Bad Debt Reserve-Financial Institution-Validity of Commis- sioner's Regulation Requiring Taxable Income Reflect Net Operat- ing Loss (NOL) Carrybacks Before Calculation of Deduction for Addition to Bad Debt Reserve.-Where in 1971-80, petitioner financial institution calculated its deduction under sec. 166(c) for additions to its bad debt reserve by using "percentage of taxable income method" set forth in sec. 593(b)(2)(A); and petitioner carried back its sec. 172(c) NOL for 1981-82 to preceding years in manner contrary to subdivisions (vi) and (vii) of regs. 1.593-6A(b)(5), which generally required that taxable income reflect any NOL before calculation of deduction for addition to bad debt reserve, Court determined subdivisions (vi) and (vii) of regs. 1.593-6A(b)(5) were invalid to extent that they required taxable income to reflect any NOL carrybacks before calculation of addition to bad debt reserve for certain financial institutions. Pacific First Federal Savings Bank v. Commissioner....
See also ESTATES AND TRUSTS; EXPENSES-TRADE OR BUSINESS; INSTALLMENT SALES.
Failure to File Timely Estate Tax Return-Reasonable Cause or Willful Neglect-Unresolved Fact Question.-Where sec. 6075(a) required petitioner to file decedent's estate tax return by Dec. 6, 1984; petitioner's attorney filed return on Mar. 8, 1985, simulta- neously applying for extension of time to file/pay until Mar. 8, 1985; neither application was approved; Commissioner billed peti- tioner for tax, addition, and interest, but later abated addition pending audit; petitioner paid tax and interest; after examination of return Commissioner increased tax and asserted sec. 6651(a)(1) late filing addition, Court determined (1) Commissioner did not abuse discretion by not approving applications filed with late return, since attorney's maintaining "periodic consistent contact"
ADDITIONS TO TAX-continued
with IRS office while preparing return did not compensate for failure to file timely for extension or plausibly explain failure to do so; (2) inclusion of previously abated sec. 6651(a)(1) addition in deficiency notice was not abuse of Commissioner's statutory authority, since there was no closing agreement or other binding agreement precluding Commissioner from subsequently asserting it; and (3) summary judgment on liability for addition was inappropriate, since fact questions remained as to whether failure to file timely was due to reasonable cause and not willful neglect. Estate of Wilbanks v. Commissioner.....
Installment Purchase of Farm by Limited Partnership in Tax- Motivated Transaction-Overvaluation of Improvements-Negli- gence and Reasonable Reliance on C.P.A. Partner.-Where petition- ers were limited partners who deducted their distributive shares of losses arising from accrual method partnership's 1981 installment contract to purchase farm; contract did not provide for payment of interest, and Commissioner imputed interest under sec. 483; partner A was C.P.A. who maintained partnership records and prepared tax returns; and improvements were valued at $227,000 by partnership, which was 243% of $93,400 actual value, Court determined (1) partner A was liable for sec. 6653(a)(1) addition to tax for negligence for his 1982-83 individual income tax returns on his entire underpayment, since he computed depreciation deduc- tions using partnership basis that was not supported by informa- tion available to him, but partners B and C were not liable, since they reasonably relied on A; (2) partners were liable for sec. 6659 addition for underpayment attributable to valuation overstate- ment; (3) A was not liable for sec. 6661 addition, since his partnership investment was not tax shelter and substantial author- ity existed supporting his deduction of imputed sec. 483 interest ratably over life of contract; and (4) partners were liable for increased interest under sec. 6621(c) for engaging in tax-motivated transaction. Weis v. Commissioner.........
Renovations to Rental Property-Characterization of Gain on Sale of Properties-Liability for Alternative Minimum Tax.— Where in 1983, petitioner made renovations to three of her 13 rental properties in anticipation of selling them, Court determined, on facts, renovations were nondeductible sec. 263 capital expendi- tures (since petitioner did not elect under sec. 179 to treat expenditures as deductible expense) that increased her basis in property and reduced amount of capital gain realized on sale, and petitioner was liable for sec. 55 alternative minimum tax, since amount of sec. 1202 net long-term capital gain attributable to
CAPITAL EXPENDITURES-continued
property sales was tax preference item under sec. 57(a)(9). LaPoint v. Commissioner....
CAPITAL GAINS AND LOSSES
Corporation-Loss on Sale of Terminated Executive's House- Ordinary Loss or Capital Loss.-Where petitioner family-owned nut business deducted, as ordinary loss for its TYE June 29, 1985, loss incurred on resale of terminated executive's house that had been purchased pursuant to employment contract, Court deter- mined house was capital asset under sec. 1221 giving rise to nondeductible capital loss, not ordinary loss under sec. 165(f) for property used in petitioner's business. Arkansas Best Corp. v. Commissioner, 485 U.S. 212, followed. Azar Nut Co. v. Commis- sioner....
Regulated Sec. 1256 Futures Contracts-Losses Incurred by Investor and "Associated Person" in Commodities Straddles Transactions-"Commodities Dealer in the Trading of Commodi- ties" Interpreted.-Where petitioners claimed deductions on their 1980-81 income tax returns for substantial losses incurred in commodities straddles transactions; petitioner H was commodities investor employed as account executive with brokerage firm; H was registered as "associated person" with Commodity Futures Trading Commission and as registered commodity representative with Chicago Board of Trade; H was not floor trader, floor broker, or member of exchange, and was required to use services of floor broker to place orders, Court determined, for purposes of sec. 108(b) of Deficit Reduction Act of 1984 as amended by sec. 1808(d) of Tax Reform Act of 1986, H was not "commodities dealer in the trading of commodities" since he did not buy and sell commodities futures on the floor of, and subject to the rules of, an exchange. Kovner v. Commissioner
See also CAPITAL GAINS AND LOSSES; TAXES; VALUA- TION.
