Procedural Issues
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On Penalties and Burdens

A burden is a burden, right?  A thirty-three-year-old man-child, living in his mother’s basement, with a Cheeto-stained, self-described “ironical” mustache, then yes.  That’s a burden, no matter how you slice it.  No need to prove it or to produce evidence to support it.  He’s a bum and a burden.  Shave the flavor saver, and get a damn job, hippie. Proof and production, though.  Six of one, half a dozen of another?  Not when it comes to Tax Court proceedings, or so we found out last January in Frost v. Commissioner.[1]  The burden of production is found in IRC § 7491(c), whereas proof—as well as in the pudding—is found in IRC § 7491(a). On Penalties and Burdens and Individuals In any Tax Court proceeding, under IRC § 7491(c), the IRS bears the burden of production with respect to the liability of an individual for any penalty.[2]  To satisfy this burden the…

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August 30, 2021
Procedural Issues
All Articles / Procedural Issues / Tax Articles

Perfection of Imperfect CDP Appeals

On Latin Nerdery and Perfection of Imperfect CDP Appeals If you have read many of the posts on Briefly Taxing, it should come as no surprise to you that I was a Latin nerd in high school…and college…and at present. The truth of the matter is that I competed nationally, my specialty being Greek mythology. My sophomore year of high school I missed a single question on the national exam. One question. My Latin teacher, one of my favorite people in the entire world, patted me on the shoulder and reminded me that no one is perfect. It was cold comfort to me then, and remembering it as I begin this post, it is cold comfort to me now. That being said, I will never forget that the staff Dionysus carries is called a thyrsus. Meanwhile, Back at the Tax Ranch What the bloody hell does this have to do…

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August 12, 2021
Procedural Issues
Memorandum Opinions / Procedural Issues / Tax Opinions

Morreale v. Commissioner
T.C. Memo. 2021-90

On July 15, 2021, the Tax Court issued a Memorandum Opinion in the case of Morreale v. Commissioner (T.C. Memo. 2021-90). The primary issue presented in Morreale v. Commissioner was whether the petitioner was entitled for reasonable litigation fees from the IRS. Background to Morreale v. Commissioner The petitioner filed a Tax Court petition in November 2017 disputing certain adjustments to his return. The petitioner and the IRS settled in January 2019, with the IRS agreeing to two adjustments and conceding all penalties.  In February 2019, the petitioner filed a motion for reasonable litigation or administrative costs pursuant to IRC § 7430. When Costs are Reasonable IRC § 7430(a) authorizes an award for “reasonable administrative costs [and] reasonable litigation costs” to the “prevailing party” in a Tax Court dispute. A party that otherwise qualifies as a “prevailing party” will not be entitled to an award if the IRS can prove…

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August 3, 2021
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

Ryder & Associates Inc. v. Commissioner
T.C. Memo. 2021-88

On July 14, 2021, the Tax Court issued a Memorandum Opinion in the case of Ryder & Associates Inc. v. Commissioner (T.C. Memo. 2021-88). The primary issues presented in Ryder & Associates Inc. v. Commissioner were whether the petitioners received unreported gross receipts from their company, and whether the petitioners had significant unreported dividend income. Author’s Note on Ryder & Associates v. Commissioner As I mentioned earlier this year, I have never seen it bode well for a petitioner to whom the Tax Court describes first in the background of the case as a tax attorney.  Not only was Mr. Ryder a tax attorney, but he also held his LLM in taxation from NYU. Not only was Mr. Ryder a tax attorney, but he specialized in ERISA and qualified retirement plans. Not only did he specialize in ERISA and qualified retirement plans, but the IRS also determined that he had bamboozled the…

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July 29, 2021
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

Blossom Day Care Centers Inc. v. Commissioner
T.C. Memo. 2021-87

On July 13, 2021, the Tax Court issued a Memorandum Opinion in the case of Blossom Day Care Centers Inc. v. Commissioner (T.C. Memo. 2021-87). The primary issues presented in Blossom Day Care Centers Inc. v. Commissioner were whether the petitioner was failed to report capital gain and gross receipts, whether the petitioner is entitled to certain deductions, whether the petitioner is entitled to Indian tax credits, and most importantly, whether the petitioner is liable for the civil fraud penalty under IRC § 6663. Background to Blossom Day Care Centers Inc. v. Commissioner July 13, 2021, had not started out as what you would call a “good” Tuesday for the Hackers or their Oklahoma daycare conglomerate, as evidenced by their total loss in the employment tax case discussed in a previous post. For more detailed background, you can refer to Briefly Taxing’s summary of Blossom Day Care Centers, Inc. v. Commissioner,…

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July 29, 2021
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

Blossom Day Care Centers Inc. v. Commissioner
T.C. Memo. 2021-86

On July 13, 2021, the Tax Court issued a Memorandum Opinion in the case of Blossom Day Care Centers Inc. v. Commissioner (T.C. Memo. 2021-86). The issues presented in Blossom Day Care Centers Inc. v. Commissioner were whether: (1) the day care’s corporate officers should be legally classified as employees of petitioner such that petitioner is liable for employment tax (FICA) and unemployment tax (FUTA); (2) petitioner was liable for FICA and FUTA taxes; (3) petitioner was liable for a failure to deposit penalty under IRC § 6656; and (4) petitioner was liable for accuracy-related penalties under IRC § 6662(a). Hackers in Oklahoma The petitioner, Blossom Day Care Centers, Inc. was an Oklahoma corporation, originally incorporated in 1986, with its principal place of business in Tulsa and its principal line of business watching over little snot-goblins whilst their parents wiled away their days in the drudgery of Tulsa matters.  At all…

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July 28, 2021
Income Tax Issues
All Articles / Income Tax Issues / Tax Articles

The Test for Profit Motive: Allowance of Deductions under IRC § 183 Test

What factors aid the Tax Court in deciding when an activity is entered into with a “profit motive” (with allowable ordinary and necessary expenses) versus a hobby (where losses may be taken only up to the amount of profit received)? Taxpayers can deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business,[1] for the production or collection of income,[2] or for the management, conservation, or maintenance of property held for the production of income.[3] Nevertheless, before engaging in the “ordinary and necessary” inquiry, taxpayers must pass the IRC § 183 test. IRC § 183(a) generally disallows any deduction attributable to an activity “not engaged in for profit,” and is aimed at disallowing the deduction of the expenses of a hobby that a taxpayer might try to use to offset taxable income from other sources. In turn, IRC § 183(c) defines an “activity not engaged…

4 Comments
July 15, 2021