EXPENSES-TRADE OR BUSINESS—Continued
insurance business; and Commissioner determined legal costs were
Schedule A nonbusiness itemized deductions and punitive damages
were reportable as nonbusiness income, Court determined all court
costs and attorney's fees were attributable to petitioner's trade or
business, since they originated in petitioner's business activity, and
consequently they were deductible under sec. 162(a) as Schedule C
business expenses. Guill v. Commissioner

INCOME

See also EXEMPT ORGANIZATIONS.

Recognition and
and Constructive Receipt of Espionage

Income-Double Jeopardy Clause and Tax Liability and

Civil Penalties-Criminal Reference Letter as Privileged

Work Product.-Where petitioner former CIA employee pleaded

guilty on Apr. 28, 1994, to charges under 18 U.S.C. secs. 794(c) and

371 of conspiracy to commit espionage and to defraud IRS; for

1989-92 tax years, Commissioner determined income tax defi-

ciencies and sec. 6662(a) accuracy-related penalties; petitioner, who

used cash method of accounting, contended that (1) he was not

required to report during 1989-92 taxable years espionage income

received and deposited then because he had constructively received

it in 1985 when Soviets told him $2 million had been set aside for

him to draw upon, and (2) Double Jeopardy Clause precluded

assessment of tax or civil penalties relating to unlawful espionage

income; and petitioner sought to discover Commissioner's criminal

reference letter, contending Commissioner's work product privilege

was inapplicable to civil proceeding and his substantial need out-

weighed Commissioner's need for protection, Court determined (1)

work product privilege extended to civil tax case derivative of

petitioner's criminal tax violations, and petitioner had not dem-

onstrated sufficient need to outweigh Commissioner's privilege so as

to compel Commissioner to produce criminal reference letter, classic

example of attorney work product; (2) for purposes of constructive

receipt doctrine, petitioner did not receive espionage income before

specific amounts were made available to him and did not possess

requisite unfettered control over $2 million in 1985; and (3) imposi-

tion of tax liability on espionage income and imposition of sec.

6662(a) accuracy-related penalty were civil remedy and did not con-

stitute criminal punishment within meaning of Double Jeopardy

Clause. Ames v. Commissioner

INSTALLMENT SALES

S Corporation Selling Residential Timeshares-Deductibil-

ity of Additional Tax Paid by Shareholder Equal to Interest
on Tax Deferred as Result of Installment Method Election-
Trade Business Requirement.-Where petitioners were
shareholders of S corporation that sold residential timeshares and
reported income under installment method pursuant to sec.

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INSTALLMENT SALES Continued

453(1)(3)(A) election; because of S' installment method election,

petitioners as shareholders paid additional tax equal to interest on

tax deferred; on individual income tax returns for 1993-96, petition-

ers computed interest on deferred tax liability under sec.

453(1)(3)(B) by reference to tax liability for preceding year attrib-

utable to S' installment sales and deducted interest as business

expense on Schedules E under sec. 163(h)(2)(A) personal interest

exception; and Commissioner disallowed interest deductions in full

because petitioners had failed to establish payments were allowable

business interest expense deductions, Court determined petitioners

were not entitled to deduct sec. 453(1)(3)(A) interest incurred on

installment sales by S, since interest was not properly attributable

to trade or business of petitioners as required by sec. 163(h)(2)(A).

Carlson v. Commissioner

INTEREST

See TAXES; UNITED STATES TAX COURT.

