The Tax Court in Brief – February 22 – 26, 2021

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The Tax Court in Brief February 22 – 26, 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 February 22 – February 26, 2021


Llanos v. Commissioner

February 22, 2021 | Kerrigan, K. | Dkt. No. 8424-19L 

Short SummaryIRS assessed § 6702 penalties against petitioner for filing frivolous returns. Eventually the IRS issued a Final Notice of Intent to Levy, to which the taxpayer timely request a CDP hearing. At the CDP hearing, the petitioner indicated that he had not received the required notices of deficiency for the civil penalties. Petitioner did not request any collection alternatives. The settlement officer upheld the levy action, and petitioner filed in tax court. Tax court held for the IRS.

Key Issue:  Whether petitioner made a “meaningful” challenge to the penalties so as to trigger a de novo review, and whether the levy action was appropriate.

Primary Holdings

Key Points of Law:

InsightThe Llanos decision demonstrates the application of different standards of review depending on the nature of the case. But most importantly, the case discusses the standards used to review the collection action determinations of an IRS settlement/appeals officer.

Rogers v. Commissioner 

February 22, 2021 | Nega, J. | Dkt. No. 8930-17

Short SummaryPetitioner sought review of respondent’s determination that she is not entitled to relief from joint and several liability under section 6015(b), (c), or (f) for tax years 2010 and 2011 (years at issue) with respect to the joint Federal income tax returns that she filed with intervenor, her former spouse.

Key Issue:  Whether petitioner was entitled to relief from joint and several liability under section 6015(b), (c), or (f).

Primary Holdings

Key Points of Law:

InsightThe Rogers decision demonstrates how the Tax Court reviews and analyzes innocent spouse relief claims. These cases are unpredictable given the broad discretion of the Court to consider nearly every relevant fact in determining whether relief is appropriate, but this provides practitioners with opportunities to make creative arguments on behalf of their clients.

Friendship Creative Printers, Inc. 

February 22, 2021 | Nega | Dkt. No. 7945-19L

Short SummaryThe Tax Court granted an IRS motion for summary judgment and upheld a proposed levy action in collection of $213,460, arising from a corporation’s employment tax liabilities and related Sec. 6651(a)(1)(2) additions to tax for failure to timely file Forms 94,  and failure to timely pay employment taxes, and not making timely deposits for certain quarters.

Key Issue:  Whether petitioner is liable for related section 6651(a) additions to tax and section 6656 penalties.

Primary Holdings

Key Points of Law:  

Konstantin Anikeev and Nadezhda Anikeev v. Comm’r, 156 T.C.

 February 23, 2021 | Goeke, J. | Dkt. No. 13080-17

Short SummaryThe case discusses whether credit card cash rewards are includible within income. Specifically, the case analyzes whether rewards acquired from cash equivalents such as gift cards constitute income, considering that such rewards are not goods or services that may be subject to rebates.

During 2013 and 2014, Mr. Anikeev (the taxpayer) had a Blue Cash American Express credit card. Under the rewards program of such card, a customer could receive Reward Dollars equal to 5% of everyday purchases and the number of Rewards that a cardholder could accumulate was unlimited. To maximize his Rewards Dollars, the taxpayer used his credit card to purchase Visa gift cards from grocery stores. After this purchase, the taxpayer used the gift cards to buy money orders. Such money orders were deposited in the taxpayer’s bank account. At the end of the month, he paid his credit card bill and started the process again. The taxpayer redeemed his Rewards and received $36,200 and $277,275 as statements credits for 2013 and 2014, respectively. These amounts were not included in income.

The IRS issued a notice of deficiency determining that the previous amounts constitute income. The Tax Court analyzed the long-standing policy of the IRS applicable to credit cards rewards and determine that the cash rewards obtained from the purchase of the gift cards under the cash equivalent theory, were indeed, income.

