Interesting Tax Opinions

CELEBRITY CASES

Chuck Berry

After touring for years on the “oldies circuit” in the 1970’s, where he was often paid in cash by promoters, Berry attracted the ire of the IRS as being a tax evader. In 1979 he served 4 months in prison and was ordered to perform 1000 hours of benefits shows.

 

Willie Nelson

As a result of falling for some bad “tax shelter” advice, in 1990, Nelson was charged with more than $16 Million in unpaid back taxes. The IRS seized most of his assets, including his houses & recording studios. Nelson agreed to record an album (called “Who’ll Buy My Memories: The IRS Tapes) and give all of the proceeds to settle his debts. From sales of the recording and other assets, the IRS generated $3.6 Million. They agreed to accept payment of $9 Million over the following 5 years to settle the debt.

 

Joseph Nunan

In probably the most ironic tax evasion case of all time, former IRS Commissioner Joseph Nunan was convicted of tax evasion in 1954 for not claiming his earnings from an $1800 bet he made that Harry Truman would win the presidency. In a bizarre twist of fate, Nunan had served as IRS Commissioner just a few years from 1944-1947. He served 5 years in prison and paid a $15,000 fine.

 

Al Capone

In possibly the most famous cases in IRS history, Al Capone, the notorious gangster, was convicted on 5 counts of tax evasion from 1925-1927 and willful failure to file for 1928-1929. Capone was once quoted as mockingly suggesting “the government can’t collect legal taxes on illegal money.” He was sentenced to 11 years in Federal Prison (including the notorious Alcatraz) and paid $80,000 in fines.

 

Spiro Agnew

On October 10, 1973, Spiro Agnew resigned the vice-presidency of the United States after pleading no-contest to charges of tax evasion and money laundering. Agnew had accepted $29,500 in bribes as the Governor of Maryland from the construction industry in exchange for approval of their projects. He received 3 years of probation and a $10,000 fine in a plea bargain agreement. He was later disbarred by the State of Maryland.

 

Daryl Strawberry

In 1994 Baseball great Daryl Strawberry was fined $350,000 in back taxes, penalties and interest, six months of house confinement and 100 hours of community service. Strawberry admitted to failing to pay taxes on income he earned for autograph-signings and personal appearances from 1986-1990.

 

Leona Helmsley

Leona Helmsley was convicted of tax evasion in 1989, after many years of incorrectly categorizing personal expenses as business expenses. During her sensational trial it came out that Helmsley said: “We don’t pay taxes. Only the little people pay taxes.” She served 21 months in federal prison for the evasion, but perhaps the most bizarre part of the Helmsley saga is the fact that the so-called Queen of Mean left a chunk of her fortune to her dog, a white Maltese named, Trouble.

 

Nicolas Cage

He owed about $13 million in back taxes to the IRS.  He blamed his financial manager for leading him down the path of financial ruin, all the while spending money on eccentric things, including two albino king cobras and a private island.

2015 IMPORTANT CASES

Perez v. Commissioner

Taxpayer petitioned for redetermination of income tax deficiency arising from her omission from income payments she received from fertility clinic under contracts providing compensation for participating in unfertilized egg retrieval process. The Court held that taxpayer was compensated for services rendered, not as “damages” for pain and suffering.

 

Redisch v. Commissioner

Married taxpayers petitioned for redetermination of income-tax deficiencies and accuracy-related penalties arising from disallowance of deductions relating to residential property. The Court held that taxpayers did not convert their secondary residence into rental property or other property held for production of income for which they could deduct expenses and ordinary losses, and taxpayers lacked reasonable cause for underpayment of income taxes, and thus they were liable for accuracy-related penalties.

Freedom From Religion Foundation, Inc. v. Lew

Tax exemption granted solely to “ministers of the gospel” violated establishment clause of the First Amendment.

 

Voss v. Commissioner

The Court, held that on issue of first impression, statutory limitations on amount of acquisition and home equity indebtedness with respect to which interest was deductible was applied on per-taxpayer basis to unmarried co-owners of qualified residence.

 

ILM 201504011

Chief Counsel Memorandum states that when auditing a cash-basis marijuana facility, the IRS has the authority to permit the taxpayer to deduct from gross income its costs that would have been inventoriable had the taxpayer been on the accrual method.

 

ILM 201525010

The regulations under § 752 do not determine if a debt is recourse or nonrecourse to a partnership for purposes of determining whether, upon foreclosure of the property, the partnership has cancellation of debt income under § 61(a)(12) or gains from dealings in property under § 61(a)(3).

 

Escalante v. Commissioner

Married taxpayers petitioned pursuant to small-tax-case procedure for redetermination of income-tax deficiencies arising from disallowance of deduction for a loss from their rental real estate activity. The Court held that taxpayers’ logs recording number of hours that husband spent annually on taxpayers’ rental real estate activity and as a teacher were insufficiently reliable to establish husband met requirements for taxpayers to avoid passive loss limitations on deductions for rental real estate activity.

