December Tax Decisions
By John D. Crowder on February 24, 2022
-
John D. Crowder
View Bio
Raging pandemic not an exception for statutory deadlines - Robinson v. Delapejia, 128 AFTR 2d 2021-6781 (W.D. Wash. 2021).
This case highlights the importance of keeping track of all statutory deadlines as the Court ultimately found that even a pandemic does not provide a Taxpayer with an exception. The Taxpayer filed her original 2014 through 2016 tax returns, claiming a refunds for each year. The Taxpayer received her refunds for the 2015 and 2016 tax years, but never received her refund for the 2014 tax year.
The IRS mailed the Taxpayer a notice of disallowance regarding tax year 2014 on or about October 23, 2018. Under IRC 6532(a)(1), a claim under IRC 7422 must be filed within two years from the time the IRS mails the notice of disallowance. Thus, the Taxpayer was required to file an action in court on or before October 23, 2020.
Before filing her petition, the Taxpayer was in contact with the TAS representative who told her to contact him at a later date because the pandemic had left the IRS understaffed. The Taxpayer alleged the conversation with the TAS representative led her to believe she did not have a deadline of October 23, 2020, and she filed her pro se petition on June 10, 2021. The Court found even the pandemic did not prevent the Taxpayer from timely filing her petition and dismissed her refund claim against the United States.
Specific and credible, a swing and a miss – Whistleblower 15977-18W v. Comm’r of Internal Revenue, T.C. Memo 2021-143.
The Court upheld the Whistleblower Office’s determination that the Taxpayer did not provide specific and credible evidence to support his claim for reward.
The Taxpayer filed a Form 211 with the IRS identifying an individual (“target”) who was a dual citizen of the United States and Country X. The Form 211 alleged that the target was subject to and failed to pay amounts of Federal taxes. The Taxpayer provided the target’s United States birth certificate and description of how the target rose to prominence in Country X. There was no information provided to suggest that the target was actually a U.S. Citizen or whether the target merely lived in the US for a brief period following their birth in the United States. Furthermore, the Form 211 lacked the target’s Social Security number.
The IRS rejected the Whistleblower claim, noting that the “information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.” The Court upheld the IRS’s denial of the Whistleblower claim and further denied the Taxpayer’s request for the opportunity to perfect the claim, citing Reg. 301.7623-1(c)(4) which provides the Whistleblower Office authority to deny a claim if they deem it to not provide specific and credible information as to the target of the claim.
Desert farmer couldn’t get up and running – no active trade or business, Antonyan v. Comm’r of Internal Revenue, T.C. Memo. 2021-138.
The Court disallowed the Taxpayer’s active trade or business deductions under IRC 162 and his startup expenditures under IRC 195 because the Taxpayer did not have an active trade or business. Under IRC 162, a Taxpayer may deduct all ordinary and necessary business expenses paid or incurred in a taxable year in carrying on the trade or business. However, for IRC 162 expenses to be deductible they must relate to an active trade or business that is ongoing when the expenses were incurred.
Determining whether the expenses are incurred when a trade or business is being carried on is a facts and circumstances determination. According to the Court, the Taxpayer was not “engaged in carrying on any trade or business within the intendment of section 162(a) until such time as the business has begun to function as a going concern and performed those activities for which it was organized.” Courts look to three factors when determining if a taxpayer is engaged in an active trade or business: (1) whether the activity was undertaken for profit; (2) whether the taxpayer is actively partaking in the activity; and (3) whether the activity has begun.
In 2012 or 2013 the Taxpayer purchased 10 acres in the Mojave Desert and named the venture “Paradise Acres” with the purpose of dividing the property into parcels for organic farming. The Taxpayer’s business plan consisted of building a barn-like structure on the property, obtaining a certification from the U.S. Department of Agriculture (“USDA”) to certify that the land complied with organic farming, and installing an irrigation system as well as an access road. Between the purchase and 2015 the Taxpayer conducted experiments on the property, planted vegetation, and mapped the property and its topography. The Taxpayer did not claim any deductions relating to the property before 2015.
In 2015 the Taxpayer began constructing a barn-like structure by: (1) purchasing building materials; (2) renting a commercial truck and four-wheel tractor-trailer to transport materials to the property; (3) building an unpaved vehicle access road; and (4) hiring day laborers to assist with the building of the structure. On the Taxpayer’s 2015 return he claimed active trade or business deductions under IRC 162 as well as deductions for start-up expenditures under IRC 195. The IRS disallowed the deductions in a notice of deficiency dated May 11, 2018.
