federal tax update
TRANSCRIPT
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
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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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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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