17 

Short SummaryThe taxpayer was a well-known neurosurgeon.  Throughout his career, he used his skills to develop and patent technology—he is listed as an inventor on 11 patents that were granted in the United States, Europe, and/or Japan from 1996 through 2006.  He has also written numerous articles and books and has presented and lectured on subjects such as surgery, neurology, and medical imaging, including the technology he created.

In an effort to develop a neurography imaging business and provide financial incentives for the use of a patent, the taxpayer and others formed a new corporation, NG, Inc., to license the patented technology from another entity, Washington Research Foundation (WRF).  The taxpayer was a 75% shareholder of NG, Inc.  For his 2014 tax year, the taxpayer treated certain distributions from NG, Inc. related to the patent as a capital gain.  In addition, the taxpayer claimed certain NOL carryforwards on his 2014 return due to losses he claimed occurred with respect to patent litigation in 2012.

Key Issue:  Whether the taxpayer:  (1) properly reported $100,000 of income received as capital gain rather than ordinary income; (2) is liable for self-employment tax; (3) is entitled to deduct a net operating loss (NOL) carryover originating in tax year 2012; and (4) is liable for a penalty under Section 6662(a).

Primary Holdings

Key Points of Law:

Insight:   The Filler decision demonstrates the difficulties taxpayers can face in claiming long-term capital gain treatment with respect to patents under Section 1235 as well as substantiating NOL carryforwards from prior years.  Because these issues are oftentimes complex, taxpayers may attempt to hire legal counsel to assist in meeting their burden of proof in Tax Court proceedings.


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