Wednesday, March 2, 2011

Even the 2011 Stuff is Getting Stale

As I finished my clean up of 2010 and posted items that I found more timely, 2011 material was accumulating. I will rarely post something that is more than two months old and I hate to cast away the rough diamonds that I don't have time to polish, so here are some more fairly random items of interest.

Two of them about mail, so I thought I'd recommend the novel Mail.  Ms. Medwed is married to a distinguished tax attorney and some tax humor creeps into her work from time to time.  I think its terrible that it appears that you can have the book for the price of the shipping and handling, but you would be foolish not to buy it.  It's really great.  I, myself, have a copy autographed by the author. 

Jeffrey L. Rayden, et ux. v. Commissioner, TC Memo 2011-1

This was a about business use of a home. Taxpayer was claiming 70% and IRS was willing to allow 43%. Tax Court went with the IRS. They had a pretty big house :

Petitioners' two-story residence consists of 12 rooms. There is additional space in the area of the vestibule, hall, and staircase. There is also an attached three-car garage. Petitioner's family put the master bedroom and master bathroom to personal use. Petitioners' daughter used the room designated on Exhibit 15-P as bedroom 2, including the sitting area, bathroom, and closet, for personal purposes. Petitioners asserted at the trial that 10 percent of the use of bedroom 2 was for business. The room designated as the guest room consists of 283 square feet and was used by petitioner wife in connection with her travel agency business.

The problem the taxpayer has is that a portion of a house must be used exclusively for business in order to qualify:

Exclusive use of a portion of a taxpayer's dwelling unit means that the taxpayer must use a specific part of a dwelling unit solely for the purpose of carrying on his trade or business. The use of a portion of a dwelling unit for both personal purposes and for the carrying on of a trade or business does not meet the exclusive use test.

Respondent conceded that petitioner used the library and the garage exclusively for business. We also find that petitioner used the living room exclusively for business. Although petitioner's own exhibit claimed that the business used the living room only 95 percent of the time, at trial he credibly explained that “The only reason I put down 95 percent is that somebody who would be visiting could have possibly walked in [or through] that area and walked out.”

This Court has previously held that the mere nonbusiness passage from one room to the next can be classified as a de minimis personal use of the room and will not disqualify the room from the exclusivity requirement of section 280A(c)(1).

Although petitioner first explained that he did not eat in the breakfast room, in response to a question by the Court he conceded that on occasion he or his family may have eaten in the breakfast area. Petitioner also did not use the den, vestibule, and adjoining bar exclusively for business. Petitioner explained that “maybe one or two times a year, [the area] was used sometimes by family that were visiting”. We do not regard as de minimis this personal use of the room by visiting family.
Petitioner also did not use the dining room exclusively for business when his family was visiting. Petitioner testified that “one or two nights a year” when his sons were in town they would have a family dinner in the dining room. Petitioner is not entitled to a deduction for items of expense apportionable to these rooms.

I once read that the most expensive meal that a family has is when they eat in their dining room. In order to get to that result you have to apportion the extra cost that the dining room creates over the number of meals that the family eats there. I wonder if Mr. Rayden will be taking his sons out to restaurants in the future.

CCA 201052003

This was about an amended return that was mailed on the day the statute of limitations expired for the relevant tax year. The ruling, which has some other twists and turns to it, holds that the "timely mailed, timely filed rule" does not apply to an amended return. The reason is that an amended return is not a return "required to be filed". So if you have been waiting to file an amended return that might yield a refund, don't let yourself get too close to the due date. I noted this ruling in my recent post on DOMA.  Couples who might benefit from DOMA being declared unconstitutional should be getting their 2007 refund claims in shortly not rushing to the post office with them the Monday after Emancipation Day.

John A. Boultbee v. Commissioner, TC Memo 2011-11

This is the other mail ruling.  It is also about the "timely mailed, timely filed rule".  Mr. Boultbee mailed a Tax Court petition five days before it was due.  It arrived three days after the due date.  The twist was that he had mailed it from a foreign country.  Now being in a foreign country gave him 150 days instead of 90 days to file the petition, so maybe he doesn't really have a beef.  The "timely mailed, timely filed rule" applies to the US mail.  Mr. Boultbee was able to prevail, though.  He used a registered mail service that is available in the obscure foreign country where he was located.  Because of their tracking and that of the US Post Office Service he was able to demonstrate that the petition hit the US mails in time to be "timely mailed".


