Western CPE Blog
Breaking tax and accounting news and analysis from the experts at Western CPE.
Steven Matzkin and Sarah Schroeder v. Comm., TCM 2020-117
Amount Paid to Ex-Spouse to Buy Her out of Dental Practice Did Not Increase Taxpayer’s Basis (Steven Matzkin and Sarah Schroeder v. Comm., TCM 2020-117) In January 2003, Steven Matzkin formed, with a partner, Dental Care Alliance, LLC (DCA). When Dr. Matzkin formed DCA, he was married to Georgeann. In May 2008, after more than 20 years of marriage, Dr. Matzkin filed for divorce. Under Florida law, DCA was a marital asset. An appraisal performed in 2007 valued his interest in DCA at $21 million. The Matzkins’ property settlement and spousal support agreement provided that Steven would pay Georgeann over …
Carole Holliday v. Comm., TCM 2021-69
Malpractice Award Arising from a Divorce Settlement Was Taxable – Attorney Fees Weren’t Deductible (Carole Holliday v. Comm., TCM 2021-69) Carole Holliday filed a malpractice lawsuit against her divorce attorney. She claimed that her divorce attorney’s representation constituted negligence and gross negligence and that he breached the duty of fair dealing and his fiduciary duties “by influencing * * * [her] to mediate and enter into a transaction that was not fair to * * * [her] under the circumstances” and by not pursuing an appeal. The malpractice defendants agreed to pay Ms. Holliday $175,000. Ms. Holliday’s malpractice attorney received …
Joe Alfred Izen v. Comm., 38 F.4th 459
Charitable Contribution Denied; Substantiation Rules Not Strictly Complied With (Joe Alfred Izen v. Comm., 38 F.4th 459 (5th Cir. 2022)) During an IRS audit of Joe Alfred Izen’s 2012 tax return, Mr. Izen remembered he donated his 50% partnership interest in a vintage airplane to the Houston Aeronautical Heritage Society. He filed a Form 1040X claiming a $338,080 deduction for the donation. To the Form 1040X he attached Form 8283, Noncash Charitable Contribution, and a written letter from the Houston Aeronautical Heritage Society that described the donation. The letter did not mention Mr. Izen and did not provide his taxpayer …
Duane Pankratz v. Comm., TCM 2021-26
$3.5 Million Property Charitable Contribution Deductions Denied for Lack of Appraisal (Duane Pankratz v. Comm., TCM 2021-26 (Mar. 4, 2021)) In 2008, Duane Pankratz donated his interests in four oil and gas projects, valued at $2 million, to Missionary Church, Inc. and made a large noncash donation of 5.78 acres for road and utility improvements, valued at $1,513,146, to the Church’s Rapid City, South Dakota, campus. In 2009, he donated a conference center to Keystone Project, Inc., another religious organization, leaving the fair market value blank.The issue before the court. The Form 8283 that Duane Pankratz used stated in plain …
Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Comm., TCM 2020-24
Missing Basis Entry on Form 8283 Means Taxpayer Loses Non-Cash Charity Deduction of $7,949,000 (Oakhill Woods, LLC, Effingham Managers, LLC, Tax Matters Partner v. Comm., TCM 2020-24) Strict substantiation requirements apply. To deduct non-cash contributions in excess of $5,000, the donor must obtain a qualified appraisal of the contributed property, attach a “fully completed” appraisal summary to the return on which the deduction is first claimed, and maintain records containing specified information (§1.170A-13(c)(2)(i)(A), (B), and (c)). The Form 8283, Non-Cash Charitable Contributions, appraisal summary that Oakhill Woods attached to its 2010 return indicated that it acquired the property by purchase …
Paul Young Kim v. US, 5:22-cv-00691
Net Investment Income Tax Cannot Be Reduced by Foreign Tax Credits (Paul Young Kim v. US (5:22-cv-00691 (CA-9, Mar. 28, 2023)) Paul Kim is a US citizen who resided in South Korea until Sep. 2015, when he relocated to California. For the taxable year ending December 31, 2015, Mr. Kim timely filed a Form 1040 reporting in addition to the amount of regular income tax owed $644,382 in net investment income tax (“NIIT”).Subsequently, Mr. Kim filed a Form 1040X for the 2015 tax year seeking a refund of $638,232 in NIIT. Mr. Kim claimed, under the U.S. – South Korea …
Adam Sowards V. Comm., TCM 2023-99
No Social Security Number Means No Credits (Adam Sowards V. Comm., TCM 2023-99) Adam Sowards and his spouse jointly filed federal income tax returns for the three years at issue. The 2008 return claimed the additional child tax credit (ACTC) with respect to his four children, along with the earned income tax credit (EITC) and the recovery rebate credit. The 2009 return claimed the ACTC with respect to the four children, along with the EITC. The 2010 return claimed the child tax credit (CTC) with respect to the four children. The returns did not provide SSNs for the children or …
