Tax Court: 6 Year Statute of Limitations Still Does Not Apply to Understated Basis Cases

The U.S. Tax Court in a reviewed opinion, accompanied by two concurrences, rejects the applicability of final Treas. Reg. Sec. 301.6229(c)(2)-1(b) and follows its opinions in Intermountain Insurance Service of Vail v. Commissioner and Bakersfield Energy Partners, LP v. Commissioner to hold that the 6 year statute of limitations does not apply to an understatement of income. The majority opinion, sua sponte, considered the final regulations in light of the U.S. Supreme Court’s opinion in Mayo Foundation v. United States.

Read the Tax Court’s opinion here:
Carpenter Family Investments, LLC v. Commissioner, 136 T.C. No. 17 (2011)

Tax Court: Collection Due Process “Disregard” Letter is Sufficient for Jurisdiction

The Tax Court, in a reviewed opinion authored by the indefatigable Judge Dawson, holds that a decision letter from the Office of Appeals disregarding the frivolous arguments of a taxpayer, along with other legitimate arguments, is a determination under Section 6330(d)(1) for jurisdictional purposes.

Read the opinion here:
Thornberry v. Commissioner, 136 T.C. No. 16 (2011)

9th Circuit: Cost Basis Allowed in Intangible Regulatory Rights

The Ninth Circuit Court of Appeals reversed the District Court for the Western District of Washington and ruled for the taxpayers. The Court of Appeals held that banks who received regulatory rights when they took over failed saving and loans at the government’s direction where entitled to cost basis in the acquired intangible assets.

Read the opinion here:
Washington Mutual v. U.S., Docket 09-36109 (9th Cir. March 3, 2011)

Read the District Court’s opinion here:
Washington Mutual v. U.S., Docket CO6-1550-JCC (W.D. Wash 2008)

Read more from the team that litigated the case for the taxpayers at Tax Appellate Blog.

Tax Court: OTC Foreign Currency Options are not Section 1256 Contracts

On a motion for summary judgment, the Tax Court rules that over the counter foreign currency options are not “foreign currency contracts” under Sec. 1256.

In some instances, and in this case, offsetting foreign currency options are used as part of a strategy to reduce federal income tax known as a major/minor transaction. Though not part of the court’s opinion here, the IRS might argue (and indeed may have argued) that this transaction is substantially similar to a “Son of Boss” transaction which it deems to be an abusive tax shelter. The effect of the court’s ruling in this case effectively denies the taxpayer the federal tax benefit realized by the transaction.

Read the opinion here:
Garcia v. Commissioner, TC Memo. 2011-85

See the IRS LB&I Division’s New Wealth Squad IDR

All tax trials begin with a redetermination of tax, either by the taxpayer in a refund case, or by the government following an examination.

In the case of the latter, the primary tool of a revenue agent conducting an audit is the Information Document Request, IRS Form 4564. The recently reorganized Large Business & International division of the Internal Revenue Service has put together a team to target the activities of high net worth individuals.

In an effort that falls a bit short of being clever, the team calls itself “the Wealth Squad.” They already have started issuing IDRs like the one here to high net worth taxpayers.

Tax Court: Daubert Motion Granted, Expert Excluded

In a reviewed opinion, the Tax Court grants respondent’s Daubert motion to exclude expert testimony and denies the taxpayer’s charitable contribution deduction for the grant of a conservation easement.

Read the opinion here.
Boltar, LLC v. Commissioner, 136 T.C. No. 14 (2011)

4th Circuit: Tax Court Reversed on Historic Rehab Credits

The Fourth Circuit Court of Appeals reversed the Tax Court and remanded for further proceedings. The appellate court held that the transfers between investor partners and the partnership were not non-taxable capital contributions followed by partnership distributions as previously determined by the Tax Court but rather were disguised sales of state tax credits subject to tax.

Read the Fourth Circuit’s opinion here.
Virginia Historic Tax Credit Fund 2001 LP v. Commissioner, No. 10-1333 (4th Cir., March 29, 2011)

Read the Tax Court opinion here.
Virginia Historic Tax Credit Fund 2001 LP v. Commissioner, TC Memo. 2009-295