Penalties Under the Code
Tax Opinions / Memorandum Opinions / Penalties Under the Code

Sells v. Commissioner
T.C. Memo. 2021-12

On January 28, 2021, the Tax Court issued a Memorandum Opinion in the case of Sells v. Commissioner (T.C. Memo. 2021-12). The main issue presented in Sells v. Commissioner was whether the conservation easement deduction was appropriately denied, but it is the prior supervisory approval that we’ll focus on below. Background to the Penalty Issue in Sells v. Commissioner The IRS asserted penalties for both the conservation easement and the timber donation. However, the parties stipulated that the IRS had a “penalty-approval form” only for two of the five petitioners. Both these penalty-approval forms were approved by a “Group Manager” and dated before the two petitioners received their notices. The penalty-approval form for one petitioner shows approval of penalties for substantial understatement and gross misvaluation, but it doesn’t approve a penalty for negligence or substantial misvaluation. This form doesn’t specifically mention either the easement or the timber, but states that…

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January 28, 2021
Business Related Issues
Business Related Issues / Memorandum Opinions / Tax Opinions

Whatley v. Commissioner
T.C. Memo. 2021-11

On January 28, 2021, the Tax Court issued a Memorandum Opinion in the case of Whatley v. Commissioner (T.C. Memo. 2021-11). The issue presented in Whatley v. Commissioner was whether the petitioner’s tree or cattle farm (he can’t seem to decide which) was a trade or business during the years at issue. A Note on my Favorite Jurist, Judge Holmes The opinion begins by describing the petitioner as “a proud Auburn alumnus” who made the “tiger’s share of his family’s income from banking.”  Well played sir; well played. When addressing why the cattle farm with no cattle and the tree farm that couldn’t be harvested was audited, Judge Holmes simply notes that “something about this snagged the [IRS’s] attention.” Another classic - “[p]eople don’t go to a mechanic’s banker to fix their cars—they go to a mechanic.” The Cattle Farm with no Cattle in Whatley v. Commissioner The petitioner explained…

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January 28, 2021
Penalties Under the Code
Tax Opinions / Memorandum Opinions / Penalties Under the Code

Reynolds v. Commissioner
T.C. Memo. 2021-10

On January 26, 2021, the Tax Court issued a Memorandum Opinion in the case of Reynolds v. Commissioner (T.C. Memo. 2021-10). The issue presented in Reynolds v. Commissioner was whether the IRS possessed the collection authority under IRC § 6201(a)(4) to undertake administrative collection action to collect restitution-based assessments (RBAs). Note on “Precedent” to Reynolds v. Commissioner It should be noted that the argument the petitioner made in Reynolds was “squarely rejected” in the case of Carpenter v. Commissioner, 152 T.C. 202, 219 (2019), aff’d 788 F.App’x 187 (4th Cir. 2019)…but the petitioner “invited” the Tax Court to “reconsider” the holding in Carpenter.  Tax Court Judge Thorton, not one to mince words, states simply “We decline the invitation.” Background to Reynolds v. Commissioner This is the cautionary tale of Dana Ray Reynolds, who, according to the opinion, “developed strategies to use corporations to conceal assets and evade income tax.” In…

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January 26, 2021
Penalties Under the Code
Full Tax Court Opinions / Penalties Under the Code / Tax Opinions

Grajales v. Commissioner (156 T.C. No. 3)

On January 25, 2021, the Tax Court issued its opinion in Grajales v. Commissioner, 156 T.C. No. 3. The underlying issue presented in Grajales was whether prior written supervisory approval under IRC § 6751(b)(1) was required to assert the 10% IRC § 72(t) “exaction” for early distributions from a qualified retirement plan. Labels are for Cans Abraham Lincoln is credited for saying “How many legs does a dog have if you call his tail a leg? Four. Saying that a tail is a leg doesn't make it a leg.”  Similarly, calling a tax a penalty or a penalty a tax does not make it so.  We have seen the IRS argue in previous cases argue that the IRC § 6751(b)(1) approval requirement does not apply certain penalties, because even though it’s called a “penalty” it is collected like a tax.  Circle back to Laidlaw’s Harley Davidson and Chadwick to name…

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January 25, 2021
International Issues
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Adams Challenge UK Limited v. Commissioner
156 T.C. No. 3

On January 25, 2021, the Tax Court issued its opinion in Adams Challenge UK Limited v. Commissioner (156 T.C. No. 3). The underlying issue presented in Adams Challenge UK Limited v. Commissioner was whether the IRS erred in disallowing the petitioner’s deductions and credits and whether the IRS’s action violated the business profits and the nondiscrimination articles of the bilateral income tax treaty between the United States and the U.K. Background to Adams Challenge UK Limited v. Commissioner The petitioner is a U.K. corporation whose sole income-producing asset for the years at issue was a multipurpose support vessel. The vessel was chartered by a U.S. firm to assist in decommissioning oil and gas wells and removing debris on portions of the U.S. Outer Continental Shelf in the Gulf of Mexico. During 2009 and 2010 P derived from the charter gross income of about $32 million, which was effectively connected with the…

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January 25, 2021
Business Related Issues
Tax Opinions / Business Related Issues / Memorandum Opinions

Costello v. Commissioner
T.C. Memo. 2021-9

On January 25, 2021, the Tax Court issued a Memorandum Opinion in the case of Costello v. Commissioner (T.C. Memo. 2021-9). The primary issues presented in Costello v. Commissioner was whether the would-be-chicken-farmers (petitioners) were entitled to deductions for losses from farming activities, or whether the losses were startup expenses for which IRC § 195 prohibits a current deduction. Author’s Note Schadënfreude is German for happiness at the misfortune of others.  The Greek ἐπιχαιρεκακία is a similar thought, as is delectatio morosa in Latin.  Call it what you want, the utter ineptitude of petitioner-wife’s farming “activities” is funny as hell. I like to garden. I am not a farmer. The petitioner-wife is not a farmer either. For at least seven years, and I quote, “her serial attempts at raising chickens, growing vegetables, and raising cattle were all unsuccessful.” This woman was a livestock murderer from all accounts. Did she forget…

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January 25, 2021
Business Related Issues
Tax Opinions / Business Related Issues / Memorandum Opinions

Aspro Inc. v. Commissioner
T.C. Memo. 2021-8

On January 21, 2021, the Tax Court issued a Memorandum Opinion in the case of Aspro Inc. v. Commissioner (T.C. Memo. 2021-8). The sole issue presented in Aspro Inc. v. Commissioner was whether the petitioner was entitled to deductions for management fees paid to three shareholders. Background to Aspro Inc. v. Commissioner I find the petitioner suspect.  First off, it is an Iowa C corporation, but it is not involved with the production or processing of corn.  Strike one, Aspro.  Second, the fine founders of the company actually chose the name "As[s]pro."  Apparently, there are no marketing interns in Iowa who used to be a 12 year old boy, who might have seen the flaw in this nomenclature.  Strike two, As[hats]. Instead of making corn flakes or good decisions, the petitioner operated two stationary asphalt plants in Iowa and was limited to projects in the surrounding counties. Most of petitioner’s revenue…

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January 21, 2021