INVENTORIES

Valuation of Truck Parts Inventory Under Last-In, First

Out (LIFO) Method-Actual-Cost-of-Parts Requirement-

Commissioner's Discretion To Adjust To Reflect Income

Clearly.-Where petitioner heavy truck dealer had used dollar-

value, link-chain LIFO accounting method since 1980 to value truck

parts inventory held for sale to customers; in calculating "total cur-

rent-year cost of items making up" its parts pool, petitioner used

replacement cost (manufacturer's prices of purchased parts in effect

on physical inventory date); and Commissioner determined use of

replacement cost instead of actual cost of parts in valuing parts

inventory was contrary to sec. 472 LIFO requirements as not

clearly reflecting income and adjusted petitioner's ordinary income

for taxable year 1991 to include amount of so-called LIFO reserve

petitioner had computed from 1980 through 1991, Court determined

Commissioner's adjustment was not abuse of discretion, since use

of replacement cost in valuing parts inventory did not clearly reflect

income. Mountain State Ford Truck Sales, Inc. v. Commis-

sioner

LIMITATIONS

Extension by Agreement of Limitations Period for Assess-

ment and Collection-Mutual-Consent-in-Writing Require-

ment-Special Rule for Elections Regarding Activities Not

Engaged In for Profit.-Where on 1990-93 joint income tax

returns petitioners claimed deductions relating to horse boarding

and training activities on Schedules C and attached valid Forms

5213, Election To Postpone Determination as to Whether the

Presumption Applies That an Activity Is Engaged In for Profit; on

Aug. 15, 1996, Commissioner issued notices of deficiency for 1990-

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58

LIMITATIONS Continued

94 tax years disallowing deductions for 1991-92 tax years; and
Commissioner subsequently agreed to petitioners' claimed deduc-
tions plus others but contended resulting overpayments were
barred by period of limitations because petitioners did not file
amended returns or execute Forms 872 for 1991-92, Court deter-
mined petitioners' 1991-92 overpayments were not time barred,
since special rule of sec. 183(e)(4) election overrode broader mutual-
ity-by-written-agreement requirement of sec. 6501(c)(4) and
extended period of limitations. Wadlow v. Commissioner

No-Return Exception-Refund of Tax Withheld on U.S.-

Source Dividends-Requirement To File Return by Non-

resident Alien Individual.-Where in 1991-92 petitioner foreign

trust that did not conduct business or engage in trade within

United States received from U.S. corporations dividend income on

which Federal income tax was withheld; on Aug. 12, 1992, and June

28, 1993, petitioner submitted Forms 990-T claiming refund of

withheld taxes on ground that it was tax exempt, and Commis-

sioner refunded withheld amounts on Aug. 27, 1992, and Aug. 11,

1993, respectively; petitioner did not file 1991 or 1992 income tax

return; on Dec. 19, 1996, Commissioner issued notices of deficiency

for refunded amounts after determining petitioner was not tax

exempt; petitioner argued deficiency notices were untimely under

sec. 6501; and Commissioner contended sec. 6501(c)(3) no-return

exception applied because petitioner failed to file returns for 1991-

92, Court determined, in partial summary judgment, reg. 1.6012-

1(b)(2)(i), on which petitioner relied, was inapplicable because (1)

tax liability ceased to be "fully satisfied" when petitioner obtained

refund and (2) petitioner had claimed overpayments of tax; and

Commissioner's deficiency notices were timely under no-return

exception to 3-year limitation period, since petitioner had not filed

1991-92 income tax returns. ICI Pension Fund v. Commissioner

PARTNERSHIPS

See also CAPITAL GAINS AND LOSSES.

Election To Expense Certain Depreciable Business

Assets-Partner's Deduction Limited to Partnership
Income-Validity of Reg. 1.179-2(c)(2).-Where on A's 1994
partnership return A reported loss and attached sec. 179 election to
expense $17,500 in depreciable business equipment; in their 1994
joint income tax return, petitioners, sole partners in A, claimed
flowthrough deduction from partnership; Commissioner disallowed
petitioners' deduction under reg. 1.179-2(c)(2), which limited to
amount of income partnership's sec. 179 expense deduction alloca-
tion for any taxable year; and petitioners contended taxable income
limitation of sec. 179(b)(3)(A) was meaningless when applied to
partnership, allowing them to aggregate their taxable income with
income of partnership under sec. 179(d)(8) to determine partner-

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83

PARTNERSHIPS Continued

ship's taxable income for flowthrough purposes, Court determined
reg. 1.179-2(c)(2) flowed directly from requirements of sec.
179(b)(3)(A) and (d)(8), was consistent with statute, and was valid;
and Court sustained Commissioner's disallowance of petitioners'
claimed deduction. Hayden v. Commissioner

PENALTY

See ALIMONY.

RETURNS

See CORPORATIONS.

S CORPORATIONS

See INSTALLMENT SALES.

TAXES

Employment Taxes-Request for Abatement of Interest-

Commissioner's Failure To Abate.-Where, after receiving

Commissioner's notice of final determination not to abate interest

on employment taxes for periods ending June 30 and Dec. 31, 1988,

petitioners filed under sec. 6404(g) for review of Commissioner's

determination, contending Court had jurisdiction pursuant to sec.

