Business Related Issues
Tax Opinions / Business Related Issues / Charitable Issues / Memorandum Opinions

Estate of Warne v. Commissioner
T.C. Memo. 2021-17

On February 18, 2021, the Tax Court issued a Memorandum Opinion in the case of Estate of Warne v. Commissioner (T.C. Memo. 2021-17). The primary issue presented in Estate of Warne v. Commissioner was whether the IRS erred in increasing the value of the estate and the LLCs and by denying a giant charitable deduction ($25 million).  Specifically, the issues in Estate of Warne v. Commissioner concerned valuation of certain family LLCs, discounts for lack of marketability for interests in such LLCs, and whether minority interest discounts applied to the charitable contribution deductions. Background to Estate of Warne v. Commissioner In 1981, Thomas and Miriam Warne created the Warne Family Trust (Family Trust). Over the years, the Family Trust became the majority interest holder of five LLCs: WRW Properties, LLC (WRW); Warne Ranch, LLC; VJK Properties, LLC (VJK); Warne Investments, LLC; and Royal Gardens, LLC (collectively, five LLCs). The decedent,…

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February 18, 2021
Penalties Under the Code
Tax Opinions / Memorandum Opinions / Penalties Under the Code

Kramer v. Commissioner
T.C. Memo. 2021-16

On February 16, 2021, the Tax Court issued a Memorandum Opinion in the case of Kramer v. Commissioner (T.C. Memo. 2021-16). The primary issues presented in Kramer v. Commissioner were whether the petitioners were in default and whether the IRS carried its various burdens of production and proof with respect to the deficiencies asserted. Background to Kramer v. Commissioner The petitioners are not what you would call “cooperative” or “responsible” taxpayers. Although they brought petition seeking a redetermination of adjustments into notices of deficiency (determining a deficiency, a failure to file penalty, and accuracy-related penalty, and fraud penalties), they neither cooperated in preparing the cases for trial nor did they appear for trial. The Tax Court is quick to note that in the IRS’s answer, the IRS affirmatively pleaded numerous allegations in support of its fraud penalty determinations. The IRS engaged in informal discovery, and when the petitioners failed to…

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February 16, 2021
Business Related Issues
Tax Opinions / Business Related Issues / Memorandum Opinions

Little Sandy Coal Co. Inc. v. Commissioner
T.C. Memo. 2021-15

On February 11, 2021, the Tax Court issued a Memorandum Opinion in the case of Little Sandy Coal Co. Inc. v. Commissioner (T.C. Memo. 2021-15). The primary issue presented in Little Sandy Coal Co. Inc. v. Commissioner was whether the activities of the petitioner’s subsidiary’s research in developing the ships constituted elements of a process of experimentation for purposes of IRC § 41(d)(1)(C) and Treas. Reg. § 1.41-4(a)(6). Holdings, in Brief in Little Sandy Coal Co. Inc. v. Commissioner The requirement of IRC § 41(d)(1)(C) and Treas. Reg. § 1.41-4(a)(6), that at least 80% of a taxpayer's research must constitute elements of a process of experimentation applies to activities—not to physical components of the product being developed or improved. Consequently, the requirement is not satisfied simply because at least 80% of the product's elements differ from those of products the taxpayer previously developed.  One who provides services in direct supervision or…

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February 11, 2021
Business Related Issues
Tax Opinions / Business Related Issues / Memorandum Opinions

Complex Media Inc. v. Commissioner
T.C. Memo. 2021-14

On February 10, 2021, the Tax Court issued a Memorandum Opinion in the case of Complex Media Inc. v. Commissioner (T.C. Memo. 2021-14). The primary issue presented in Complex Media Inc. v. Commissioner  was whether a taxpayer was eligible to disavow the form of its transactions (an asset transfer) when the alternative form achieves a tax benefit “not inconsistent” with the taxpayer’s initial tax planning and structuring of the transactions. Background to Complex Media Inc. v. Commissioner The petitioner acquired the assets of a business previously conducted by a partnership. The petitioner issued common stock, and in accordance with a prior obligation, redeemed shares held by the partnership in exchange for $2.7 million and an obligation to pay $300,000 a year later. The partnership assigned its right to the additional payment to one of its partners.  The petitioner claimed an increased basis of $3 million in intangible assets it received…

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February 10, 2021
Read more about the article No Charitable Exemption for Medical Marijuana Nonprofits
Tax Articles / All Articles / Charitable Issues

No Charitable Exemption for Medical Marijuana Nonprofits

Uncle Bill is a child of the Sixties. He is told you the story many a time how the lead singer for the Zombies stole his Beatle boots when they played at Old Orchard Beach the summer when he was 17. When Bill calls you out of the blue to discuss a hypothetical charitable exemption for medical marijuana nonprofits, you assume his interest is more than simply academic. After all, as Bill describes it, he was a “pharmaceutical rep” in college, which, you have to admit, is the classiest way of admitting that someone was a drug dealer that you’ve ever heard. It’s safe to say that Bill’s “studies” in cannabis goes back decades. Thus, when Maine legalized marijuana in 2016, Bill was as happy as a dog with two tails, and he's been chasing a charitable exemption for medical marijuana ever since. Searching for a Charitable Exemption for Medical…

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February 8, 2021
Procedural Issues
Tax Opinions / Memorandum Opinions / Procedural Issues

BM Construction v. Commissioner
T.C. Memo. 2021-13

On February 8, 2021, the Tax Court issued a Memorandum Opinion in the case of BM Construction v. Commissioner (T.C. Memo. 2021-13). The primary issue presented in BM Construction v. Commissioner was whether the IRS had satisfied its burden to prove that the letter in question was mailed and actually received for CDP purposes. Background to BM Construction v. Commissioner IRC § 3406 requires a payor to deduct and withhold tax from certain payments not otherwise subject to withholding if the payee taxpayer fails to cooperate with the information reporting scheme (e.g., failure to furnish his taxpayer identification number to the payor).  The owner of the company failed to obtain the TIN of certain subcontractors. In an effort to collect the backup withholding tax liability, the IRS issued to the company a Notice of Intent to Levy and Notice of Your Right to a Hearing. In response, the company submitted…

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February 8, 2021