federal tax update

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FEDERAL TAX UPDATE (INCLUDING RECENT COURT CASES AND RULINGS) September, 2021 By David S. De Jong, LLM, CPA Stein Sperling Bennett De Jong Driscoll PC 1101 Wootton Parkway, Suite 700 Rockville, Maryland 20852 301-838-3204 [email protected] 1

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FEDERAL TAX UPDATE (INCLUDING RECENT COURT CASES AND RULINGS)

September, 2021

By David S. De Jong, LLM, CPA

Stein Sperling Bennett De Jong Driscoll PC

1101 Wootton Parkway, Suite 700

Rockville, Maryland 20852

301-838-3204

[email protected]

1

Tressler v. CommissionerIn Tressler v. Commissioner, TC Summary Opinion

2021-33, the Tax Court allowed a former Amtrak

employee to exclude only $6,980 of a $55,000

settlement, representing the cost of medical care for

emotional distress, but required inclusion in income of

the remaining settlement as the claim focused on

workplace harassment and retaliatory employment

practices; the settlement made no specific allocation

to any physical injuries which were pled in the

original complaint as a result of an alleged workplace

sexual assault and stress caused by the hostile work

environment. 2

Vasquez v. Commissioner

In Vasquez v. Commissioner, TC Summary

Opinion 2021-32, the Tax Court, under pre-2018

law, denied travel expenses for an individual

who worked 237 miles from his residence

despite his work being temporary and lasting less

than one year in that he was regularly reengaged

on new jobs, thus his tax home was where he

worked and slept in a trailer rather than where

his family resided and where he returned on

weekends. 3

Ray v. CommissionerIn Ray v. Commissioner, 128 AFTR2d 2021-5871,

the Fifth Circuit Court of Appeals agreed with the

Tax Court that legal fees incurred by an individual

related to recovering trading losses on transactions

through his ex-wife of more than 30 years were

deductible pre-2018 only as miscellaneous itemized

deductions notwithstanding that the individual had

settled prior litigation with IRS where it accepted

that his activities constituted a business; the Court

also affirmed that legal expenses incurred in other

litigation with his ex-wife regarding real property

and credit cards were personal in nature. 4

Gregory v. Commissioner

In Gregory v. Commissioner, TC Memo 2021-

115, the Tax Court ruled that expenses to offset

hobby income are reportable pre-2018 as

miscellaneous itemized deductions subject to the

two percent floor (no offset to gross income from

hobbies is available 2018-2025).

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Richlin v. Commissioner

In Richlin v. Commissioner, 128 AFTR2d 2021-

________, the Ninth Circuit Court of Appeals

agreed with the Tax Court that a divorcing

husband was entitled to all overpayment credits

from a joint return and all estimated tax

payments as the parties had a prenuptial

agreement which made him responsible for all

tax liability not related to her separate property.

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Parker v. Commissioner

In Parker v. Commissioner, TC Memo 2021-111,

the Tax Court denied a deduction for over

$60,000 in retirement contributions where the

taxpayers could not show the source of the funds

and testified that they kept their savings “at

home where they are protected…and safe from

unscrupulous individuals including IRS agents”;

the Court disallowed numerous other expenses

including an alleged 97 percent business use of

the only family car for lack of substantiation.7

Buck v. United States

In Buck v. United States, 128 AFTR2d 2021-

________, a Connecticut Federal District Court

rejected the IRS contention that discounting

should not apply to a fractional gift unless the

interest existed as a fraction before the gift.

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Connelly v. United States

In Connelly v. United States, 128 AFTR2d 2021-

________, a Missouri Federal District Court

reached the opposite result from an earlier

Eleventh Circuit Court of Appeals decision and

held that life insurance received by a business as

the result of an owner’s death is includable in the

valuation of the business where the buy-sell

value does not control due to an inability to meet

all of the requisites for utilizing the value

previously set by the owners. 9

Information Release 2021-194

In Information Release 2021-194, IRS

announced that the $67 fee for estate tax closing

letters would apply to requests received by IRS

after October 27, 2021.

10

Gaston v. Commissioner

In Gaston v. Commissioner, TC Memo 2021-

107, the Tax Court found that a successful

former national sales director for Mary Kay who

was forced to retire due to age was attempting to

make a profit as an actress as she conducted

herself in a business-like manner with substantial

investment of time and effort but was found to

have engaged in occasional jewelry sales as a

hobby.

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Letter Ruling 202138010

In Letter Ruling 202138010, IRS ruled that an

organization formed for spiritual growth and

healing through group meditation and the drug

DMT, a hallucinogen, cannot qualify as a

501(c)(3) organization as its primary purpose

was use of the illegal drug.