Donald S. Ahaiwe, pro se, v. Comm., TCSO 2023-7
Insolvency Must Be Proved to Exclude CODI (Donald S. Ahaiwe, pro se, v. Comm., TCSO 2023-7) Donald Ahaiwe claimed an exclusion from income for canceled debt related to a credit card. Mr. Ahaiwe argued that he was insolvent at the time the debt was canceled and, therefore, met the requirements of §108(a)(1)(B) for the exclusion. Mr. Ahaiwe has the burden of proving his claim that he was insolvent. In support of his burden, Mr. Ahaiwe relied upon an “insolvency worksheet” he created, but the Court found the “worksheet is little more than numbers on a page.” Mr. Ahaiwe provided neither …
Jeffrey and Sandra Siegel v. Comm., TCM 2019-11
Alimony Requirement #6: Tax Court Allowed Alimony Paid in Arrears Under Court Order (Jeffrey and Sandra Siegel v. Comm., TCM 2019-11) Jeffrey Siegel was divorced in 2003. He was required to make spousal maintenance payments of $10,110 per month and child support of $5,000 per month. After the divorce, Siegel’s business went into bankruptcy, his income fell drastically, and he fell behind in making the payments required by the judgment of divorce. On Feb. 12, 2012, after several legal proceedings, the Supreme Court of New York found Siegel to be in contempt and sentenced him to 150 days in jail …
James Tarpey v. US, CA-9, Doc. No. 22-35208
Tax Shelter Promoter Penalties Applied Because Of Faulty Appraisals (James Tarpey v. US, CA-9, Doc. No. 22-35208 (Aug. 17, 2023)) James Tarpey, a lawyer, and businessman, formed Project Philanthropy, Inc. d/b/a/ Donate for a Cause (“DFC”) around 2006. DFC facilitated the donation of timeshares for timeshare owners who no longer wanted to pay timeshare fees or otherwise wanted to dispose of their timeshare properties. Tarpey promised potential customers that they could receive generous tax savings from donating their unwanted timeshares to DFC. Tarpey himself appraised the value of some of the properties donated to DFC, and other properties were appraised …
Estate of Scott M. Hoensheid et al. v. Comm., TCM 2023-34
Donation of Appreciated Stock was Assignment of Income (Estate of Scott M. Hoensheid et al. v. Comm., TCM 2023-34) Scott Hoensheid in anticipation of the sale of Commercial Steel Treating Corp. (CSTC), a closely held corporation, contributed 1380 shares of CSTC to Fidelity Charitable Gift Fund (a donor advised fund). Contributing appreciated stock. When a taxpayer disposes of appreciated property via charitable contribution, they typically do not recognize any gain. This is because the taxpayer can avoid paying tax on the unrealized appreciation in the property and deduct the fair market value of the property contributed to a qualified charitable …
Duncan Bass v. Comm., TCM 2023-41
Non-Cash Donations of More Than $5,000 Require an Appraisal (Duncan Bass v. Comm., TCM 2023-41) Duncan Bass made noncash charitable gifts in 2017 to Goodwill, the Salvation Army, and Lend-A-Hand, which were reported on three Forms 8283 attached to his tax return. According to the Form 8283, the gifts to Goodwill had an appraised fair market value of $10,286 and were purchased for $4,360, while the gifts to the Salvation Army had an appraised fair market value of $10,060 and were purchased for $4,175. The gifts to Lend-A-Hand had an appraised fair market value of $10,340 and were purchased for …
Kenneth and Anita Brooks v. Comm., TCM 2022-122
Deed Was Not a Proper Contemporary Written Acknowledgement (Kenneth and Anita Brooks v. Comm., TCM 2022-122) On Dec. 15, 2006, the Kenneth and Anita Brooks Family LLC purchased 85 acres of real property known as Cotton Row Farm in Liberty County, Georgia, for $1,350,000. On the same day, the LLC subdivided the property into two parcels of 44 and 41 acres. The LLC granted and recorded a conservation easement over the 41-acre parcel on Dec. 27, 2007, to Liberty County. The LLC claimed a charitable contribution deduction of $5,100,000 on its 2007 Form 1065 for the contribution of the easement …
Martha Albrecht v. Comm., TCM 2022-53
