The Tax Court in Brief July 19 – July 23, 2021

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The Tax Court in Brief July 19 – July 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.

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 July 19 – July 23, 2021


Tax Court Case: Morris F. Garcia, Deceased, and Sharon Garcia v. Commissioner

July 19, 2021, | Lauber, J. | Dkt. No. 7612-20P

Tax Dispute Short Summary

As of January 1, 2020, petitioners have an unpaid joint tax liability exceeding $500,000 for 2012, a year in which they filed a joint tax return. On February 10, 2020, the IRS issued Sharon Garcia a Notice CP508C, Notice of Certification of Your Seriously Delinquent Federal Tax Debt, showing an unpaid liability of $583,803 for 2012. Further, on March 2, 2020, the IRS issued Morris F. Garcia a substantially identical Notice CP508C, showing the same delinquent tax debt for 2012. These notices informed petitioners that the IRS had certified to the State Department that they were persons owing seriously delinquent tax debt.

On July 10, 2020, petitioners jointly petitioned for review. On July 16, 2020, petitioners filed a second joint petition for review, again appending copies of both notices, and that petition was docketed at No. 10671-20. On November 16, 2020, the Tax Court granted the respondent’s motion to close the case at docket No. 10671-20 on the ground of duplication with the instant case.

In their earlier petition, petitioners alleged that they had submitted to the IRS an offer-in-compromise of their 2012 tax liability, predicting the offer on doubt as to liability. Petitioners alleged that they had filed, in October 2019, an amended return for 2012, reporting what they believed their correct tax liability to be. However, petitioners feared the IRS had improperly rejected their offer, requiring the tax court to: (i) declare that their certifications as persons owing a seriously delinquent tax debt were erroneous; and (ii) issue a “declaratory relief” to the effect that their offer-in-compromise “was erroneously denied in violation of their rights.” At a time not disclosed by the record, but after the petition was filed, Morris F. Garcia died.

In his answer to the petition, the respondent confirmed that petitioners had submitted an offer-in-compromise for 2012 and that their offer “was subsequently deemed processable and remains pending.” Respondent represented that the IRS was “in the process of reversing petitioners’ certifications as individuals owing seriously delinquent tax debt.” On November 2, 2020, the IRS reversed both certifications and so notified the State Department. Petitioners’ account transcript shows that their amended return for 2012 was “forwarded for processing” on October 31, 2019; that the IRS received their offer-in-compromise on December 4, 2019; and that an examination of their amended return commenced on February 28, 2020. An accounting entry dated September 29, 2020, reads: “Mandated reversal and/or exclusion from passport certification.” Account entries dated November 2, 2020, read: “Passport certified seriously delinquent tax debt reversal.”

On January 29, 2021, the respondent filed a motion to dismiss on the ground of mootness, representing that the IRS had “notified the Secretary of State that the certifications of petitioners as individuals owing seriously delinquent tax debt were reversed on or about November 2, 2020.” Therefore, the respondent contends that petitioners have received all of the relief to which they are entitled. Counsel for petitioners filed an objection to the respondent’s motion.

Tax Litigation Key Issue:

Primary Holdings

Key Points of Law:

Tax Litigation Insight

The Garcia decision concluded that married individuals that received separate but substantially identical notices of certification arising from the same tax liability may file a joint petition. Also, the docket shows how the delay in the IRS’s system – e.g. processing the offer-in-compromise – was able to put petitioners in a hard spot, making them seek judiciary support. However, once the IRS processed/received the documentation submitted by the taxpayers it corrected its own mistake and solves the petitioners’ issue.


Tax Court Case:

New World Infrastructure Organization v. Commissioner, T.C. Memo. 2021-91 

July 20, 2021 | Carluzzo, L. | Dkt. No. 12457-17X

Tax Dispute Short Summary

The New World Infrastructure Organization is a successor to The Pipe Man Corp. (TPMC), owned by Scott Johnston and Pam Johnston. According to TPMC’s articles of incorporation, it was organized to develop a “Portable Pipe Manufacturing System, also an Arching Machine utilized to reshape pipe. Therefore, the company developed its business activities to seek capital. However, the company was not profitable and thus it abandoned its efforts to develop and market any products before the petitioner was organized.

The Johnstons caused the incorporation of the petitioner as a nonprofit corporation under the laws of Nevada on January 5, 2015. Despite being incorporated as a nonprofit, nothing in the record shows that the petitioner adopted bylaws or that petitioner is affiliated with any Government or public institution.

In January 2018, 2015, the petitioner submitted to respondent Form 1023 Application for Recognition of Exemption under section 501(c)(3) of the Internal Revenue Code. Petitioner included a narrative description of its activities with the form stating as its “ultimate purpose and core focus will be charitable with its main beneficiary being Federal, State, and Local Government Agencies.” Also, the petitioner affirmed that it will “publish, own or have rights in music, literature, tapes, artworks, choreography, scientific discoveries, or other intellectual property”.

Further, the petitioner’s narrative description clarified that it “will retain ownership and control over any patents, copyrights, processes, etc., resulting from this research and development”. According to the narrative description, the petitioner intends to sell the machinery (“large corrugated metal pipe”) to governmental agencies and private companies. The company estimates the costs of manufacturing the finished product to be 30% of its fair market value. Therefore, the respondent requested additional information. The parties exchanged correspondence and information from March 11 through May 7, 2015.

On April 7, 2017, the respondent issued petitioner a final adverse determination letter denying petitioner’s application for the following reasons: (i) petitioner is a successor organization to a for-profit business; (ii) petitioner’s principal activity will involve production and sale of pipes at market rates; (iii) petitioner has not demonstrated that it will be operated exclusively for charitable, scientific, or other exempt purposes set forth in section 501(c)(3) of the Internal Revenue Code; and (iv) petitioner has not shown its proposed activities will lessen the burdens of government or otherwise further activities.

Key Issue:

Primary Holdings

Tax Court sustained Respondent’s determination that Petitioner p does not qualify for tax-exempt status under section 501(c)(3) of the Internal Revenue Code. TPMC failed to prove that his activities were charitable, scientific, and also that the organization wasn’t organized and operated for benefit of private interest.

Key Points of Law:

Tax Litigation Insight

The New World Infrastructure Org. decision shows that the mere act of creating a nonprofit organization (under the state law) and filing Form 1023 through the IRS in order to grant the tax-exempt status does not automatically guarantee the status of the tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. The organization must prove its exclusively exempt character (charity, educational, etc.) and not for the benefit of private interest.


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