Taxing Lessons Case Summaries

Case — Cancellation of Indebtedness

THE QUESTION Can the IRS rely solely on Form 1099-C as evidence of cancellation of indebtedness income? THE DISPUTE Taxpayer Says: Form 1099-C does not reflect the true income required to be reported. Internal Revenue Service Says: Taxpayer is required to report the amount shown on Form 1099-C as taxable income. THE LAW From Internal Revenue Code Section 61(a)(12): Generally,…

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Taxing Lessons Case Summaries

Case — Taxability of Military Retirement Pension Payments to Former Spouse

THE QUESTION Are military pension distributions received by a former spouse taxable income to her? THE DISPUTE Taxpayer Says: The payments are not taxable because they are the result of a division of property in a divorce proceeding. Internal Revenue Service Says: While tax is generally deferred on property received due to a divorce, income from the property is taxable.…

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Taxing Lessons Case Summaries

Case — Taxability of Partnership Income

Note to Subscribers: The June 13, 2009 issue of Taxing Lessons discussed 132 T.C. No. 17 – Countryside – Federally Authorized Tax Practitioner Privilege, in which the tax court found for the taxpayer in regard to privileged communications. While the decision stands, for research purposes it’s useful to know that in a recent ruling on a similar case (Valero Energy…

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Taxing Lessons Case Summaries

Case — Federally Authorized Tax Practitioner Privilege

THE QUESTION Do handwritten notes of a meeting between a federally authorized tax practitioner and a client qualify as confidential communication not subject to disclosure to the IRS? THE DISPUTE Taxpayer Says: The notes do not have to be disclosed because they are not written communications in promotion of a tax shelter and therefore are not disqualified from being considered…

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Taxing Lessons Case Summaries

Case — Substantially Equal Periodic Payments

THE QUESTION Do extra IRA distributions used for higher education expenses modify an election to receive substantially equal periodic payments from the IRA, thereby triggering recapture tax? THE DISPUTE Taxpayer Says: The additional distributions qualify for a statutory exception to the recapture tax and do not modify the election to receive substantially equal periodic payments. Internal Revenue Service Says: An…

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Taxing Lessons Case Summaries

Case — Business Start-Up Expenses

THE QUESTION When does a business start for purposes of deducting expenses? THE DISPUTE Taxpayer Says: The real estate and rental business started on the date the first property contract was entered into. Though the contract was later cancelled, costs incurred from that date are deductible as ordinary and necessary expenses. Internal Revenue Service Says: The business did not begin…

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Taxing Lessons Case Summaries

Case — Application of Overpayment

THE QUESTION Does the IRS have to apply an overpayment in accordance with a taxpayer’s request? THE DISPUTE Taxpayer Says: Overpaid taxes should be allocated as specifically requested. Internal Revenue Service Says: The Internal Revenue Code explicitly gives the IRS the authority to allocate refunds to any tax liability. THE LAW From Internal Revenue Code Section 6402(a): Allows the IRS…

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Taxing Lessons Case Summaries

Case — S Corporation Shareholder Loans and Basis

THE QUESTION Do loans between related businesses result in basis that allows the deduction of losses? THE DISPUTE Taxpayer Says: Money borrowed from a wholly owned partnership and subsequently loaned to a wholly owned S corporation created basis and allowed the deduction of losses from the S corporation. Internal Revenue Service Says: The loans had no economic substance and did…

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