Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
Paul Young Kim v. US, 5:22-cv-00691
Net Investment Income Tax Cannot Be Reduced by Foreign Tax Credits (Paul Young Kim v. US (5:22-cv-00691 (CA-9, Mar. 28, 2023)) Paul Kim is a US citizen who resided in South Korea until Sep. 2015, when he relocated to California. For the taxable year ending December 31, 2015, Mr. Kim timely filed a Form 1040 reporting in addition to the amount of regular income tax owed $644,382 in net investment income tax (“NIIT”).Subsequently, Mr. Kim filed a Form 1040X for the 2015 tax year seeking a refund of $638,232 in NIIT. Mr. Kim claimed, under the U.S. – South Korea …
Adam Sowards V. Comm., TCM 2023-99
No Social Security Number Means No Credits (Adam Sowards V. Comm., TCM 2023-99) Adam Sowards and his spouse jointly filed federal income tax returns for the three years at issue. The 2008 return claimed the additional child tax credit (ACTC) with respect to his four children, along with the earned income tax credit (EITC) and the recovery rebate credit. The 2009 return claimed the ACTC with respect to the four children, along with the EITC. The 2010 return claimed the child tax credit (CTC) with respect to the four children. The returns did not provide SSNs for the children or …
Donald S. Ahaiwe, pro se, v. Comm., TCSO 2023-7
Insolvency Must Be Proved to Exclude CODI (Donald S. Ahaiwe, pro se, v. Comm., TCSO 2023-7) Donald Ahaiwe claimed an exclusion from income for canceled debt related to a credit card. Mr. Ahaiwe argued that he was insolvent at the time the debt was canceled and, therefore, met the requirements of §108(a)(1)(B) for the exclusion. Mr. Ahaiwe has the burden of proving his claim that he was insolvent. In support of his burden, Mr. Ahaiwe relied upon an “insolvency worksheet” he created, but the Court found the “worksheet is little more than numbers on a page.” Mr. Ahaiwe provided neither …
Jeffrey and Sandra Siegel v. Comm., TCM 2019-11
Alimony Requirement #6: Tax Court Allowed Alimony Paid in Arrears Under Court Order (Jeffrey and Sandra Siegel v. Comm., TCM 2019-11) Jeffrey Siegel was divorced in 2003. He was required to make spousal maintenance payments of $10,110 per month and child support of $5,000 per month. After the divorce, Siegel’s business went into bankruptcy, his income fell drastically, and he fell behind in making the payments required by the judgment of divorce. On Feb. 12, 2012, after several legal proceedings, the Supreme Court of New York found Siegel to be in contempt and sentenced him to 150 days in jail …
James Tarpey v. US, CA-9, Doc. No. 22-35208
Tax Shelter Promoter Penalties Applied Because Of Faulty Appraisals (James Tarpey v. US, CA-9, Doc. No. 22-35208 (Aug. 17, 2023)) James Tarpey, a lawyer, and businessman, formed Project Philanthropy, Inc. d/b/a/ Donate for a Cause (“DFC”) around 2006. DFC facilitated the donation of timeshares for timeshare owners who no longer wanted to pay timeshare fees or otherwise wanted to dispose of their timeshare properties. Tarpey promised potential customers that they could receive generous tax savings from donating their unwanted timeshares to DFC. Tarpey himself appraised the value of some of the properties donated to DFC, and other properties were appraised …
Estate of Scott M. Hoensheid et al. v. Comm., TCM 2023-34
Donation of Appreciated Stock was Assignment of Income (Estate of Scott M. Hoensheid et al. v. Comm., TCM 2023-34) Scott Hoensheid in anticipation of the sale of Commercial Steel Treating Corp. (CSTC), a closely held corporation, contributed 1380 shares of CSTC to Fidelity Charitable Gift Fund (a donor advised fund). Contributing appreciated stock. When a taxpayer disposes of appreciated property via charitable contribution, they typically do not recognize any gain. This is because the taxpayer can avoid paying tax on the unrealized appreciation in the property and deduct the fair market value of the property contributed to a qualified charitable …
Duncan Bass v. Comm., TCM 2023-41
Non-Cash Donations of More Than $5,000 Require an Appraisal (Duncan Bass v. Comm., TCM 2023-41) Duncan Bass made noncash charitable gifts in 2017 to Goodwill, the Salvation Army, and Lend-A-Hand, which were reported on three Forms 8283 attached to his tax return. According to the Form 8283, the gifts to Goodwill had an appraised fair market value of $10,286 and were purchased for $4,360, while the gifts to the Salvation Army had an appraised fair market value of $10,060 and were purchased for $4,175. The gifts to Lend-A-Hand had an appraised fair market value of $10,340 and were purchased for …