The IRS argued that the Taxpayer never had an active trade or business because he had yet to accomplish any of the steps articulated in his business plan. The Taxpayer countered that none of the steps of the business plan were required to be completed before he could begin renting out the lots. Additionally, the Taxpayer argued that he had received multiple propositions from potential renters who had various uses for the property that did not require his completing of any steps of the business plan.
The Tax Court ultimately found the Taxpayer’s incompletion of any step in the business plan as the most persuasive factor in finding that the Taxpayer did not have an active trade or business. The Court reasoned that even if completion of the business plan was not required to rent out the property, the Taxpayer was not able to produce any evidence that he actively held the property out for rent during 2015. Furthermore, the activities the Taxpayer undertook in setting up the business, such as the experimentation and mapping, did not show that an active trade or business had begun. Therefore, the court disallowed the Taxpayer’s Schedule C deductions for the 2015 tax year.
Transcripts are not enough to verify notices were mailed, Pfetzer v. Comm’r of Internal Revenue, T.C. Memo. 2021-145.
The Court found that the IRS Settlement Officer (“SO”) did not fulfill her duty of verification under IRC 6330(c)(2), thus the Court held that IRS Appeals abused its discretion in sustaining the filing of a Notice of Federal Tax Lien (“NFTL”).
The Taxpayer failed to file income tax returns for 2004 through 2012 and the IRS filed substitute for return as well as assessed tax for all nine years. The Taxpayer sent Form 12153 requesting a Collection Due Process or Equivalent Hearing for the NFTL with respect to the assessed deficiency. In the Form 12153 the Taxpayer: (1) stated that they did not owe tax for 2010 and 2011; (2) requested verification that the IRS executed the procedures required by law; and (3) requested a face-to-face administrative hearing at the nearest IRS office.
Under IRC 6330(c)(1), a SO must verify that the applicable requirements of any law or administrative procedure have been met. IRC 6213(a) provides that no deficiency may be assessed until after the notice of deficiency is mailed to the taxpayer. If the IRS makes an assessment without having previously issued a notice of deficiency, then the assessment is invalid, as is any lien with respect to that assessment. While the SO is not required to review a particular document to verify that the notice was sent, they may not only rely upon transcripts to determine whether a notice was appropriately mailed under IRC 6330(c)(1).
The IRS issued a notice of determination sustaining the filing of the NFTL. With respect to the 2004 through 2008 tax years, the notice of determination stated that the Taxpayer could not challenge the underlying tax liability because the Taxpayer had a prior opportunity to contest the liabilities when the IRS issued a notice of intent to levy. Additionally, with respect to the 2009 through 2012 tax years, the Taxpayer was blocked from challenging the underlying liability because the IRS had issued notices of deficiency for those years. To make this determination, the SO reviewed the Taxpayer’s computerized transcripts to confirm that notices of deficiency and demand as well as lien filing notices were sent to the Taxpayer’s last known address.
The Taxpayer filed a petition challenging the notice of determination alleging the SO failed to verify that the IRS followed all applicable administrative procedures. The IRS countered arguing the Taxpayer was challenging the underlying liability. However, the court reasoned the verification requirement is a standalone requirement in IRC 6330(c)(1) and is not a challenge to the underlying liability. Therefore, the Court held that IRS Appeals abused its discretion in sustaining the filing of the NFTL for all tax years at issue.
Busted conservation easement finds reasonable cause penalty relief. Plateau Holdings, LLC. v. Comm’r of Internal Revenue, T.C. Memo. 2021-133.
Plateau was saved from the 20% penalty under IRC 6662(a) as well as 6662(b)(1) & (b)(2) because the court found Plateau had reasonable cause and acted in good faith when claiming a charitable contribution deduction. Plateau executed the deeds in 2012 and filed their tax returns claiming a deduction for the conservation easement in 2013. The easement deeds were prepared by an attorney for the donee who had considerable experience in drafting these instruments and modeled the deeds in question after others that were shared by an alliance of land trusts.
These deeds commonly contained a judicial extinguishment clause which provided that, in the event that the easement was extinguished though judicial determination, the donee’s proportionate share of the sale proceeds would be reduced by donor improvements. However, the case law regarding a judicial extinguishment clause had not been developed at the time Plateau filed their return. Beginning with PBBM-Rose Hill and Coal Property Holdings, judicial extinguishment clauses came under fire as late at 2018 – more than 5 years after Plateau filed their return claiming the charitable contribution deduction.
