Clary Hood Inc. v. Commissioner (T.C. Memo. 2022-15)

On March 2, 2022, the Tax Court issued a Memorandum Opinion in the case of Clary Hood Inc. v. Commissioner (T.C. Memo. 2022-15). The primary issue presented in Clary Hood Inc. was the amount the petitioner may deduct under IRC § 162(a)(1) as reasonable compensation paid to its chief executive officer (CEO) and shareholder Clary L. Hood (Mr. Hood) during the years at issue. Background to Clary Hood Inc. v. Commissioner According to Judge Greaves To understand Clary Hood, Inc., one must first know Mr. Hood. Mr. Hood learned construction, land grading, excavation, and even how to repair the machinery from an early age from his father. By 1980, Mr. Hood decided to create his own path (which he was good at, because, you know, the whole construction and land grading skillset). The petitioner, Clary Hood Inc., started with only two employees and a hodgepodge of used equipment valued at…

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Lord v. Commissioner (T.C. Memo. 2022-14)

On March 1, 2022, the Tax Court issued a Memorandum Opinion in the case of Lord v. Commissioner (T.C. Memo. 2022-14). The primary issue presented in Lord was whether the tax depreciation methods for inventory production assets can be used under either section 263A or section 471 when section 280E is applied. Holding: In a battle of Lord versus the IRS, one would think the almighty would prevail. Turns out, not so. Background to Lord v. Commissioner In 2012, the only year at issue, the petitioners (Colorado residents, which becomes important in a moment) owned two businesses—Beyond Broadway, LLC (Broadway), which had nothing to do with Broadway, and Artistant Dispensary Center, Inc. (Artistant). In 2012 the State of Colorado licensed the businesses to cultivate, process, and distribute medical marijuana and medical marijuana products. The Lords were quick to jump on the patchouli-scented bandwagon. Both businesses produced medical marijuana products for…

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Kazmi v. Commissioner (T.C. Memo. 2022-13)

On March 1, 2022, the Tax Court issued a Memorandum Opinion in the case of Kazmi v. Commissioner (T.C. Memo. 2022-13). The primary issues presented in Kazmi v. Commissioner were (1) whether the petitioner is entitled to challenge the underlying liabilities, and if so, whether he is a responsible person who willfully failed to pay over employment taxes under IRC § 6672, and (2) whether the Appeals abused its discretion in sustaining the collection action. Held: Yup. The Parties Arguments in a Nutshell The petitioner’s Position The petitioner argued that he may challenge his underlying liabilities because a Letter 1153, Proposed Trust Fund Recovery Penalty, does not constitute a prior opportunity under IRC § 6330(c)(2)(B) since the IRS's denial of a Letter 1153 appeal does not result in an opportunity for the taxpayer to seek judicial review before the Tax Court. The petitioner further argued that he is not a…

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Corning Place Ohio LLC v. Commissioner (T.C. Memo. 2022-12)

On February 28, 2022, the Tax Court issued a Memorandum Opinion in the case of Corning Place Ohio LLC v. Commissioner (T.C. Memo. 2022-12). The primary issue presented in Corning Place Ohio LLC v. Commissioner was whether the taxpayer and the tax matters partner substantially complied with the reporting requirements necessary to substantiate a conservation easement deduction for the façade of a historic building. Background to Corning Place Ohio LLC v. Commissioner This case involves a charitable contribution deduction claimed by Corning Place Ohio, LLC (Corning Place), for a conservation easement. The IRS issued Corning Place a notice of final partnership administrative adjustment (FPAA) disallowing this deduction. Before the Court on the IRS’s motion for summary judgment were three issues: (1) whether the easement deed failed to protect the conservation purpose in perpetuity, in alleged violation of IRC § 170(h)(5)(A); (2) whether Corning Place's appraisal and baseline documentation failed to…

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Shaddix v. Commissioner (T.C. Memo. 2022-11)

On February 28, 2022, the Tax Court issued a Memorandum Opinion in the case of Shaddix v. Commissioner (T.C. Memo. 2022-11). The primary issue presented in Shaddix was whether the IRS abused its discretion in upholding the filing of a notice of federal tax lien by denying the petitioner the ability to challenge his underlying liability. Held: In a rare abuse of discretion victory for a taxpayer, the Tax Court in Shaddix v. Commissioner actually held that the IRS did, in fact, abuse its discretion. Background to Shaddix v. Commissioner The petitioner had liabilities of $39,000 for the tax years 2013-2016. Whether he self-reported these liabilities, or the IRS pulled them from a hat is anyone’s guess, but Judge Lauber assumed for purposes of the IRS’s motion for summary judgment that they were self-reported. In support of said motion for summary judgment, the IRS attached account transcripts with entries for…

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Hicks v. Commissioner (T.C. Memo. 2022-10)

On February 23, 2022, the Tax Court issued a Memorandum Opinion in the case of Hicks v. Commissioner (T.C. Memo. 2022-10). The primary issue presented in Hicks v. Commissioner was whether the petitioner was entitled to the dependency exemption deductions and child tax credits claimed on his income tax return. Background to Hicks v. Commissioner The petitioner has two children with one Ms. Oddimissia N. Johnson who were minors in 2014, the year at issue. Oddimissia were never married and did not cohabitate in 2014. In fact, Oddimissia lived with her mother Juanita, as did the two children (for more than ½ of the year). The petitioner provided over ½ of the children’s financial support in 2014. In 2006, an Ohio state court adopted a shared parenting plan, signed by Oddimissia and the petitioner, which provided that Oddimissia could claim Child 1 every year for tax purposes, and the petitioner…

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Hoops LP v. Commissioner (T.C. Memo. 2022-9)

On February 23, 2022, the Tax Court issued a Memorandum Opinion in the case of Hoops LP v. Commissioner (T.C. Memo. 2022-9). The primary issues presented in Hoops LP v. Commissioner were whether partnership was entitled to deduct deferred compensation owed to two of its basketball franchise's players, and whether the partnership was required to take into account the amount of its deferred compensation liability for players when computing its taxable gain or loss from sale of franchise under IRC § 1231. Held: No. Yes. Win, IRS. Background to Hoops LP v. Commissioner The petition was before the court for readjustment of the final partnership administrative adjustment (FPAA) issued to the partnership’s tax matters partner for 2012. In the March 2018 FPAA, the IRS disallowed an additional deduction of $10,673,327 for salaries and wages that Hoops LP (“Hoops”) claimed on its Form 1065X, Amended Return or Administrative Adjustment Request (AAR),…

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