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:
- In order to claim an investment tax credit or depreciation deductions, the lenses must be placed in service.
- The Court used a five factor weighted test to evaluate whether the energy project had been placed in service:
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- Whether the necessary permits and licenses for operation have been obtained;
- Whether critical preoperational testing has been completed;
- Whether the taxpayer has control of the facility;
- Whether the unit has been synchronized with the transmission grid; and
- 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:
- The IRS bears the burden of production with respect to a taxpayer’s liability for accuracy-related penalties and must provide evidence to indicate it is appropriate to impose the asserted penalty.
- As part of the IRS’ burden of production, it must produce evidence of compliance with the procedural requirements of 6751(b).
- Under sector 6751(b)(1), the initial determination of a penalty assessment must be personally approved in writing by the immediate supervisor of the individual making such determination.
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.