The Court noted that, while Plateau did not directly rely on this specific guidance in creating the easement deeds, the IRS had issued a Private Letter Ruling in 2008 that suggested “that a clause of this sort would not necessarily prevent the allowance of a charitable contribution deduction.” Therefore, the Court found that penalties should not apply to Plateau since they had reasonable cause and they acted in good faith when claiming the charitable contribution deduction.
A lesson in the specific application of deposits, Ahmed v. Comm’r of Internal Revenue, T.C. Memo 2021-142.
In Ahmed, the Taxpayer’s case became moot once they attempted to pay a deposit on their Trust Fund Recovery Penalty (“TFRP”). The Taxpayer filed a Tax court petition to challenge a federal tax lien for Trust Fund Recovery Penalties (“TFRPs”) assessed for 2016. The case was assigned to an IRS Appeals Officer for further consideration regarding the TFRPs.
After the Appeals conference, Taxpayer’s counsel mailed the IRS a $625,000 check for the full amount of the 2016 TFRPs and designated the check as a “cash bond deposit.” In the accompanying letter, counsel stated the check was a “deposit and not a payment of tax within the meaning of Rev. Proc. 2005-18 and should not be posted as a final payment.” The IRS posted the $625,000 check as full payment for the Taxpayer’s TFRP liabilities for each quarter of 2016 and released the corresponding tax lien with respect to the TFRP.
Based on the Taxpayer’s payment, IRS counsel motioned for dismissal of the case under IRC 6630 due to a lack of Tax Court jurisdiction. The Taxpayer’s claim failed for two reasons. IRC 6603(a) provides that a Taxpayer can make a deposit in regards to “any tax imposed under subtitle A or B or Chapter 41, 42, 43, or 44 which has not been assessed at the time of the deposit.” The Taxpayer’s claim failed because the TFRP was already assessed at the time the deposit was made. The claim also failed because TFRP liabilities fall under IRC 6672, which is in Chapter 68 in Subtitle F. Therefore, the Court found Mr. Ahmed’s case was moot as there was no unpaid liability on his account and it lacked jurisdiction to determine whether a refund should be paid.
For any questions about these decisions or any other criminal or civil tax-related matters, please feel free to contact John Crowder at
(214)749-2409 or jcrowder@meadowscollier.com.
This case highlights the importance of keeping track of all statutory deadlines as the Court ultimately found that even a pandemic does not provide a Taxpayer with an exception. The Taxpayer filed her original 2014 through 2016 tax returns, claiming a refunds for each year. The Taxpayer received her refunds for the 2015 and 2016 tax years, but never received her refund for the 2014 tax year.
The IRS mailed the Taxpayer a notice of disallowance regarding tax year 2014 on or about October 23, 2018. Under IRC 6532(a)(1), a claim under IRC 7422 must be filed within two years from the time the IRS mails the notice of disallowance. Thus, the Taxpayer was required to file an action in court on or before October 23, 2020.
Before filing her petition, the Taxpayer was in contact with the TAS representative who told her to contact him at a later date because the pandemic had left the IRS understaffed. The Taxpayer alleged the conversation with the TAS representative led her to believe she did not have a deadline of October 23, 2020, and she filed her pro se petition on June 10, 2021. The Court found even the pandemic did not prevent the Taxpayer from timely filing her petition and dismissed her refund claim against the United States.
Specific and credible, a swing and a miss – Whistleblower 15977-18W v. Comm’r of Internal Revenue, T.C. Memo 2021-143.
The Court upheld the Whistleblower Office’s determination that the Taxpayer did not provide specific and credible evidence to support his claim for reward.
The Taxpayer filed a Form 211 with the IRS identifying an individual (“target”) who was a dual citizen of the United States and Country X. The Form 211 alleged that the target was subject to and failed to pay amounts of Federal taxes. The Taxpayer provided the target’s United States birth certificate and description of how the target rose to prominence in Country X. There was no information provided to suggest that the target was actually a U.S. Citizen or whether the target merely lived in the US for a brief period following their birth in the United States. Furthermore, the Form 211 lacked the target’s Social Security number.
The IRS rejected the Whistleblower claim, noting that the “information provided was speculative and/or did not provide specific or credible information regarding tax underpayments or violations of internal revenue laws.” The Court upheld the IRS’s denial of the Whistleblower claim and further denied the Taxpayer’s request for the opportunity to perfect the claim, citing Reg. 301.7623-1(c)(4) which provides the Whistleblower Office authority to deny a claim if they deem it to not provide specific and credible information as to the target of the claim.