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CIC Services, LLC v. United States

In CIC Services, LLC v. United States, 128

AFTR2d 2021-5234, a Tennessee Federal

District Court enjoined IRS from enforcing

reporting requirements on advisors concerning

captive insurance transactions as IRS failed to

comply with the comment procedures that were

required; the case came back from the US

Supreme Court which held that the Anti-

Injunction Act was not a bar to this sort of suit as

it did not seek to restrain the assessment or

collection of any tax. 13

Clark v. CommissionerIn Clark v. Commissioner, TC Memo 2021-114,

the Tax Court agreed with IRS that a civil fraud

penalty was appropriate for an individual who

substantially underreported income by hundreds

of thousands of dollars in two years, concealed

bank accounts, and other property and had

personal expenditures in excess of claimed

resources, rejecting a defense that despite three

years of college he lacked the higher math

concepts and sophistication to purposely

underreport his income. 14

In Re: Vossough

In In Re: Vossough, 128 AFTR2d 2021-

________, a New Jersey Bankruptcy Court

determined that federal common law rather than

state law determines when an amount is deemed

assessed, thus state liability was deemed

assessed when the state processed the returns and

not when the state subsequently did a “human

review” – still ahead of the federal lien.

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Seminole Nursing Home

v. Commissioner

In Seminole Nursing Home v. Commissioner,

128 AFTR2d 2021-5738, the Tenth Circuit Court

of Appeals agreed with the Tax Court that the

statutory provision allowing release of a levy on

grounds of economic hardship applies only to

individual and not corporate taxpayers.

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Boechler v. Commissioner

In Boechler v. Commissioner, the US Supreme

Court agreed to hear an appeal from a decision

of the Eighth Circuit Court of Appeals at 126

AFTR2d 2020-5410 which held that the 30-day

deadline for requesting Tax Court review

following a CDP hearing is absolute; in this case

a personal injury attorney or his professional

filed one day late.

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Sutherland v. Commissioner;

Goode v. CommissionerIn Sutherland v. Commissioner, TC Memo 2021-110, the

Tax Court denied innocent spouse status to the wife of an

individual criminally prosecuted for tax crimes as the

court found that she was intimately involved in her

husband’s business and knew or should have known that

the liability shown on the return would not be paid; in

Goode v. Commissioner, TC Summary Opinion 2021-34,

the Tax Court denied the innocent spouse claim of a

former wife by giving great weight to the fact that she had

knowledge that the liability would not be paid when the

return was filed; allegations of abuse related to subsequent

years and were disregarded by the Court. 18

Brown v. Commissioner

In Brown v. Commissioner, TC Memo 2021-

112, the Tax Court determined that it did not

have jurisdiction to order the refund of the 20

percent submitted with an Offer in Compromise

and, in any event, the 20 percent is codified as a

payment of tax rather than a refundable deposit.

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In Re: Starling

In In Re: Starling, 128 AFTR2d 2021-

________, a New York Federal District Court

declined to discharge old tax liability in

bankruptcy where the return was filed five years

after the Substitute for Return (SFR) and it

reflected the same amount assessed by IRS, the

Court following the majority rule that this does

not constitute an “honest and reasonable attempt

to satisfy the requirements of the tax law.”

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In Re: Tallis

In In Re: Tallis, 128 AFTR2d 2021-5821, a

Texas Federal District Court declined to allow

discharge in bankruptcy of a tax debt in excess

of $12 million where the individual bought

expensive cars, suites for all four Dallas sports

teams and gave huge sums to family members.

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Chief Counsel Advice 202137010

In Chief Counsel Advice 202137010, IRS stated

that a continuing levy applies with respect to

income from a rental contract.

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The End

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About Stein SperlingStein Sperling, founded in 1978, provides a broad range of

services to meet the business and personal needs of a broad range

of clients. Our focus is on a team approach and our flexible and

dynamic organizational structure offers our clients the benefit of

our full range of legal resources in the following practice areas:

Business Law Estates & Trusts

Civil Litigation Family Law

Construction Law Injury Law

Criminal Litigation Real Estate Law

Employment Law Tax Law

US News and World Report awarded Stein Sperling a Tier 1

National rating for 2021 for Tax Litigation and Controversy, one

of only 35 Firms nationally to receive this designation. Stein

Sperling is also nationally ranked in Tax Law and in Trusts and

Estate Law.24

About the Speaker

David S. De Jong, LLM, CPA, practices law with the Rockville, Maryland, firm of Stein Sperling Bennett De Jong Driscoll PC, concentrating his practice in tax planning and controversy, estate planning, business transactions and valuations. An adjunct professor for over 30 years at five universities, he currently teaches part-time at the Washington and Lee University School of Law. For 16 years he coauthored J. K. Lasser’s annual tax planning book. Mr. De Jong has litigated cases in each federal tax forum and has testified as an expert witness over 50 times in court, arbitrations and before disciplinary panels. Active in many professional groups, Mr. De Jong is a Past President of the American Academy of Attorney-Certified Public Accountants. In 2006, he was listed as one of the Top 100 Attorneys in the United States by Worth magazine; he has received additional accolades from Washingtonian Magazine, Bethesda Magazine, Washington Smart CEO, Best Lawyers in America, Super Lawyers and CPA Magazine. Mr. De Jong received his BA from the University of Maryland, his JD from Washington and Lee University, and his LLM in Taxation from Georgetown University.

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