Taxing Lessons From Court Decisions

Decisions — Weekly Roundup

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Image Source: Free Picture Thinking ID: 93930 © Rocky Reston Dreamstime Stock Photos
Image Source: Free Picture Thinking ID: 93930 © Rocky Reston Dreamstime Stock Photos

None of the twelve cases published on the tax court site this week support a stand-alone summary write-up. However, several contain tidbits of interest. Here’s a roundup.

In T.C. Memo. 2014-77 (Anderson),  the court discusses the Branerton letter. The tax court favors informality in obtaining evidence, and good faith efforts to exchange facts, documents, and other information must be made before formal discovery is started. A Branerton letter is a request to confer about the facts of the case, together with a request for additional facts and documents the attorney determines are necessary.

In Anderson, the taxpayer failed to file returns for 2000 through 2008, failed to respond to IRS notices and Branerton letters, and declined to participate in court proceedings. The court found the taxpayer liable for taxes assessed on substitute returns prepared by the IRS.

T.C. Memo. 2014-76 (Flake), T.C. Summary Opinion 2014-45 (Chisolm), and T.C. Summary Opinion 2014-44 (Abelitis) provide yet more examples of taxpayers not meeting the substantiation requirements for automobile expenses.

The court allowed the expenses only to the extent the IRS determined was reasonable.

T.C. Memo. 2014-78 (Seismic Support Services, LLC) offers a definition of partnership guaranteed payments. A guaranteed payment is a payment from a partnership to a partner for services or use of capital that does not represent a distribution and is determined without regard to the partnership’s income. A guaranteed payment is deductible at the partnership level, reported on Schedule  K-1, included in the partner’s ordinary income on Schedule E, and is subject to self-employment tax.

Guaranteed payments are one of three categories of payments generally made from partnerships to partners.

In this case, the court determined the payments were guaranteed payments from the partnership to the taxpayer, a .

T.C. Summary Opinion 2014-43 (Kadir) talks about , and the difficulty of explaining the concept in the native language of the taxpayer, a speaker of

The case itself involved a Form 1099 for payments the taxpayer received when he sued the mortgage broker for fraud over the terms of the mortgage. Because the taxpayer was required under the settlement agreement to turn these payments over to the lender, the tax court agreed the payments were not income.

T.C. Memo. 2014-79 (Palmer Ranch Holdings Ltd.) contains a discussion of comprehensive plan requirements under Florida law and Sarasota County zoning regulations as well as protection guidelines for bald eagles and wildlife corridors. The case itself is about the valuation of conservation easements.

Generally, the deduction amount for conservation easements is the contributed property’s fair market value at the time it is contributed. When a substantial record of comparable easement sales exists, the donated easement’s fair market value is based on the comparable easements’ sale prices.

When there is no established market for similar conservation easements, the regulations provide another method to determine fair market value.

In Palmer, the court determined the taxpayer had overstated the valuation.

Taxing Lesson: Tax law is a product of many decisions.


The letter is named for a 1974 tax court case (Branerton Corp.)
The taxpayer must substantiate “by [either] adequate records or by sufficient evidence corroborating * * * [his or her] own statement” the amount of the expense, the time and place each expense was incurred, and the business purpose of each expense.
In addition to guaranteed payments, 1. A partner may receive payments representing distributions of his or her distributive share of partnership income; and 2. A partner may receive payments in circumstances where he or she is not treated as a partner.
Someone who designs buildings to resist earthquake damage.
A mortgage that lets the borrower make payments that are less than the interest due. The unpaid interest is added to the outstanding principal.
an Ethiopian language.
The “before and after method.” Under this method, the fair market value of a perpetual conservation restriction is equal to the difference between the fair market value of the property it encumbers before the granting of the restriction and the fair market value of the encumbered property after the granting of the restriction. Appraisers measure the difference in property value before and after the easement was granted. An appraiser may use the comparable sales method, or another accepted method, to estimate the before and after values of the property.