Desert farmer couldn’t get up and running – no active trade or business, Antonyan v. Comm’r of Internal Revenue, T.C. Memo. 2021-138.
The Court disallowed the Taxpayer’s active trade or business deductions under IRC 162 and his startup expenditures under IRC 195 because the Taxpayer did not have an active trade or business. Under IRC 162, a Taxpayer may deduct all ordinary and necessary business expenses paid or incurred in a taxable year in carrying on the trade or business. However, for IRC 162 expenses to be deductible they must relate to an active trade or business that is ongoing when the expenses were incurred.
Determining whether the expenses are incurred when a trade or business is being carried on is a facts and circumstances determination. According to the Court, the Taxpayer was not “engaged in carrying on any trade or business within the intendment of section 162(a) until such time as the business has begun to function as a going concern and performed those activities for which it was organized.” Courts look to three factors when determining if a taxpayer is engaged in an active trade or business: (1) whether the activity was undertaken for profit; (2) whether the taxpayer is actively partaking in the activity; and (3) whether the activity has begun.
In 2012 or 2013 the Taxpayer purchased 10 acres in the Mojave Desert and named the venture “Paradise Acres” with the purpose of dividing the property into parcels for organic farming. The Taxpayer’s business plan consisted of building a barn-like structure on the property, obtaining a certification from the U.S. Department of Agriculture (“USDA”) to certify that the land complied with organic farming, and installing an irrigation system as well as an access road. Between the purchase and 2015 the Taxpayer conducted experiments on the property, planted vegetation, and mapped the property and its topography. The Taxpayer did not claim any deductions relating to the property before 2015.
In 2015 the Taxpayer began constructing a barn-like structure by: (1) purchasing building materials; (2) renting a commercial truck and four-wheel tractor-trailer to transport materials to the property; (3) building an unpaved vehicle access road; and (4) hiring day laborers to assist with the building of the structure. On the Taxpayer’s 2015 return he claimed active trade or business deductions under IRC 162 as well as deductions for start-up expenditures under IRC 195. The IRS disallowed the deductions in a notice of deficiency dated May 11, 2018.
The IRS argued that the Taxpayer never had an active trade or business because he had yet to accomplish any of the steps articulated in his business plan. The Taxpayer countered that none of the steps of the business plan were required to be completed before he could begin renting out the lots. Additionally, the Taxpayer argued that he had received multiple propositions from potential renters who had various uses for the property that did not require his completing of any steps of the business plan.
The Tax Court ultimately found the Taxpayer’s incompletion of any step in the business plan as the most persuasive factor in finding that the Taxpayer did not have an active trade or business. The Court reasoned that even if completion of the business plan was not required to rent out the property, the Taxpayer was not able to produce any evidence that he actively held the property out for rent during 2015. Furthermore, the activities the Taxpayer undertook in setting up the business, such as the experimentation and mapping, did not show that an active trade or business had begun. Therefore, the court disallowed the Taxpayer’s Schedule C deductions for the 2015 tax year.
Transcripts are not enough to verify notices were mailed, Pfetzer v. Comm’r of Internal Revenue, T.C. Memo. 2021-145.
The Court found that the IRS Settlement Officer (“SO”) did not fulfill her duty of verification under IRC 6330(c)(2), thus the Court held that IRS Appeals abused its discretion in sustaining the filing of a Notice of Federal Tax Lien (“NFTL”).
The Taxpayer failed to file income tax returns for 2004 through 2012 and the IRS filed substitute for return as well as assessed tax for all nine years. The Taxpayer sent Form 12153 requesting a Collection Due Process or Equivalent Hearing for the NFTL with respect to the assessed deficiency. In the Form 12153 the Taxpayer: (1) stated that they did not owe tax for 2010 and 2011; (2) requested verification that the IRS executed the procedures required by law; and (3) requested a face-to-face administrative hearing at the nearest IRS office.
Under IRC 6330(c)(1), a SO must verify that the applicable requirements of any law or administrative procedure have been met. IRC 6213(a) provides that no deficiency may be assessed until after the notice of deficiency is mailed to the taxpayer. If the IRS makes an assessment without having previously issued a notice of deficiency, then the assessment is invalid, as is any lien with respect to that assessment. While the SO is not required to review a particular document to verify that the notice was sent, they may not only rely upon transcripts to determine whether a notice was appropriately mailed under IRC 6330(c)(1).
