The Tax Court in Brief May 17 – May 21, 2021

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The Tax Court in Brief May 17 – May 21, 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 May 17 – May 21, 2021


Fumo v. Comm’r, T.C. Memo. 2021-31 

May 17, 2021 | Lauber, J. | Dkt. No. 17614-13

Tax Litigation Short Summary

Taxpayer, a state senator with 30 years of service, was convicted on Federal criminal charges, including mail and wire fraud. One victim included a 501(c)(1) & (3) organization, exempt from Federal income tax.  Taxpayer influenced the tax-exempt organization’s formation as, at his direction, three members of his senatorial staff incorporated the organization for the purposes of maintaining and improving the aesthetic appearance of the taxpayer’s district. At all periods in question, at least one member of the taxpayer’s staff worked for the charity organization as either President or Executive Director while remaining employed by the Senator.  Taxpayer influenced, as chairman of a senate appropriations committee, funding for the charitable entity from public and private sources.

A Federal criminal court convicted the taxpayer on multiple accounts related to a scheme to defraud the organization of funds to purchase personal property for the taxpayer and ordered taxpayer to pay substantial restitution to the tax-exempt organization.  The taxpayer’s criminal trial testimony revealed that the taxpayer would often derive benefits from the tax-exempt organization by simply emailing a member of his staff, who was a fiduciary of the organization.  Further, at the criminal trial, the taxpayer admitted to influencing and making decisions on important topics for the organization, including admitting that he had substantial influence over the organization.

The IRS determined liability to the taxpayer under Section 4958(a)(1) for a 25% tax of excess benefit from any excess benefit transaction involving a charity by a disqualified person although the taxpayer was never employed by the 501(c)(3) as an officer, director, trustee, or employee.

Tax Dispute Key Issues:

Primary Holdings

Key Points of Law:

Insight: The Fumo decision reminds all taxpayers that titles or employment status does not define the relationship between the taxpayer and a tax-exempt organization.  A taxpayer that has the ear of a fiduciary of a 501(c)(3) opens himself or herself up to the scrutiny of the IRS or the Tax Court to formulate your level of influence.

PEEPLES v. Comm’r, Summary Op 

May 19, 2021 | Paris, J. | Docket No. 17117-17S.

Tax Dispute Short Summary: Mr. Peeples deducted unreimbursed employee business expenses on his 2014 federal income tax return. The IRS disallowed the deductions and issued a notice of deficiency. Mr. Peeples filed a petition with the United States Tax Court challenging the proposed adjustments in the notice of deficiency.

Tax Litigation Key Issues: Whether Mr. Peeples is entitled to deduct (1) certain unreimbursed employee business expenses and (2) tax preparation fees (under Section 162) for 2014.

Primary Holdings: No, Mr. Peeples is not entitled to deduct either because he failed to provide the Court adequate documentation or information that would have substantiated either the application of the Cohan rule for the deductions or the tax preparation expense.

Key Points of Law:

Insight: The Peeples decision reaffirms the importance of maintaining expense records for all business-related events and expenditures. In the event that a taxpayer can establish that a deductible expense has been paid but relevant records are lost, damaged, or otherwise insufficient, the court generally may estimate an expense­—however, the court will bear heavily against the taxpayer and the estimation will be dependent upon the presentation of sufficient evidence to provide the court a basis for said estimate.

Shitrit v. Commissioner, T.C. Memo. 2021-63 

May 20, 2021 | Urda, J. | Dkt. No. 21104-18P

Short Summary

Mr. Shitrit is a dual citizen of Israel and the United States. Despite three separate companies had reported that he had received income from them during that year, Mr. Shitrit did not file a Federal income tax return for 2006.

Therefore, the IRS prepared a substitute for return for Mr. Shitrit’s 2006 taxable year. On January 10, 2011, the IRS issued a notice of deficiency to Mr. Shitrit at the California address, determining a total assessment of $143,415. The notice was returned as undeliverable by the U.S. Postal Service which led to the assessment of the taxes and additions to tax were assessed on June 6, 2011. In 2016, the case was assigned to a revenue officer for collection, which verified that Mr. Shitrit had not visited the address in over a decade. Despite all the efforts, the IRS was unenabled to notify the Petitioner.

In 2017 Mr. Shitrit filed Federal income tax returns for 2014, 2015, and 2016 on which he included his address in Israel. The IRS notified Mr. Shitrit at his Israeli about the application of a $3,000 overpayment from his 2016 tax year against the 2006 tax liability, leaving $222,654 due for the 2006 tax year.

After being notified at his Israeli address about his serious tax debt (CP508C), on October 25, 2018, Mr. Shitrit filed a petition with the Court, asserting that he was the victim of identity theft, which resulted in the 2006 liability; He also requested the Court to conclude that: (i) he did not have a seriously delinquent tax debt and to require the reinstatement of his passport; (ii) the IRS had failed to send the notice of deficiency to the correct address; (iii) he “is not liable for any additional tax, interest, or penalty” for 2006; and (iv) he “is entitled to a refund of $3,000”.

