Procedural Issues
Tax Articles / All Articles / Penalties Under the Code / Procedural Issues

Reasonable Reliance on a Competent Advisor

Explaining Reasonable Reliance on a Competent Advisor to Uncle Bill. Reasonable cause, specifically, reasonable reliance on a competent advisor will prove rather important to Uncle Bill, and so when he calls you to discuss this great scheme plan he's been introduced to, you know that this is the time to breach the subject with Bill. You see, Uncle Bill bought his first house from an infomercial he saw after the Ed Sullivan show in the mid-1960s.  That Bill might have been as high as the Golden Gate Bridge is long, and that he might have thought that Topo Gigio was explaining the general theory of relativity to him in terms he could understand, may also have played into the decision to buy the Airstream, but be that as it may, Bill has always been somewhat susceptible to influence when making major financial decisions—especially, it seems, at the behest of an foam…

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April 19, 2021
Read more about the article Bad News Regarding Religious Tax Exemptions: Peyote is not a “Sacrament”
Tax Articles / All Articles / Charitable Issues

Bad News Regarding Religious Tax Exemptions: Peyote is not a “Sacrament”

You can fault Cousin Jedediah for many things—many things—but charisma is not amongst them. It turns out that Jed has developed something of a following. He assures you that it is not a cult, which you have to imagine are the first words out of every cult leader’s mouth when questioned about it. Having drank Jed’s Kool-Aid, the members of his new religious “order” follow him around like willing lambs, but they have made musings about more practical considerations like religious tax exemptions for the order, and that is why Jed came to you early one Thursday morning. It turns out that whilst in prison, Jedediah was introduced to a higher power, whom he chose to call peyote.  Jed tells you one day that he understands why the Earth “is.”  Not why it is warming at alarming rates, or why it is going to hell in a handbasket, just why…

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April 16, 2021
Penalties Under the Code
Tax Articles / All Articles / Penalties Under the Code

Frivolous Taxpayers and the Jurists who Loathe Them

Frivolous taxpayers are amongst my absolute favorites.  The opinions that they spawn are just wonderful breaks in an otherwise monotonous string of upheld determinations…especially when they involve crazy German nationals, as no less than three did in 2020.  In this article, we examine the frivolous return penalty (IRC § 6702) and the frivolous petition penalty (IRC § 6673(a)(1)).  In doing so, we include a discussion of some of the taxpayers that made 2020 so much fun for the Tax Court. The Penalties for Frivolity (and Generally Pissing off the Tax Court) Under IRC § 6207, the IRS may impose a $5,000 penalty on any individual who files what purports to be a return of tax imposed by the Code but which (a)  does not contain information on which the substantial correctness of the self-assessment of such tax may be judged, or contains information that on its face indicates the self-assessment…

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April 15, 2021
Penalties Under the Code
Memorandum Opinions / Penalties Under the Code / Tax Opinions

Flynn v. Commissioner
T.C. Memo. 2021-43

On April 13, 2021, the Tax Court issued a Memorandum Opinion in the case of Flynn v. Commissioner (T.C. Memo. 2021-43). The primary issue presented in Flynn v. Commissioner was whether the petitioner’s failure to file returns for 1999, 2000, and 2001 was fraudulent. Tax Court's Holding in Flynn v. Commissioner:   It’s a Damn Conspiracy (No, Really, It Is) The petitioner took part in a bit of a criminal conspiracy, which bilked 577 suckers (investors, rather) out of $20.7 million between 1999 and 2001. The petitioner and his co-conspirators represented to investors that their principal would be kept in guaranteed accounts in a major world bank and would not be at risk. But wait, there’s more. The “investment business” claimed to operate as a tax-free church despite having had no churchlike organization, no building, no worship services, and no activities of a religious nature. The petitioner and his co-conspirators…

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April 13, 2021
Business Related Issues
Business Related Issues / Full Tax Court Opinions / Tax Opinions

De Los Santos v. Commissioner
156 T.C. No. 9

On April 12, 2021, the Tax Court issued its opinion in De Los Santos v. Commissioner, 156 T.C. No. 9. The underlying issue presented in De Los Santos v. Commissioner was whether the benefits (a split-dollar life insurance arrangement) received by the petitioners were received in their capacity as employees or shareholders, and, in turn, whether such economic benefits or taxable to the petitioner’s as ordinary compensation income or as a distribution under IRC § 301. The Petitioners’ (Unavailing) Argument in De Los Santos v. Commissioner The petitioners contend that economic benefits received by a shareholder pursuant to a split-dollar life insurance arrangement constitute a distribution under IRC § 301 regardless of whether the taxpayer receives the benefits in his capacity as an employee or as a shareholder. The IRS’s (Legitimate) Argument Because the compensatory split-dollar life insurance arrangement afforded benefits to the petitioner-husband in his capacity as an employee of…

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April 12, 2021
Business Related Issues
Business Related Issues / Memorandum Opinions / Tax Opinions

Berry v. Commissioner
T.C. Memo. 2021-42

On April 7, 2021, the Tax Court issued a Memorandum Opinion in the case of Berry v. Commissioner (T.C. Memo. 2021-42). The primary issues presented in Berry v. Commissioner were whether the petitioners S corporation underreported its income, whether the petitioners’ S corporation is entitled to certain claimed deductions, whether the petitioners are entitled to certain claimed deductions, and whether the petitioners are liable for accuracy-related penalties under IRC § 6662. Background to Berry v. Commissioner In 2013, Ronald Berry and his son, Andrew, owned and operated Phoenix Construction & Remodeling, Inc., which built houses and developed real estate. It used the cash method of accounting and maintained its records using QuickBooks software. Phoenix “retained” H&R Block to prepare its 2013 Form 1120S (U.S. Income Tax Return for an S Corporation). Phoenix reported gross receipts of $1.1 million and net income of $37,000 for 2013. On their 2013 Form 1040,…

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April 7, 2021
Business Related Issues
Business Related Issues / Memorandum Opinions / Tax Opinions

Olsen v. Commissioner
T.C. Memo. 2021-41

On April 6, 2021, the Tax Court issued a Memorandum Opinion in the case of Olsen v. Commissioner (T.C. Memo. 2021-41). The primary issues presented in Olsen v. Commissioner were whether the petitioners were entitled to depreciation deductions reported on Schedules C (Profit or Loss from Business) and whether they were entitled to energy tax credits reported on Forms 3800 (General Business Credit) for deductions and credits related to a solar energy tax shelter.  Held: Hells no. Initial Point of Clarification in Olsen v. Commissioner Petitioners are not related (as far as I could tell) to the Full House Olsen twins. Blinded by the Light This case (and more than 200 others just like it) involve investors in a solar power tax shelter scheme. The promoters of the scheme sold the petitioners light-concentrating lenses that were supposedly going to be used as components of a system to generate electricity. The…

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April 6, 2021