2014 IMPORTANT CASES

Bobrow v. Commissioner

The Court held that a taxpayer with multiple Individual Retirement Accounts may take only one non-taxable distribution from their aggregate IRAs in a one-year period

Allen v. United States

The government filed a motion for partial summary judgment that proceeds from a sale of undeveloped real estate were “other income” and not capital gains. Because it is beyond dispute that there was intent to develop the property and efforts to do so were made for many years, the motion was granted.

 

Shea v. Commissioner

A homebuilder used the completed contract method to defer the recognition of income related to the sale of homes within a development until the entire development in which the homes were located was complete. The Court held that the corporation and partnerships used permissible method to clearly reflect income from long-term home construction contracts.

 

ABC Beverage Corp. v. U.S.

The Court held that taxpayer could claim a business deduction for portion of total purchase price attributable to buying out excessive lease.

 

CCA 201427016

The grouping election of Reg. Section 1.469-9 applies only after you determine if the taxpayer is a real estate professional

 

Long v. Commissioner

Court held that in the sale of a contract right to acquire land, the analysis of whether the sale generates ordinary income or capital gain must focus on the contract right, not the underlying property. Reversing T.C. Memo 2013-233 (2013).

 

CCA 201436049

IRS concluded that the distributive share of partnership income allocated to members of an LLC was subject to self-employment tax.

 

Aragona Trust v. Commissioner

The court held that in a matter of first impression, a trust was capable of performing personal services in real-property trades or business, as required for trust to deduct rental real-estate losses.

 

Loving v. IRS

The Court held that statutory authority of IRS to “regulate the practice of representatives of persons before the Department of the Treasury” did not encompass authority to regulate tax-return preparers.

2013 IMPORTANT CASES

Wells Fargo v. United States

In an opinion issued on June 4, 2013, the U.S. District Court for the District of Minnesota issued an important ruling clarifying how the work product doctrine applies to documents prepared in connection with the new uncertain tax position (UTP) regime. In addition to the opinion work product, the court also held that certain e-mails between attorneys and the taxpayer concerning draft versions of the tax accrual workpapers were privileged even though the final drafts were eventually disclosed to an accounting firm, concluding that the disclosure of a final draft of a document does not erase attorney-client privilege with respect to earlier versions.

 

Unites States v. Woods

On December 3, 2013, the U.S. Supreme Court unanimously reversed the Fifth Circuit’s holding that the 40% gross valuation misstatement penalty applied when a taxpayer claimed an outside basis in a partnership interest that exceeded the actual basis of zero.

 

Bank of New York Mellon v. Commissioner

Corporate taxpayer petitioned for redetermination of income tax deficiency arising from disregard of taxpayer’s engagement, with its subsidiaries as an affiliated group, in a Structured Trust Advantaged Repackaged Securities (STARS) transaction, as well as disallowance of corresponding foreign tax credits and expense deductions. The Court held that, in a matter of first impression that STARS transaction was proper focus of economic substance inquiry; transaction lacked objective economic substance; transaction lacked subjective economic substance; even when evaluated as integrated transaction, STARS structure and loan to taxpayer lacked economic substance; and foreign tax credit was not intended to apply to subject transaction.

Chemotech v. United States

The District Court upheld the IRS’ disallowance of $1 billion of deductions claimed by Dow Chemical in relation to two special limited investment partnership (SLIPS) transactions. The court devoted a significant section of its opinion to the question of whether the foreign banks held true equity interests in the partnerships or whether their interests were more like debt.

 

John Hancock Life v. Commissioner

Structure of transactions indicated that initial lease in lease-in-lease-out transaction was not true lease for tax purposes.

 

ALL TIME IMPORTANT CASES

Carlson v United States

The 11th Circuit reverses and remands district court decision holding a tax preparer liable for penalties under Code Section 6701.

 

Heckman v. Commissioner

Tax Court holds failure to disclose ESOP justifies 6-year statute of limitations for IRS re-assessment.

 

Burien Nissan v. Commissioner

Covenant Not to Compete
Ruling:

  • The Tax Court determined that the taxpayer’s covenant not to compete agreement was entered into after the enactment of IRC 197. The taxpayer was required to amortize the agreement over a period of 15 years as required by IRC 197.

 

BMW of North America v Commissioner

Valuation of Vehicles Provided to Employees
Ruling:

  • S. District Court granted partial summary judgement to the Government.
  • BMW cannot use the special valuation rules to determine the fringe benefit value of BMW cars provided to its employees. BMW improperly applied the rule.

Frontier Chevrolet v. Commissioner

Covenant Not to Compete
Ruling:

  • The Tax Court determined that the taxpayer’s covenant not to compete agreement was entered into pursuant to a redemption of his stock. The taxpayer was required to amortize the covenant not to compete over 15 years.

 

Howard Pontiac GMC, Inc., T.C. Memo 1997-313, July 7, 1997
Covenant Not to Complete
Ruling:

  • The Tax Court “split the baby in half” ruling that neither the taxpayer nor the Government properly valued a covenant not to compete.