Contemporaneous Receipt Did Not Include “No Goods and Services” Statement So No Charitable Deduction Allowed (Martha Albrecht v. Comm., TCM 2022-53) Martha Albrecht and her late husband acquired a large collection of Native American jewelry and artifacts during their marriage. In December 2014, Ms. Albrecht donated 120 items from this collection to the Wheelwright Museum of the American Indian. In connection with the donation, the Wheelwright Museum and Ms. Albrecht executed a “Deed of Gift” dated Dec. 19, 2014, that consisted of five pages. The first page stated that Ms. Albrecht “hereby donates the material described below to the Wheelwright …
Wendell H. Murphy, Jr., and Wendy Murphy v. Comm., TCM 2023-72
“Reasonable Cause” for Omitted Basis on Form 8283 Saves the Deduction (Wendell H. Murphy, Jr., and Wendy Murphy v. Comm., TCM 2023-72) Wendell and Wendy Murphy, through Duplin Land Development Inc., an S corporation, owned two tracts of land, which they developed into a 1,500-lot residential community with two 18-hole golf courses, a clubhouse, a recreation facility, and multiple nature trails. Tract 1 shares a border with Northeast Cape Fear River, and Tract 2 is an interior, land-locked tract to the north. Duplin Land Development, Inc. donated in 2010 perpetual conservation easements – each constituting a “qualified real property interest” …
Thomas and Maureen Richey v. Comm., TCM 2023-43
Storm Damage Loss Flounders and Sinks for Lack of Appraisals or Other Proof of Loss (Thomas and Maureen Richey v. Comm., TCM 2023-43) Thomas and Maureen Cleary Richey owned a home and a boat in March 2017, when Winter Storm Stella hit Stone Harbor and flooded the city’s streets. Richey and Cleary claimed that the storm damaged the waterside portion of their property and their 40-foot boat, The Celtic Dream. On their 2017 tax return, they claimed total casualty losses of more than $820,000 and a deduction—after considering the income limitation—of nearly $740,000. Calculating the deduction. There are three rules …
Nadine Vichich v. Comm., 146 TC No. 12
Widow Can’t Use Deceased Husband’s AMT Credits (Nadine Vichich v. Comm., 146 TC No. 12) Before his marriage to Nadine Vichich, William Vichich exercised incentive stock options that resulted in AMT liability, which he reported on a 1998 tax return filed jointly with his first wife, Marla. Payment of the AMT liability in 1998 generated an AMT credit carryforward of $304,442. Ms. Vichich was married to Mr. Vichich from 2002 until his death in 2004. On her 2009 tax return, Ms. Vichich reported an AMT credit of $151,928 derived from her deceased husband’s 1998 AMT credit carryforward that she used …
Alfred Christopher Morgan v. Comm., TCS 2022-10
Tax Court Agrees Taxpayer Was a Bona Fide Resident Eligible for Foreign Earned Income Exclusion (Alfred Christopher Morgan v. Comm., TCS 2022-10) Alfred Morgan’s tax problems began when he failed to timely file his 2016 tax return. The IRS prepared a substitute return based on the information that they had. Mr. Morgan filed a return showing, in addition to the IRS income items, a Form 2555 claiming a foreign earned income exclusion as a bona fide resident of Saudi Arabia. When the IRS challenged the exclusion, they found fault with the fact that when asked to substantiate his dates of …
Elena and Frederick Weschenfelder v. Comm., TCM 2019-133
Foreign Earned Exclusion on Delinquent Return Disallowed by Court (Elena and Frederick Weschenfelder v. Comm., TCM 2019-133) Elena Lea Morgan Weschenfelder and Frederick Burkhart Weschenfelder were employed by CACI Premier Technology, Inc. (CACI) and Sycoleman Corp. in Iraq during 2004 and 2005. They lived and worked full-time on a military base, living in Republican Guard barracks. The Weschenfelders were employed as intelligence analysts. Their jobs involved strategic and tactical intelligence, and they worked with the Iraqi interim government to help identify threats and coordinate safe passage and gatherings within the country. In 2006, they moved to Germany, where they continued …
Suzanne Montes v. Comm., USTC, Docket No. 17332-21
Firefighter’s Harassment Settlement Not Excludable Personal Injury Award (Suzanne Montes v. Comm., USTC, Docket No. 17332-21 (Jun. 29, 2023)) Suzanne Montes is a San Francisco firefighter. She was assigned to an all-male firehouse. Within days of her assignment, she was subjected to disparaging comments, sabotaged equipment, and “extremely unsanitary things (were done) to her personal property.” She complained to her chiefs of the harassment, “which only served to increase the harassment she was suffering from.” Ms. Montes filed a lawsuit and subsequently received a settlement of $382,000. Her CPA told her the settlement was not taxable and she didn’t report …