Key Issues: Whether cash rewards paid to the taxpayer as statement credits relating to cash equivalent are an accession to wealth and constitute income?

Primary Holdings: Under particular circumstances, credit card rewards may be subject to taxation, when the purchases made with the credit card do not constitute goods or services, but rather cash equivalents.

Key Points of Law:

Section 61(a) defines gross income in a very broad manner. Adjustments to the purchase prices of goods and services are, generally, considered nontaxable. In the case of credit cards rewards, the IRS has a long-standing policy of considering that card rewards are not taxable. See Rev. Ru. 76-96.

Under the rebate rule set forth by the IRS, a purchase incentive such as a credit card rewards, or points is not income but rather it is a reduction of the purchase price. The IRS argued that the taxpayer’s Reward Dollars were not purchase price adjustments but rather cash equivalents that are property equal to their face value. Under this argument, no adjustment could be made because cash equivalents have a basis equal to their face values. Because this argument does not hold with the IRS policy of considering that the rebates received from the purchases of goods or services are not taxable, the Court concluded that the Reward Dollars associated with eh Visa gift cards purchases were not properly included in income.

As for the taxpayer’s direct purchases of money orders and reloads of cash into the debit cards using the American Express credit card constitutes a different issue. The Court determined that the Visa gift cards have product characteristics but did not constitute neither a good nor service. Based on such conclusion, the Court ruled that the Reward Dollars obtained from direct purchases of money orders and cash infusions to reloadable debit cards, constitute income.

Insight: This case will probably lead to modifications to the IRS policy regarding credit card rewards. Under the traditional approach, a reward is not taxable, however, in extreme cases such as this, the rewards may constitute an accession to wealth and consequently, subject to taxation.

Galloway v. Comm’r, T.C. Memo. 2021-24

February 24, 2021 | Urda | Dkt. No. 18722-18L

Short SummaryIn this collection due process (CDP) case, the taxpayer sought review pursuant to sections 6320(c) and 6330(d)(1) of the determination by the Internal Revenue Service (IRS) Office of Appeals to uphold the filing of a notice of Federal tax lien (NFTL) with respect to an unpaid Federal income tax liability for 2014, as well as associated interest and additions to tax. The taxpayer asserted that, during his CDP hearing, he was improperly barred from resuscitating an offer-in-compromise (OIC) that had been rejected before the NFTL filing.

Both parties moved for summary judgment.  The Tax Court granted summary judgment to the IRS and denied same for the taxpayer.

Key Issue:  Whether the IRS improperly rejected the taxpayer’s 2017 OIC, and correspondingly, whether the issue of the claimed improper rejection could be considered a second time in the context of a CDP hearing when it had previously been addressed in an IRS Appeals hearing.

Primary Holdings

Therefore, the settlement officer satisfied all the requirements.

Key Points of Law:

InsightTaxpayers should always raise and prosecute to completion every grounds for which they believe they are entitled to relief.  Once a determination has been made in one forum, the same issue cannot be re-raised in a different forum.  And as always, without additional mitigating facts, if a taxpayer’s financial information demonstrates an ability to pay the entire amount of the liability, the IRS will reject any offer-in-compromise.

Tax Court Litigation Attorneys 

Need assistance litigating in the U.S. Tax Court? Freeman Law’s tax attorneys are experienced litigators with trial-tested litigation skills and in-depth substantive tax knowledge, having collectively litigated hundreds of cases before the U.S. Tax Court. Our tax controversy lawyers have extensive experience in Tax Court matters involving partnership audits and litigation under both the TEFRA and BBA regimes, international tax penalties, foreign trusts, valuation, reasonable compensation disputes, unreported income, fraud penalties, other tax penalties, any many other matters. We draw on our experience and wealth of tax knowledge to advise and guide clients through the entire tax controversy process, building the right strategy to resolve tax controversies from day one. Schedule a consultation or call (214) 984-3000 to discuss your Tax Court concerns or questions.