Tax Roundup, 8/14/2013: Tax Court Trifecta: IRS agent gets creative on her own 1040, Shareholder stuck, and not quite a real estate pro.

August 14th, 2013 by Joe Kristan

20130121-2More reasons we should trust the IRS to regulate preparers.  The Tax Court yesterday addressed the charitable deductions of a revenue agent with the IRS Manhattan office.   The Tax Court judge found the documentation for the claimed contributions to Living Stone Baptist Church  insufficient (my emphasis):

Petitioner was not a member of LSBC during the years in issue. Pastor Mobley was clear that he knew all his congregants by name and face and that he did not know petitioner. Pastor Mobley apparently first met petitioner in 2011 after the examination of petitioner’s tax returns commenced. It seems improbable that petitioner ever attended LSBC and even less probable that she made donations in any amount. It appears highly probable that petitioner, in concert with her longtime friend and fellow IRS employee, cut and pasted stationery from LSBC and provided the same to the IRS agent examining the returns in an attempt to support the claimed deductions. That attempt failed when the IRS agent attempted to verify the reported contributions with Pastor Mobley. The pastor made clear that he did not authorize the receipts to be prepared or issued on LSBC stationery, nor did he sign any such receipts. Even after these false documents were exposed by the examining revenue agent, petitioner continued to pursue her efforts to obtain documents in support of the reported contributions.

Surely we should all welcome folks like that having the power to control whether we can make a living filing returns.

Cite: Payne, T.C. Summ. OP. 2013-65.


The Tax Court released two other interesting decisions yesterday:

You may still be a shareholder!  In Kumar, a radiologist had a falling out with his fellow shareholders in his medical practice S corporation, and was frozen out of the business.  Yet he still owned shares in the company and still received his K-1, and was eventually redeemed out in a settlement.  He failed to report income from one of his K-1s, claiming he no longer really owned the shares.  The Court ruled otherwise:

Thus, Dr. Kumar retained the beneficial ownership of the PSLV shares. There was no agreement giving Dr. Woody any rights to Dr. Kumar’s stock during the year at issue, and Dr. Woody’s interference with Dr. Kumar’s participation in PSLV did not deprive Dr. Kumar of the economic benefit of his PSLV shares. Thus, we conclude that the beneficial ownership test does not relieve Dr. Kumar  from passthrough of PSLV profits and petitioners must report $215,920 of income and $2,344 of interest income from PSLV. 

If you get the K-1, you probably have to report the income.


If you want to prove your participation, log your time.  In Williamsa taxpayer tried to convince the Tax Court that he met the two tests for being a real estate professional under the passive loss rules, and could therefore deduct his rental losses as non-passive.  To meet the tests, you have to spend at least 750 hours during the tax year participating in a “real property trade or business,” and that has to exceed the time you spend in other activities.  It’s up to the taxpayer to show the time spent, and the judge wasn’t convinced:

Mr. Williams testified he spent over 800 hours and more than one-half of his time performing personal services in the rental property activity for each year at issue. Petitioners failed to introduce documentation or other credible evidence corroborating Mr. Williams’ testimony.

Moreover, respondent’s cross-examination of Mr. Williams revealed that his testimony was inconsistent with other credible evidence and unreliable. 

“Documentation or other credible evidence” means a log, calendar or spreadsheet prepared currently during the tax year.  For an example of a taxpayer who kept records sufficient to win his case, go here.


TaxGrrrl,  IRS Proposes To Permanently Ease Restrictions For Innocent Spouse Relief   

Kay Bell, Social Security same-sex benefits limited (for now)  to states where such marriages are legal. Will IRS follow suit?

TaxProf,  The IRS Scandal, Day 97

Lori Bullock,  Social Media, the Internal Revenue Service and You (Davis Brown Tax Law Blog).  Now IRS has a Tumblr.

Paul Neiffer discusses the legislative progress of  The New Farm Bill.  You’d think that 70 years after the Depression ended, Congress might allow anti-depression measures to expire.


Kyle Pomerleau,  Japan Further Discusses Lowering Their Corporate Rate (Tax Policy Blog)

Roberton Williams, Paying for Corporate Tax Rate Cuts is Hard (TaxVox)

David Brunori, I Like the Internet, Taxed or Not (Tax Analysts Blog). “But come on. We are still trying to give a special tax break to the Internet?”

Tax Justice Blog,  State News Quick Hits: Texas, New York and Hollywood:

Between 2003 and 2012 the average Hollywood movie earned a 452 (!) percent return on investment. Still, 40-some states offer generous film tax credits in a misguided effort to invite productions.

But, parties!


Me, The perils of an unorthodox approach to tax crime explained.


He won’t ride his dinosaur into the sunset.  Doctor Dino – Kent Hovind May Lose In Court But Will Never Give Up (Peter Reilly)

Tax Planning the hard way:  People Are Having Babies Earlier to Max Out Tax Benefits (Going Concern)

Answering the Critical Question:  ‘Little House’ Is Not a Big Libertarian Conspiracy (Megan McArdle)


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