Estate Tax Issues
Estate Tax Issues / Memorandum Opinions / Tax Opinions

Estate of Levine v. Commissioner
158 T.C. No. 2

On February 28, 2022, the Tax Court issued the full opinion in Estate of Levine v. Commissioner (158 T.C. No. 2). The primary issues presented in Estate of Levine v. Commissioner were whether the taxpayer made a voluntary inter vivos transfer (yep); whether the taxpayer retained the right—either alone or in conjunction with her attorney-in-fact—to designate who could possess or enjoy property transferred to irrevocable life insurance trust or the income from it (thereby precluding inclusion of cash-surrender values of policies in taxpayer's estate) (nope); whether the taxpayer had a unilateral power to terminate split-dollar life insurance policies held by irrevocable trust (thereby precluding inclusion of policies' cash-surrender values in gross value of taxpayer's estate for estate tax purposes) (nope and nope); and whether IRC § 2703 (disregarding restrictions on right to sell or use property in determining its value) applied (no ma’am, Marion, it did not). Estate of Levine…

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June 8, 2022
Business Related Issues
Business Related Issues / Memorandum Opinions / Tax Opinions

TBL Licensing LLC v. Commissioner
158 T.C. No. 1

On January 31, 2022, the Tax Court issued the full opinion in TBL Licensing LLC v. Commissioner (158 T.C. No. 1). The primary issues presented in TBL Licensing LLC v. Commissioner were (a) whether the petitioner was required to recognize gain in the intangible property as a result of a reorganization, and (b) whether the reorganization was a disposition within the meaning of IRC § 367(d)(2)(A)(ii)(II). Background to TBL Licensing LLC v. Commissioner The deficiency in this case is $505 million. Yikes. The primary question presented was whether the petitioner recognized ordinary income as a result of a constructive transfer of intangible property to a Swiss subsidiary/holding company—and, if so, whether the intangible property should be treated as having a useful life of only 20 years. Both parties moved for summary judgment. The IRS emerged the victor. Two primary players were involved in this corporate restructuring: VF Corp (the manufacturer…

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June 7, 2022
Procedural Issues
Memorandum Opinions / Procedural Issues / Tax Opinions

Cosio v. Commissioner
(T.C. Memo. 2022-18)

On March 9, 2022, the Tax Court issued a Memorandum Opinion in the case of Cosio v. Commissioner (T.C. Memo. 2022-18). The primary issues presented in Cosio v. Commissioner were whether the taxpayer was entitled to raise his underlying liability in a CDP hearing and whether the settlement officer abused its discretion in denying the petitioner collection alternatives and sustaining collection through levy. Background to Cosio v. Commissioner Mr. Cosio—we'll call him Carl because, as you will see, formalities are not Carl's strong suit—filed his 2012 Form 1040 on August 1, 2016. This was, admittedly, a skosh late. The return reflected a total tax of $1,500 and $400 of withholding. Thus, Carl sent in a check for $1,100 and called it a day. The IRS, however, assessed the reported tax of $1,500 in September 2016, as well as a failure to file penalty under IRC § 6651(a)(1), failure to pay…

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May 27, 2022
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

Walters v. Commissioner
(T.C. Memo. 2022-17)

On March 7, 2022, the Tax Court issued a Memorandum Opinion in the case of Walters v. Commissioner (T.C. Memo. 2022-17). The primary issue presented in Walters v. Commissioner was whether the petitioners’ mutually owned partnership was engaged in for-profit activities in constructing “green” homes. Background to Walters v. Commissioner Petitioner Jessica Walters (petitioner daughter) resided in North Carolina when she timely filed her petition, and petitioners David Walters (petitioner husband) and Jean Walters (petitioner wife) resided in Georgia when they timely filed their petition. Petitioners are all partners of D&J Properties (sometimes referred to as the partnership), a Georgia partnership, with petitioner wife and petitioner husband each holding a 47.4% interest and petitioner daughter holding a 5.2% interest. Petitioner husband serves as the managing partner of the partnership. Petitioner husband and petitioner wife sold their businesses in Michigan and in 1986 opened two La-Z-Boy stores in Georgia. By 1988…

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May 26, 2022
Business Related Issues
Business Related Issues / Memorandum Opinions / Penalties Under the Code / Tax Opinions

Hacker v. Commissioner
(T.C. Memo. 2022-16)

On March 7, 2022, the Tax Court issued a Memorandum Opinion in the case of Hacker v. Commissioner (T.C. Memo. 2022-16). The primary issues presented in Hacker were whether the petitioners received imputed wages and constructive dividends from their day care centers and whether the petitioners were liable for the civil fraud penalty under IRC § 6663. A Note on Hacker v. Commissioner You may remember the Hackers from two Tax Court opinions from 2021, Blossom Day Care Centers, Inc. v. Commissioner (Blossom I), T.C. Memo. 2021-86, and Blossom Day Care Centers, Inc. v. Commissioner (Blossom II), T.C. Memo. 2021-87. Suffice it to say, 2021 was not a good tax year for the couple, and it turns out that 2022 is not shaping up well for them, either. Procedural Background to Hacker v. Commissioner If you will recall, the IRS examined the returns of the petitioners and their day care…

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May 25, 2022
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

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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May 24, 2022
Income Tax Issues
Income Tax Issues / Memorandum Opinions / Tax Opinions

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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May 23, 2022