Petitioner mailed his petition from Victoria, British Columbia, Canada, using the registered mail service of Canada Post on June 9, 2010, the 145th day after the notice of deficiency was sent to petitioner in Victoria. A Canada Post postmark of June 9, 2010, is stamped on the front of the envelope. The Canada Post system, which allows for tracking of documents using a unique identifier on the sticker affixed to the envelope, indicates that the envelope in which the petition was mailed left Canada at 1:51 p.m. on June 10, 2010.

Although no U.S. Postal Service postmark is stamped on the envelope, the U.S. Postal Service Track and Confirm service allows for tracking of inbound registered mail using the same unique identifier used for the Canada Post registered mail.  The U.S. Postal Service Track and Confirm service indicates that the envelope in which the petition was mailed was received by the U.S. Postal Service International Service Center in Los Angeles, California, at 10:21 a.m. on June 11, 2010. The envelope was then dispatched to Washington, D.C., where it was received on June 17, 2010, at 10:24 a.m., and then delivered to the Court that same day at 11:34 a.m.

I was going to throw in something about Sergeant Preston and King, his sled dog, but that's the Yukon, which is north of British Columbia.

Beverly B. Bang v. Commissioner, TC Summary Opinion 2011-1 

It's really not nice to make fun of somebody's name so it is a good thing that I never will do a full length post on this case with the title "Botta Boom Botta". Besides the title I had even come up with an introductory quote. Further research indicated that maybe Albert Einstein didn't really say that compound interest is the most powerful force in the universe. Nonetheless, Ms. Bang may feel that way.

Ms. Bang was involved in a tax shelter back in the good old days of the Internal Revenue Code of 1954. It wasn't really that big a deal:
The Contra Costa Partnership Bang was a partner in a partnership called Contra Costa Jojoba Research Partners. This partnership, which we shall refer to as the Contra Costa partnership, filed a partnership tax return for its 1983 tax year on which it deducted $437,500 in research and experimental expenditures under section 174. On her own 1983 tax return, Bang reported a deduction of $12,500 for her share of the $437,500 deduction that the partnership had claimed. The 1983 tax return was due on April 15, 1984.

The IRS didn't like the partnership's deductions which led to some litigation. It took a while. Finally Ms. Bang got a notice that she owed an additional $2,636 in tax for the year 1983. She paid it. She also paid a negligence penalty of $131.80 So what's the big deal ? The big deal is that she didn't think she should have to pay $21,553.52 in interest (That was figured at 120% of the regular rate) and a 50% of interest penalty bringing the total tab to $32,343.46. She didn't think it was her fault that the IRS had taken over 20 years to settle this case and finally bill her.

This was an appeal from a collection due process hearing so there were a lot of procedural issues. Ultimately, though she didn't get any relief.

Martin Barajas, et ux. v. Commissioner, TC Summary Opinion 2011-2

This was a pretty ordinary substantiation case.  It is interesting in that the Tax Court held to a significant extent for the the taxpayer.

Respondent's continuing disallowance of car and truck expenses relating to petitioner's business mileage to and from Los Angeles stems from petitioner's ability to provide supporting documentation for only 37 (or 77 percent) of his 48 trips. Respondent's insistence on 100 percent corroboration of the mileage log, however, contradicts the Secretary's own regulation. A taxpayer may substantiate his consistent pattern of business use of listed property for the entire year if he can establish by corroborative evidence that the periods for which he has adequate records are representative of the whole year. Sec. 1.274-5T(c)(3)(ii)(A), Temporary Income Tax Regs., 50 Fed. Reg. 46021 (Nov. 6, 1985) .

The taxpayer lost out on some overnight expenses because of failure to keep receipts, but because the amounts were reasonable and the taxpayer had used a competent preparer the Court did not allow the IRS to assess negligence penalties.

Private Letter Ruling 201101029

This was a denial of exempt classification.  They were seeking exemption under 501(c)(15) (small insurance company.)  The mutual insurance company was composed of 6 taxicab companies. Although each was operated independently there were familial relationships amond the shareholders of the various companies.  The IRS wasn't buying it.

There is an insufficient number of insureds to provide for an adequate premium-pooling base. In addition, your risk is too heavily concentrated in two insureds. As a result, your business lacks one of the principal elements of insurance, risk distribution. Thus, because you do not qualify as an insurance company, you do not meet the statutory requirement for exemption under section 501(c)(15) of the Code.

Well that will do for one post.  There's plenty more where that came from.


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