6404(g) and Commissioner's failure to abate interest was abuse of

discretion under either sec. 6404(a) or (e); and Commissioner con-

tended, inter alia, Court lacked jurisdiction to review determination

to extent petitioners' claim arose under sec. 6404(a) and that no

abuse of discretion occurred, Court determined (1) jurisdiction

existed to review Commissioner's failure to abate interest under all

subsections of sec. 6404, not just subsec. (e) as Commissioner con-

tended, and Commissioner's failure to abate assessments of interest

under sec. 6404(a) was not abuse of discretion; and (2) Commis-

sioner's failure to abate assessments of interest under sec. 6404(e)

was not abuse of discretion, since Commissioner had no authority

to abate assessments of interest on employment taxes under sec.

6404(e). Woodral v. Commissioner

UNITED STATES TAX COURT

Jurisdiction-Liability for Additions to Tax or Penalties,

Propriety of Commissioner's Levy, and Offset of 1985 Income
Tax Liability With 1995 Tax Refund-Denial of Request To
Abate Interest.-Where petitioner filed 1985-91 income tax
returns on Oct. 27, 1992, in response to article about Commis-
sioner's program for nonfilers to pay back taxes and penalties with-
out being subject to criminal penalties; article did not mention
interest; petitioner reported owing $3,199 on his 1985 return; in
1993, after receiving deficiency notice for 1985, petitioner signed
Commissioner's preprinted Form 433-D Installment Agreement and
paid 19 monthly installments on 1985 liability through March 1995

Page

115

19

UNITED STATES TAX COURT—Continued

payoff; monthly notices erroneously stated they included interest;

on Aug. 7, 1995, Commissioner assessed interest accrued for 1985

from Apr. 15, 1986, to Aug. 7, 1995; on Apr. 21, 1996, petitioner

field Claim for Refund and Request for Abatement for 1985 under

sec. 6404(e); Commissioner denied claim and on Aug. 17, 1997, lev-

ied petitioner's bank account for unpaid 1985 assessment and statu-

tory additions, albeit abating interest accrued from Mar. 1 to Aug.

7, 1995 (subsequently conceded to cover Apr. 12, 1993, to Aug. 9,

1995); petitioner petitioned for review of Commissioner's refusal to

abate interest, alleged nonliability for additions to tax (other than

those paid in installments), charged improper levy on bank account,

and sought offset of 1985 tax liability with 1995 refund; and

Commissioner denied contentions and moved to dismiss for lack of

jurisdiction as to claim for abatement of penalties and wrongful

levy, Court determined (1) under sec. 6404(g), it lacked jurisdiction

to decide (a) wrongful levy claim, since sec. 6404(g) did not bar

assessment (unlike sec. 6213(a) regarding deficiency notices), (b)

petitioner's claimed refund offset, and (c) 1985 penalties or addi-

tions to tax; and (2) under sec. 6404(e)(1)(B), Commissioner's failure

to abate interest from Apr. 15, 1986, to Apr. 11, 1993, was not

abuse of discretion, since sec. 6404(e) applies only after Commis-

sioner has contacted taxpayer in writing about deficiency or pay-

ment of tax, which Commissioner did not do until Apr. 12, 1993.

Krugman v. Commissioner

Jurisdiction-Overpayment Applied to Assessed Liabilities
for Years Not in Issue-Reviewability of Commissioner's
Authority To Make Credits or Refunds.-Where on 1993
income tax return petitioner claimed $10,131 overpayment; before
trial, petitioner conceded $5,926 income tax deficiency for 1993 and
Commissioner's authorization under sec. 6402(a) to apply 1993
overpayment to assessed tax liabilities, including interest and pen-
alties, for 1990 and 1991; and petitioner contended that Commis-
sioner had improperly determined petitioner's assessed 1990 and
1991 liabilities and that some portion of overpayment claimed on
1993 return should therefore be available to offset 1993 deficiency,
Court determined under sec. 6512(b)(4) it lacked jurisdiction to
review Commissioner's assessment of 1990 and 1991 liabilities,
since review of petitioner's contention on merits would constitute
impermissible review of credit made by Commissioner under sec.
6402. Winn-Dixie Stores, Inc. v. Commissioner, 110 T.C. 291, distin-
guished. Savage v. Commissioner

Jurisdiction-Petition for Review of Denial of Request for
Abatement of Interest-Resubmission of Rejected Request
After Effective Date of Sec. 6404(g).-Where, on Jan. 16, 1998,
petitioners resubmitted to Commissioner request for abatement of
interest for taxable year 1990; on Apr. 1, 1998, Commissioner
rejected petitioners' attempted resubmission on ground abatement

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46