Kenneth and Anita Brooks v. Comm., TCM 2022-122
Deed Was Not a Proper Contemporary Written Acknowledgement (Kenneth and Anita Brooks v. Comm., TCM 2022-122) On Dec. 15, 2006, the Kenneth and Anita Brooks Family LLC purchased 85 acres of real property known as Cotton Row Farm in Liberty County, Georgia, for $1,350,000. On the same day, the LLC subdivided the property into two parcels of 44 and 41 acres. The LLC granted and recorded a conservation easement over the 41-acre parcel on Dec. 27, 2007, to Liberty County. The LLC claimed a charitable contribution deduction of $5,100,000 on its 2007 Form 1065 for the contribution of the easement …
Martha Albrecht v. Comm., TCM 2022-53
Contemporaneous Receipt Did Not Include “No Goods and Services” Statement So No Charitable Deduction Allowed (Martha Albrecht v. Comm., TCM 2022-53) Martha Albrecht and her late husband acquired a large collection of Native American jewelry and artifacts during their marriage. In December 2014, Ms. Albrecht donated 120 items from this collection to the Wheelwright Museum of the American Indian. In connection with the donation, the Wheelwright Museum and Ms. Albrecht executed a “Deed of Gift” dated Dec. 19, 2014, that consisted of five pages. The first page stated that Ms. Albrecht “hereby donates the material described below to the Wheelwright …
Wendell H. Murphy, Jr., and Wendy Murphy v. Comm., TCM 2023-72
“Reasonable Cause” for Omitted Basis on Form 8283 Saves the Deduction (Wendell H. Murphy, Jr., and Wendy Murphy v. Comm., TCM 2023-72) Wendell and Wendy Murphy, through Duplin Land Development Inc., an S corporation, owned two tracts of land, which they developed into a 1,500-lot residential community with two 18-hole golf courses, a clubhouse, a recreation facility, and multiple nature trails. Tract 1 shares a border with Northeast Cape Fear River, and Tract 2 is an interior, land-locked tract to the north. Duplin Land Development, Inc. donated in 2010 perpetual conservation easements – each constituting a “qualified real property interest” …
Nadine Vichich v. Comm., 146 TC No. 12
Widow Can’t Use Deceased Husband’s AMT Credits (Nadine Vichich v. Comm., 146 TC No. 12) Before his marriage to Nadine Vichich, William Vichich exercised incentive stock options that resulted in AMT liability, which he reported on a 1998 tax return filed jointly with his first wife, Marla. Payment of the AMT liability in 1998 generated an AMT credit carryforward of $304,442. Ms. Vichich was married to Mr. Vichich from 2002 until his death in 2004. On her 2009 tax return, Ms. Vichich reported an AMT credit of $151,928 derived from her deceased husband’s 1998 AMT credit carryforward that she used …
Cynthia Hailstone and John Linford v. Comm., TCS 2023-17
Disability Payments Taxable if Premiums Paid by Employer (Cynthia Hailstone and John Linford v. Comm., TCS 2023-17) John Linford was provided disability insurance by his employer. Under the terms of the policy, employees were not required to contribute to the policy premiums. Rather, the company was required to pay 100% of the premiums. During 2017, Mr. Linford was approved and he received $105,000 of disability payments and a 2017 Form W-2 reporting the payments. He did not report the payments. Under §105(a) if the amounts of the disability payments were paid under a policy for which the contributions (premiums) were …
Ernesto and Marilyn Patacsil v. Comm., TCM 2023-8
Proof of Insolvency Lacking for Exclusion of Cancelation of Debt Income (Ernesto and Marilyn Patacsil v. Comm., TCM 2023-8) The discharge of indebtedness is income (§61(a)(12)). Section 108(a) provides an exclusion to the extent of the taxpayer’s insolvency (§§108(a)(1)(B) & (3)) and defines an insolvent taxpayer as one who has an “excess of liabilities over the fair market value of assets” (§108(d)(3)). The burden to prove insolvency is on the taxpayer. Because Ernesto and Marilyn Patacsil couldn’t prove the FMV of their assets and the extent of their liabilities, the cancellation of debt due to the foreclosure of their properties …
James H. Kim v. Comm., TCM 2023-91
