The Tax Court in Brief April 05 – April 09, 2021

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The Tax Court in Brief April 05 – April 09, 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 April 05 – April 09, 2021

Tax Court Case Reston and Elizabeth Olsen 

April 6, 2021 | Lauber | Dkt. Nos. 26469-14 and 21247-16 

Tax Dispute Short Summary

The Tax Court held that the Taxpayers were not entitled to depreciation deductions or energy tax credits taken on their tax return because the lenses were never placed in service to produce energy.

From 2010 – 2014, the Taxpayers purchased light-concentrating lenses that were going to be used as components of a system to generate electricity.  Taxpayers believed they could reduce their tax liability  by claiming energy tax credits (or investment tax credits) and accelerated depreciation deductions on the lenses.

The Court used a five-factor weighted test, as described below,  to determine whether the energy project had been placed in service. The Court concluded that each of the five factors weighted against the Taxpayers, and the energy project was not placed in service.

Note, there are more than 200 cases dealing with the same issue that are pending the outcome of this case.

Tax Litigation Key Issues:

Whether the Taxpayers were entitled to depreciation deductions and energy tax credits  on lenses purchased by the Taxpayers?

Primary Holdings No.  Because the lenses were never placed in services to produce energy.  

Key Points of Law:

    1. Whether the necessary permits and licenses for operation have been obtained;
    2. Whether critical preoperational testing has been completed;
    3. Whether the taxpayer has control of the facility;
    4. Whether the unit has been synchronized with the transmission grid; and
    5. Whether daily or regular operation has begun.

Tax Court Case: Andrew and Sara Berry

April 7, 2021 | Marvel | Dkt. Nos. 18196-16 and 18635-16 

Tax Dispute Short Summary

The Tax Court held that a section 6662(b)(2) understatement penalty is invalid without proper supervisory approval when proposed as a matter of routine in a 30-day letter issued by the IRS.

The Taxpayers’ penalties were initially determined and communicated to the Taxpayers in a writing by the 30-day letters and RARs sent by the IRS agent.  Even though the 30-day letters were signed by the supervisor, such penalties were not approved by the supervisor.

Tax Litigation Key Issues

Whether the Taxpayers are liable for accuracy-related penalties under section 6662(a)?

Primary Holdings No.  Because the managerial approval did not occur until after the penalties were initially determined and communicated to the Taxpayers, therefore, the IRS cannot meet its burden of production and the Taxpayers are not liable for the accuracy-related penalties.

Key Points of Law:


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.