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,…

1 Comment
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…

2 Comments
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
Procedural Issues
All Articles / Procedural Issues / Tax Articles

The Truth about Amending Tax Returns

Clients are untrustworthy.  As a tax controversy attorney, this is my experience. I have heard that other types of law deals with more honorable sorts, but I'll believe it when I see it.  When a client comes to you and says "whoopsie, I forgot to report [insert absurdly large number here] on my return, what should I do?" what should you tell him?  What if the IRS has already discovered the understatement?  Is he under the obligation to file an amended return?  Are you required to tell him to file one? In this brief article, Briefly Taxing examines amended returns in general, whether filing them is required, and whether a CPA and tax attorney must advise their client to file an amended return. Quick Rules An amended return filed by a taxpayer reporting an underpayment is an admission by that taxpayer of an underpaid tax liability.[1] The taxpayer has no…

1 Comment
July 13, 2021
Procedural Issues
Memorandum Opinions / Procedural Issues / Tax Opinions

Mathews v. Commissioner
T.C. Memo. 2021-85

On July 8, 2021, the Tax Court issued a Memorandum Opinion in the case of Mathews v. Commissioner (T.C. Memo. 2021-85). The primary issue presented in Mathews v. Commissioner was whether the Tax Court had jurisdiction to hear a petitioner when the pro se petitioner filed his petition (sent a letter to the Tax Court) well after the 90 day deadline had passed, and whether because the Tax Court had jurisdiction over one year’s petition, the Tax Court ipso facto had jurisdiction over another. Held: No, and No. The Timeliness Problem in Mathews v. Commissioner The IRS sent the notice of deficiency by certified mail on March 24, 2016, to the petitioner at his address in Conway, Arkansas address as evidenced by the notice itself and the certified mailing list, which was the same address he has used in all of his correspondence in this case. The petitioner did not…

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July 12, 2021
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

Delgado v. Commissioner
T.C. Memo. 2021-84

On July 7, 2021, the Tax Court issued a Memorandum Opinion in the case of Delgado v. Commissioner (T.C. Memo. 2021-84). The primary issue presented in Delgado v. Commissioner was whether the petitioner’s frivolous argument that he did not receive taxable income in 2017 because he was not engaged in a “trade or business” as defined by IRC § 7701(a)(26) held any water… Quick Work of the Frivolousness in Delgado v. Commissioner Compensation for services is included in gross income. IRC § 61(a)(1). Petitioner argues that the payments he received as an independent contractor were not taxable to him because he did not participate in a “trade or business” as defined in IRC § 7701(a)(26). Specifically, petitioner contends that a person is only in a “trade or business” if he or she performs “the functions of a public office” and that earnings received from private companies are not taxable income. …

0 Comments
July 12, 2021
Procedural Issues
Memorandum Opinions / Procedural Issues / Tax Opinions

Peterfreund v. Commissioner
T.C. Memo. 2021-83

On July 7, 2021, the Tax Court issued a Memorandum Opinion in the case of Peterfreund v. Commissioner (T.C. Memo. 2021-83). The primary issue presented in Peterfreund v. Commissioner  was whether the IRS’s Whistleblower Office (WBO) abused its discretion because it did not initiate an administrative or judicial action and it did not collect any proceeds from the target taxpayer on the basis of the information the petitioner furnished. Whistleblowin’ Jurisdiction as told by Peterfreund v. Commissioner The Tax Court has jurisdiction to review final determinations by the IRS regarding whistleblower award claims including so-called rejections and denials as classified by the Whistleblower Office (WBO). See Lacey v. Commissioner, 153 T.C. 146, 163-164 (2019); see also Cooper v. Commissioner, 135 T.C. 70, 75-76 (2010). The regulations provide that a rejection is a determination limited to the whistleblower and the information provided on the face of the claim. Treas. Reg. §…

0 Comments
July 12, 2021