Court Reluctantly Agrees to Rule on Question Parties Asked, Finding Employee Had to Include Forgiven Interest in Income

The Tax Court gave us a decision in the case of Brooks v. Commissioner, TC Memo 2012-25, though the Court clearly believes it was asked the wrong question by the parties.  The question the Court answered involved whether a taxpayer who had principal and interest forgiven on a loan by his employer could, under the facts of the case, avoid the inclusion of cancellation of indebtedness income on the interest portion of the debt that was forgiven.

How much Taxpayer information is currently being exchanged by US?

PALO ALTO—U.S. participation in exchange of information agreements does not mean that the Internal Revenue Service automatically releases taxpayer information to any nation that requests it, Douglas O’Donnell, IRS assistant deputy commissioner (International), said on Jan. 20.

“Every country that’s on the receiving end of a specific request is paying very close attention to the narrative of the story that is being told by the requesting jurisdiction,” he told attendees at the 2012 Pacific Rim Tax Institute. That way, he said, countries“know whether they have met the standard to request the information.” Since the Group of 20 launched its global initiative in 2009 to safeguard the international financial system through improved transparency, more than 700 additional EOI agreements have been signed and 81 nations—including the United States—have undergone peer reviews, O’Donnell said.

Tax Court Decides Heavy Duty Tractor Trailer Not a Vehicle Designed for Off-Highway Transportation, Denies Refund of Diesel Fuel Tax

Definitions are the underpinnings of the tax law, and the Tax Court had an opportunity to thrash out a definition under two slightly different versions of the Internal Revenue Code in the case of Myles Lorentz, Inc. v. Commissioner, 138 TC No. 3.  In this case the issue involved what was meant when the Code and regulations referred to a vehicle specially designed for off-highway transportation.  Such a vehicle is one that, while being a vehicle that either is registered for highway use or that should be registered for that use, meets the following two criteria:

• Specially designed for the primary function of transporting a particular type of load other than over the public highway in connection with a construction, manufacturing, processing, farming, mining, drilling, timbering, or operation similar to any one of the foregoing enumerated operations, and
• By reason of such special design, the use of such vehicle to transport such load over the public highways is substantially limited or substantially impaired. [Reg. §48.4061(a)-1(d)(2)(ii)]

Final Regulations Issued on §104(a)(2) Damages for Physical Injuries or Sickness Income Exclusion

The IRS in Treasury Decision 9573 issued in final form revisions to Reg. §1.104-1(c) regarding the exclusion under IRC §104(a)(2) from income of amounts received as damages on account of personal physical injury or physical sickness.

Partial Release of Power of Appointment Allows Use of Minimum Distributions to Extend Payout from Qualified Plan and for Rollover to Inherited IRA

A ruling with request to a set of trusts that were the beneficiary of a qualified retirement plan provides a good starting point for a review of some of the key rules involving the use of trusts as vehicles to receive retirement fund distributions as beneficiaries upon the death of the covered employee.  In PLR 201203033 the taxpayer was asking for the IRS to rule that the trusts involved would qualify to allow the inherited plan balances to be distributed over the shortest life expectancy of the individuals involved.

Allocation of Consideration in Purchase of Business Assets Precludes Later Attempt to Reallocate Portion Assigned to Building With Cost Segregation Study

Can a taxpayer use a cost segregation study to reallocate a portion of an asset purchase subject to IRC §1060 allocations that were allocated to a building between §§1250 and 1245 components after the fact?  The Tax Court dealt with this issue in the case of Peco Foods, Inc. v. Commissioner, TC Memo 2012-18.

Economic Performance Did Not Take Place in Oil Drilling Contract

The issue of the interaction of the economic performance provisions of IRC §461(h) to a turnkey contract for drilling a well were the issues to be decided in the case of Caltex Oil Venture, et al v. Commissioner, 138 TC No. 2.

In this case the taxpayer had entered into a “turnkey” contract for the drilling of wells prior to the end of 1999.  While the contract was entered into prior to the end of 1999, little work took place in 1999.  Within the first 90 days of 2000 the contractor began work to prepare the ground for drilling.  However, no drill penetrated the ground during 2000.

Taxpayer Was Not Real Estate Professional, However Property Sold Generated Passive Gain Even Though Never Rented

Real estate activities were the issues before the court in the case of Vandegrift v. Commissioner, TC Memo 2012-14.  The real estate activities of Mr. Vandegrift posed two separate issues:

• Was he a real estate professional as defined in IRC §469(c)(7)(B)?
• Were the gains on the sale of two properties that were never rented are part of his real estate business activities resulting in a passive gain, or are limited to being capital losses?

Taxpayer Allowed to Pursue Innocent Spouse Refund Claim After Levy Against Joint Account

In the case of Minihan v. Commissioner, 138 TC No. 1, a taxpayer who had filed an innocent spouse claim asserted that she should have a right to a refund of her portion of funds the IRS had seized from a joint account.  The IRS asserted that because the funds had been properly seized via a levy under §6331 against her husband and the tax paid off from that source, she had not made an overpayment that could be refunded under IRC §6015(g).

Resolutions, Easy to Make, Difficult to Maintain

Is it me or are more and more people ditching making New Year’s resolutions? It sure seems that way.