The Tax Court in Brief April 19 – April 23, 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.
Tax Litigation: The Week of April 19 – April 23, 2021
Tax Court Case: Colton v. Comm’r, T.C. Memo 2021-44
Tax Dispute Short Summary:
The taxpayers filed a joint 2016 return, reporting wages of $53,875 and a $14,000 loss on Schedule E, Supplemental Income and Loss. Later, the IRS sent the taxpayers a letter asserting that they had received unreported income, including $20 of interest from U.S. Bank and $125,000 from JP Morgan Chase Bank. The taxpayers sent a responsive letter to the IRS explaining that the $125,000 represented settlement proceeds from a lawsuit, half of which belonged to Mr. Colton’s ex-wife. The IRS accepted the taxpayers’ explanation and sent a second letter, asserting interest income of $20 and other income of $62,500. The taxpayers filed an amended tax return for 2016, reporting $20 of interest income, $62,500 of settlement proceeds, and $80,075 of itemized deductions. The itemized deductions of $80,075 represented attorneys’ fees incurred in connection with the litigation and settlement. The IRS then sent a third letter indicating that it would permit the miscellaneous itemized deductions for attorneys’ fees but that additional tax would result due to computation of the alternative minimum tax imposed by Section 55. The IRS accordingly determined that the taxpayers were liable for AMT of $3,003. After non-payment, the IRS issued a notice of deficiency to the taxpayers, and the taxpayers filed a petition with the United States Tax Court. In their petition, the taxpayers asserted that “[they] never heard of [the] alternative minimum tax.” The IRS moved for summary judgment.
Tax Litigation Key Issues:
Whether taxpayers are liable for the AMT in the amount of $3,003.
Primary Holdings: Yes, the taxpayers are liable for the AMT, and the IRS’ motion for summary judgment should be granted.
Key Points of Law:
- The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Peach Corp. v. Comm’r, 90 T.C. 678, 681 (1988). The Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp. v. Comm’r, 98 T.C. 518, 520 (1992).
- Section 56 sets forth a number of adjustments in computing alternative minimum taxable income (AMTI), the tax base for the AMT. Section 56(b) provides that “[i]n determining the amount of the alternative minimum taxable income of any taxpayer (other than a corporation), the following treatment shall apply (in lieu of the treatment applicable for purposes of computing the regular tax): . . . No deduction shall be allowed . . . for any miscellaneous itemized deduction (as defined in section 67(b).”
Tax Litigation Insight:
The Colton decision shows that the Tax Court will grant summary judgment in the IRS’ favor if a taxpayer fails to sufficiently allege in the petition error on the part of the IRS.
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