Taxing Lessons Case Summaries

Case — Whistleblower Award—Capital Gain or Ordinary Income?

THE QUESTION Is a qui tam award capital gain or ordinary income? THE DISPUTE Taxpayer Says: He sold information to the government in exchange for a share of any recovery, and the whistleblower lawsuit should be considered a capital gain. Internal Revenue Service Says: The taxpayer’s share is similar to a reward and does not satisfy the requirements for capital…

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Taxing Lessons Case Summaries

Case — Statute of Limitations — Federal Excise Tax (ESOP)

NOTE: On October 1, 2014, the tax court reversed itself and vacated its decision in this case. See 143 T.C. No. 13 (Eggertsen). (The link opens a pdf document on the tax court website.) THE QUESTION Did the statute of limitations expire for imposing an excise tax on an employee stock ownership plan? THE DISPUTE Taxpayer Says: The IRS is barred…

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Taxing Lessons Case Summaries

Case — IRA Qualified Repayment (60 Day Rollover)

THE QUESTION Can a taxpayer use the 60-day rollover provision to make qualified repayments of distributions from more than one IRA account in a year? THE DISPUTE Taxpayer Says: The rule limiting a taxpayer from performing more than one nontaxable rollover in a one-year period is specific to each IRA and does not apply across all of a taxpayer’s IRAs.…

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Taxing Lessons Case Summaries

Case — Employee Business Expenses – Tuition

THE QUESTION Can a taxpayer deduct tuition for a master of business administration program? THE DISPUTE Taxpayer Says: He was in the business of selling pharmaceuticals and the MBA classes enabled him to obtain employment and are deductible. Internal Revenue Service Says: Taxpayer was not established in a trade or business and his employers did not require him to enroll…

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Taxing Lessons Case Summaries

Case — Abandonment of Stock -– Capital or Ordinary Loss?

THE QUESTION When a corporation voluntarily surrenders securities for no consideration, is the loss capital or ordinary? THE DISPUTE Taxpayer Says: The loss is an ordinary loss due to abandonment, and is deductible in full on the current year tax return. Internal Revenue Service Says: The loss is a capital loss, and is not fully deductible on the current year…

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Taxing Lessons Case Summaries

Case — Accuracy Related Penalty

THE QUESTION What is the “amount shown as tax on the return” for purposes of calculating an accuracy-related penalty? THE DISPUTE Taxpayer Says: The amount shown as tax on the return is calculated without regard to refundable credits or, alternatively, the amount shown as tax on the return is reduced by the refundable credits but not below zero. Internal Revenue…

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Taxing Lessons Case Summaries

Case — Stock Basis

THE QUESTION Does rescission of a loan agreement reduce stock basis? THE DISPUTE Taxpayer Says: His cost basis in the stock includes the original debt amount. Internal Revenue Service Says: The cost basis should be reduced to reflect the outcome of a lawsuit that limited his actual cost. THE LAW From Internal Revenue Code Section 1001(a): Gain or loss from…

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Taxing Lessons Case Summaries

Case — Section 199 Deduction

THE QUESTION Does direct advertising material produced by a third-party printer qualify for the domestic production deduction? THE DISPUTE Taxpayer Says: There was sufficient control over the printing process to make gross receipts attributable to printed direct mail advertising and distribution products qualify as “domestic production gross receipts” and the deduction can be claimed. Internal Revenue Service Says: Because the taxpayer contracted…

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Taxing Lessons Case Summaries

Case — Definition of Underpayment

THE QUESTION What’s the definition of an underpayment for purposes of figuring a 20% accuracy related penalty? THE DISPUTE Taxpayer Says: The IRS used the wrong number to calculate the 20% accuracy related penalty. Internal Revenue Service Says: The penalty was calculated on the amount of the underpayment and is correct. THE LAW From Internal Revenue Code Section 6662(a) and (b)(1) and…

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