While the case was pendent, the IRS reversed its certification that Mr. Shitrit owed a “seriously delinquent tax debt” given that it could not clearly establish that the notice of deficiency was sent to Mr. Shitrit’s last known address.

Key Issue:

Primary Holdings

Key Points of Law:  

Insight: The Shitrit decision shows that the I.R.C. §7345 does not grant the Tax Court jurisdiction to determine an overpayment, refund, or credit of tax paid. Also, the decision elucidates that the court can dismiss a case as moot when the relief is already granted to the taxpayer.

Ginos v. Comm’r, T.C. Memo. 2021-14 

May 19, 2021 | Carluzzo, J. | Dkt. No. 6147-17S

Tax Dispute Short Summary

The opinion shall not be treated as precedent for any other case and the decision shall not be reviewed by any other court.

Although she was not employed nor received income, the taxpayer and her then-husband filed a joint 2008 Federal Income tax return with income only attributable to the husband’s business, formed, at least in part, by funds borrowed or gifted from the taxpayer’s grandmother.  The signed 2008 Federal income tax return reflected taxes due.  The amount went unpaid.  In 2011, taxpayer and then-husband filed for divorce.  Divorce settlement negotiations led to a non-memorialized, verbal agreement where the then-husband agreed to pay the 2008 tax liability if the taxpayer did not contest the divorce.  In extinguishing her obligations under the agreement, the taxpayer executed a quitclaim deed conveying her interest in the marital home to her then-husband.  Thus, the taxpayer realized and recognized income from the cancellation of indebtedness.  Further, taxpayer began receiving salary from employment with a nonprofit organization.  Taxpayer filed a separate 2011 Federal income tax return including her salary. However, the taxpayer failed to include the debt discharge assumed by her then-husband.

Taxpayer relocated to a foreign country for a period, between 2012 and 2013, before returning the U.S.  Shortly after returning to the U.S., taxpayer married for the second time.  Prior to the marriage, taxpayer received a large monetary gift from her mother, which was subsequently used to purchase stocks in a joint brokerage account of the taxpayer and husband.  Taxpayer and husband moved to Colorado.  Taxpayer maintained no job and received an allowance from her husband as the only source of income.

In 2015, taxpayer submitted Form 8857, Request for innocent Spouse Relief, requesting relief from liability for tax years 2008 and 2011.

Tax Litigation Key Issues:

Primary Holdings

Key Points of Law:

InsightThe Ginos decision provides just as much guidance about the need for an agreement in writing when determining which spouse will shoulder any outstanding tax liabilities in a divorce settlement.  While the Tax Court’s decision appears harsh, the taxpayer conceded that many of the Sleeth considerations were neutral.  Remember – Get It In Writing!

Mason v. Comm’r, T.C. Memo. 2021-64

May 20, 2021 | Holmes, J. | Dkt. Nos. 6919-16SL, 7007-16L, 7009-16L

Tax Dispute Short Summary

Taxpayers owed tax liability both jointly and individually for various years.  Taxpayers filed joint Federal income tax returns late and made no payments towards their liabilities at the time of filing for two years.  The subsequent year and in following years, “taxpayer A” filed individual income tax returns, separately.  Taxpayer A filed returns late and made no payments for the associated liabilities.  Taxpayers reached an installment agreement with the commissioner and made payment until they ceased making payments a year and a half after the agreement.  In addition to tax delinquencies, the IRS assessed trust-fund-recovery penalties to taxpayer A for various years.

By 2015, the Commissioner began filing liens against the taxpayers’ property and increased its collection efforts.  Revenue Officer phoned the Taxpayers to notify them that IRS will seize their home to settle their tax liabilities.  Soon after the phone call, IRS sent taxpayers notice of intent to levy and right to CDP hearing.  Taxpayers promptly responded to the notice by submitting a CDP hearing directly to the office of the Commissioner Centralized OIC Unit.

Revenue Officer discovered the taxpayer mailed the OIC and CDP hearing request to the Centralized Unit.  Revenue Officer opined that the OIC was sent solely to delay collections as it was mailed two weeks after the Revenue Officer’s threats of seizure.  Within two days, the Centralized OIC Unit returned the taxpayers’ request informing them that the offer was submitted for the sole purpose of delaying an approaching seizure.

A few weeks later, another department of the IRS received the taxpayers’ request for a CDP hearing.  A Settlement Officer was assigned to review the case.  The Settlement Officer informed the Masons that the actions of the Revenue Officer and the Centralized OIC were property under the Internal Revenue Manual.  Settlement Officer refused to review the taxpayers’ OIC on the merits.  The settlement Officer, rather, reviewed only whether the Centralized Office abused its discretion under the I.R.M. Settlement Officer informed the taxpayers that the actions were appropriate and that their circumstance had already been considered.  The taxpayers were forced to file a petition with the Tax Court.

Tax Litigation Key Issues:

Primary Holdings

Key Points of Law:

Sec. 301.7122-1(b)(3)(ii) , (c)(3)(ii)

Insight: The Mason Case shows the importance of understanding the procedural aspects of dealing with the IRS.  It, also, unfortunately, demonstrates the careless consideration, at times, of certain aspects within the IRS.  Efficiency is no substitution for the correct process and consideration.

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.