IRS Summons Nets More than $4 Million of Unreported Cryptocurrency Gains(James H. Kim v. Comm., TCM 2023-91) In response to a summons, the IRS received information reports from Coinbase, Inc. a virtual currency exchange, reporting the proceeds of James Kim’s transactions in Bitcoin and Litecoin (during 2013–2016), and Ethereum (during 2017). For 2013–2016, Mr. Kim reported no cryptocurrency gains or losses. For 2017, he received an information return from Coinbase that reported $18,557,230 of proceeds from virtual currency transactions. On the 2017 Schedule D, Mr. Kim reported gross proceeds in that amount but offset against those proceeds a claimed basis …
Denine and Bryan Kerns, pro sese v. Comm., TCM 2019-14
Failed to Reconcile Advance Premium Tax Credit on Form 8962 (Denine and Bryan Kerns, pro se v. Comm., TCM 2019-14) Denine and Bryan Kerns purchased their health insurance through Covered California. They received an advanced premium tax credit (APTC) of $8,420 in 2014. They timely filed their 2014 return, reporting AGI of $97,061. They claimed personal exemptions for themselves and no exemptions for dependents. The IRS determined that the Kerns were not eligible for any credit because their household income exceeded the maximum allowable under §36B(b) and (c)(1)(A). For 2014, 400% of the FPL was $62,040. The Kerns’ household income …
Chalaundra Sneed v. Comm., TCS 2023-11
Advance Premium Tax Credits Require Taxpayer Attach Form 8962 to Tax Return (Chalaundra Sneed v. Comm., TCS 2023-11) Chalaundra Sneed enrolled in health insurance for herself and her two dependents through the Oklahoma insurance Marketplace. She received Advance Premium Tax Credits (APTC) on the basis of the information she provided in her application. Ms. Sneed did not attach a copy of Form 8962, Premium Tax Credit (PTC), to her income tax return, but later mailed it separately. The notice of deficiency determined that Ms. Sneed was ineligible for the PTC because her MAGI for year at issue exceeded 400% of …
Alice Kimble v. US, (CA-FC), 2021-1 USTC 50,110
FBAR Violation Recklessness and, Thus, Willful (Alice Kimble v. US, (CA-FC), 2021-1 USTC 50,110; (Mar. 25, 2021)) Because the penalty for willfully failing to file FBAR is a maximum penalty of the greater of $100,000 (inflation adjusted to $136,399 for 2021) or 50% of the balance in the account or the amount of the transaction, the determination of willful versus non-willful is meaningful. What’s willfulness? The US Supreme Court in Safeco Ins. Co. of Am. v. Burr, 551 US 47, 57 (2007), defined “recklessness” as “violating an objective standard: action entailing an unjustifiably high risk of harm that is either …
Lindsey Jones v. Comm., CA-9, 2022-1 USTC §50,111
Unsigned Return Was Still a Valid Married Filing Joint Return (Lindsey Jones v. Comm., CA-9, 2022-1 USTC §50,111 (Feb. 3, 2022)) The Ninth Circuit Court of Appeals found that the Tax Court did not err by concluding that Lindsey Jones tacitly consented to the filing of a joint return. A joint tax return signed by one spouse on behalf of the other is valid so long as the non-signing spouse tacitly consented to filing the joint return. See Hennen v. Comm., [CCH Dec. 24,658], 35 T.C. 747, 748–49 (1961). The key question is whether both spouses intended at the time …
Sam Bankman-Fried Sentenced to 25 Years
Sam Bankman-Fried, the former wunderkind of the cryptocurrency world, was sentenced to 25 years in prison on Thursday, March 28th, 2024, for his role in defrauding FTX customers of $8 billion. He was facing a maximum sentence of 110 years, and prosecutors were hoping for 40-50 years. For a deep-dive into the background of the Sam Bankman-Fried fraud case from an accounting point of view, see Jeff Sailor, CPA’s on-demand video course, Focus on Fraud: FTX! What Happened? (1 CPE Credit, Accounting) In a statement from the Department of Justice, U.S. Attorney General Merrick Garland said: “There are serious consequences for …
The 90-Day Clock is Ticking for Beneficial Ownership Reporting
An Alabama Federal District Court found the Corporate Transparency Act and its Beneficial Ownership Interest (BOI) reporting to be unconstitutional (National Small Business United et al v. Yellen et al). The Justice Department on behalf of Treasury filed a Notice of Appeal on March 11, 2024. What happens now? While the litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the court’s order. Other than the particular individuals and entities subject to the court’s injunction, reporting companies are still required to file beneficial ownership reports as provided in FinCEN’s regulations. …