Domestic International Sales Corporation (DISC)-Computation of Overall Profit Percentage Limitation-Validity of Commission- er's Regulations.-Where petitioner corporation and its wholly owned subsidiaries manufactured alcoholic beverages on which it paid Federal excise tax on distilled spirits sold domestically and utilized DISC as commission agent for export sales of its liqueur product line; on its 1981 and 1983 Federal income tax returns, petitioner included in gross receipts total amount received from its customers for liqueur purchases and deducted Federal excise tax as expense; and Commissioner disallowed deductions claimed for commissions paid to DISC, Court determined (1) for purposes of computing overall profit percentage limitation under regs. 1.994-2, "gross receipts" from both domestic and export sales include total
sales proceeds received from customers without reduction or other adjustment for manufacturer's payment of excise tax on distilled spirits, (2) regs. 1.994-2(b)(3), which was issued under specific authority of sec. 994(b)(2) as "legislative regulation," was valid, and (3) aggregation rule of reg. 1.994-2(c)(2)(ii) may be used to calculate overall profit percentage with respect to single related supplier even if aggregation is not used to calculate overall profit percentage of any other member of controlled group. Brown-Forman Corp. v. Commissioner ...
Investment Tax Credit-Automobile-"Property Used in Connec- tion With Furnishing of Lodging."-Where in 1983, petitioner purchased new BMW automobile which she used while inspecting and maintaining her 13 rental properties, Court determined peti- tioner was not entitled to investment tax credit for her automobile since sec. 48(a)(3) provides that property used in connection with furnishing of lodging fails to qualify as sec. 38 property. LaPoint v. Commissioner...
Residential Energy Credit-Water Source Heat Pump-"Renew- able Energy Source Property" Interpreted.-Where petitioners claimed sec. 44C residential energy credit on their 1980 income tax return for purchase and installation of water-to-air heat pump and cooling system in their house; and system used groundwater with constant temperature (about 13 degrees centigrade) stored in underground tanks to heat house and as "sink" for energy drawn from house in cooling, Court determined, from regulations and legislative history of sec. 44C, petitioners were not entitled to claimed credit for "renewable energy source property," since their system failed to qualify as "solar energy" under regs. 1.44C-2(f)(1) or as "energy derived from geothermal deposits" under 50 degree centigrade minimum temperature requirement imposed by regs. 1.44C-2(h). Newborn v. Commissioner
Activity Engaged In for Profit-Bona Fides-Dog Breeding and Grooming As Single Activity.-Where petitioners filed joint re- turns claiming deductions for dog breeding and grooming opera- tion, Court determined that, considering all facts and circum- stances, (1) close organizational and economic relationship between two operations made them one activity for purposes of sec. 183; and (2) steadily decreasing losses and eventual turning of profit indicated petitioners engaged in activity with profit-making objec- tive. Keanini v. Commissioner..
Partnership Debt Obligations-Computer Equipment Leasing Transaction-"At Risk" Requirement.-Where in 1979-82 petition- ers claimed their allocable share of limited partnership losses from
multiple-party computer equipment leasing transactions in which limited partners had no realistic economic liability because of guarantees made to limited partners by other transaction partici- pants, because of underlying nonrecourse third-party debt on which transaction was based, and because of other transaction features, Court determined petitioners were protected from loss on partner- ship debt obligations under sec. 465(b)(4) and were not at risk within meaning of sec. 465(b)(2). Thornock v. Commissioner ............. Partnership Losses in Sham Transaction-Commissioner's Ad- justment of Interest Accrued Under Modified Rule of 78's- Addition to Tax.-Where for 1982 petitioners in consolidated test cases invested less than $8,000 each in limited partnerships to finance Barbados hotel; deferred nonrecourse payments of principal and interest extended over 40 years; petitioners acquired no interest in underlying real estate but supposedly had right to one-time vacation, worth under $1,500, at hotel; petitioners could not sell or transfer interests for profit; and petitioners claimed large losses based on interest payment deductions, inconsistent with payment schedule, accruing to over $90,000 for first year under modified Rule of 78's, Court determined (1) purported investments were obvious tax-shelter sham transactions lacking economic substance and claimed losses were disallowed, since petitioners had no possibility of profit other than claimed tax benefits; (2) Commissioner properly exercised sec. 446(b) authority to correct distortion in income caused by application of modified Rule of 78's interest accrual method; and (3) petitioners were liable for increased interest rate of sec. 6621(c), negligence addition to tax of sec. 6653(a)(1) and (2), and sec. 6661 addition to tax on substantial underpayment of income tax. LaVerne v. Commissioner DEFICIENCY NOTICE
Joint Notice Sent Only to Divorced H at Separate Address- Actual and Timely Filing of Joint Petition-Validity to Toll Limitations Period for W.-Where petitioners, who filed joint income tax returns for 1982-84 before their divorce, each notified Commissioner of their separate residences through filing of individ- ual returns for subsequent years; Commissioner sent joint notice of deficiency to H, but did not send duplicate original joint notice to W at her address; H forwarded copy of notice to W, who filed joint petition with H within required 90-day period under sec. 6213(a) but after expiration of 3-year limitations period for assessment under sec. 6501(a); and Commissioner filed amended answer asserting sec. 6653(b) fraud addition, Court determined (1) Commis- sioner issued and mailed joint notice of deficiency to W; (2) notwithstanding Commissioner's failure to send duplicate joint notice to W's last known address, jurisdiction to hear case existed because W received actual notice and timely petitioned; (3) notwithstanding W's not receiving actual notice until more than 3
« iepriekšējāTurpināt » |