The IRS issued a notice of determination sustaining the filing of the NFTL. With respect to the 2004 through 2008 tax years, the notice of determination stated that the Taxpayer could not challenge the underlying tax liability because the Taxpayer had a prior opportunity to contest the liabilities when the IRS issued a notice of intent to levy. Additionally, with respect to the 2009 through 2012 tax years, the Taxpayer was blocked from challenging the underlying liability because the IRS had issued notices of deficiency for those years. To make this determination, the SO reviewed the Taxpayer’s computerized transcripts to confirm that notices of deficiency and demand as well as lien filing notices were sent to the Taxpayer’s last known address.
The Taxpayer filed a petition challenging the notice of determination alleging the SO failed to verify that the IRS followed all applicable administrative procedures. The IRS countered arguing the Taxpayer was challenging the underlying liability. However, the court reasoned the verification requirement is a standalone requirement in IRC 6330(c)(1) and is not a challenge to the underlying liability. Therefore, the Court held that IRS Appeals abused its discretion in sustaining the filing of the NFTL for all tax years at issue.
Busted conservation easement finds reasonable cause penalty relief. Plateau Holdings, LLC. v. Comm’r of Internal Revenue, T.C. Memo. 2021-133.
Plateau was saved from the 20% penalty under IRC 6662(a) as well as 6662(b)(1) & (b)(2) because the court found Plateau had reasonable cause and acted in good faith when claiming a charitable contribution deduction. Plateau executed the deeds in 2012 and filed their tax returns claiming a deduction for the conservation easement in 2013. The easement deeds were prepared by an attorney for the donee who had considerable experience in drafting these instruments and modeled the deeds in question after others that were shared by an alliance of land trusts.
These deeds commonly contained a judicial extinguishment clause which provided that, in the event that the easement was extinguished though judicial determination, the donee’s proportionate share of the sale proceeds would be reduced by donor improvements. However, the case law regarding a judicial extinguishment clause had not been developed at the time Plateau filed their return. Beginning with PBBM-Rose Hill and Coal Property Holdings, judicial extinguishment clauses came under fire as late at 2018 – more than 5 years after Plateau filed their return claiming the charitable contribution deduction.
The Court noted that, while Plateau did not directly rely on this specific guidance in creating the easement deeds, the IRS had issued a Private Letter Ruling in 2008 that suggested “that a clause of this sort would not necessarily prevent the allowance of a charitable contribution deduction.” Therefore, the Court found that penalties should not apply to Plateau since they had reasonable cause and they acted in good faith when claiming the charitable contribution deduction.
A lesson in the specific application of deposits, Ahmed v. Comm’r of Internal Revenue, T.C. Memo 2021-142.
In Ahmed, the Taxpayer’s case became moot once they attempted to pay a deposit on their Trust Fund Recovery Penalty (“TFRP”). The Taxpayer filed a Tax court petition to challenge a federal tax lien for Trust Fund Recovery Penalties (“TFRPs”) assessed for 2016. The case was assigned to an IRS Appeals Officer for further consideration regarding the TFRPs.
After the Appeals conference, Taxpayer’s counsel mailed the IRS a $625,000 check for the full amount of the 2016 TFRPs and designated the check as a “cash bond deposit.” In the accompanying letter, counsel stated the check was a “deposit and not a payment of tax within the meaning of Rev. Proc. 2005-18 and should not be posted as a final payment.” The IRS posted the $625,000 check as full payment for the Taxpayer’s TFRP liabilities for each quarter of 2016 and released the corresponding tax lien with respect to the TFRP.
Based on the Taxpayer’s payment, IRS counsel motioned for dismissal of the case under IRC 6630 due to a lack of Tax Court jurisdiction. The Taxpayer’s claim failed for two reasons. IRC 6603(a) provides that a Taxpayer can make a deposit in regards to “any tax imposed under subtitle A or B or Chapter 41, 42, 43, or 44 which has not been assessed at the time of the deposit.” The Taxpayer’s claim failed because the TFRP was already assessed at the time the deposit was made. The claim also failed because TFRP liabilities fall under IRC 6672, which is in Chapter 68 in Subtitle F. Therefore, the Court found Mr. Ahmed’s case was moot as there was no unpaid liability on his account and it lacked jurisdiction to determine whether a refund should be paid.
For any questions about these decisions or any other criminal or civil tax-related matters, please feel free to contact John Crowder at
(214)749-2409 or jcrowder@meadowscollier.com.
