Andrew Mitchel LLC

International Tax Blog - New and Interesting International Tax Issues


Famous Tax Quotes - Shoebox Method

2024-06-10

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Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle), today's tax quote is:

Petitioner has failed to show that he has satisfied all of his relevant burdens with respect to any claimed trade or business item. Indeed, it is not clear that petitioner has shown that he has satisfied any burden with respect to any trade or business item. Petitioner has chosen to rely on what may be termed the "shoebox method" of attaching photocopies of numerous cash register tapes and of similar bits of paper to his returns, without making any effort on the returns or on brief, and only a slight effort in oral testimony, to link any item to a deductible trade or business expense transaction. Petitioner appears to have wholly ignored the admonitions made by this Court on the previous occasions when he sought similar deductions.

Patterson v. Commr., T.C. Memo. 1979-362.

Tags: Other - Famous Tax Quotes

In the Tax Court & at the IRS Last Month --- May 2024

2024-06-02

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In May 2024, the Tax Court published 14 opinions, which included a total of 373 pages. Below are graphs for the month showing: (i) the top 15 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge.

May 2024 Sections referenced

 

May 2024 Cases Cited

May 2024 Number of Opinions By Judge

May 2024 Number of Pages By Judge

Excerpts from May 2024 Tax Court Cases

I am always interested in learning well-established tax principles. Often, court cases will explicitly indicate that a tax principle is well established or well settled. Or the court may concisely state the holding of a prior case in a parenthetical. Below are excerpts from the May 2024 Tax Court cases referring to these types of principles or holdings.

Estate of Anenberg v. Commr., 162 T.C. No. 9 (2024). (Toro)

See Estate of Morgens v. Commissioner, [678 F.3d 769, 771 (9th Cir. 2012)] ("The QTIP [regime] is an exception to an exception to an exception.")

Estate of Anenberg v. Commr., 162 T.C. No. 9 (2024). (Toro)

See Estate of Morgens v. Commissioner, [678 F.3d 769, 771 (9th Cir. 2012)] ("The purpose of the QTIP regime is to treat the two spouses as a single economic unit with respect to the QTIP property . . . .")

Estate of Anenberg v. Commr., 162 T.C. No. 9 (2024). (Toro)

United States v. Craft, 535 U.S. 274, 278 (2002) ("A common idiom describes property as a 'bundle of sticks'-a collection of individual rights which, in certain combinations, constitute property.")

Excelsior Aggregates, LLC, v. Commr., T.C. Memo. 2024-60. (Lauber)

Estate of Newberger v. Commissioner, T.C. Memo. 2015-246, * * * (observing that no evidence is more probative of a donated property's FMV than its direct sale price)

Excelsior Aggregates, LLC, v. Commr., T.C. Memo. 2024-60. (Lauber)

Wortmann v. Commissioner, T.C. Memo. 2005-227, * * * (finding that the most persuasive evidence of the property's FMV was the actual sale of the property 17 months before the contribution)

Parkway Gravel, Inc. v. Commr., T.C. Memo. 2024-59. (Kerrigan)

See Julien v. Commissioner, 82 T.C. 492 (1984) (finding that interest expense on alleged indebtedness incurred to purchase silver bullion was factual sham when no silver was actually purchased)

Parkway Gravel, Inc. v. Commr., T.C. Memo. 2024-59. (Kerrigan)

The sham transaction doctrine allows the IRS to disregard transactions that have no substance or economic effect. * * * In applying this doctrine, the Court looks to "objective economic realities" of a transaction, rather than a particular form employed by the parties.

Schwarz v. Commr., T.C. Memo. 2024-55. (Goeke)

See also Westbrook v. Commissioner, 68 F.3d 868, 875 (5th Cir. 1995) (stating that in order to claim a deduction under section 162, the primary purpose for engaging in the activity must be to earn a profit)

Strom v. Commr., T.C. Memo. 2024-58. (Gale)

See also Price v. Commissioner, 887 F.2d at 963 n.9 ("[I]n income omission cases, knowledge of the transaction is virtually equivalent to knowledge of the understatement.")

 

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Announcements, Notices, Revenue Procedures, and Revenue Rulings

In May 2024, the IRS published 15 Announcements, Notices, Revenue Procedures, and Revenue Rulings, which included a total of 201 pages.

May 2024 Rev. Rul.s, Etc. Sections referenced

 

Written Determinations

In May 2024, the IRS published 102 Written Determinations, which included a total of 621 pages.

May 2024 PLRs Sections referenced

 

Tags: Statistics

Deciphering Tax Court Opinion Release Patterns

2024-05-30

Below is a chart showing the number of opinions published by the Tax Court each day of the week, month, and year for the years 2020 to 2023. The chart includes all types of opinions published.

The Tax Court never publishes opinions on the weekends and typically does not publish opinions on Fridays. In 2023, only 7 opinions were published on Fridays.

It is also interesting to note that for the past 4 years, the Tax Court has not published more than 5 opinions on any single day.

During a 7-week period at the height of the COVID-19 pandemic (November 2020 to January 2021), the Tax Court only published one opinion.

Tax Court opinions heat map

Tags: Statistics

Four New Charts

2024-05-26

Tags: Charts - Situational Charts, 368 Corporate Reorgs, 367(b) Fgn to Fgn Corp, 1361 S Corporations, 351 Exchanges, 897 FIRPTA, 2501 Gifts, Other - Form vs. Substance

In the Tax Court & at the IRS Last Month --- April 2024

2024-05-16

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In April 2024, the Tax Court published 25 opinions, which included a total of 577 pages. Below are graphs showing for the month: (i) the top 15 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge.

April 2024 Sections referenced

April 2024 Cases Cited

April 2024 Number of Opinions By Judge April 2024 Number of Pages By Judge

Excerpts from April 2024 Tax Court Cases

I am always interested in learning well-established tax principles. Often, court cases will explicitly indicate that a tax principle is well established or well settled. Or the court may concisely state the holding of a prior case in a parenthetical. Below are excerpts from the April 2024 Tax Court cases referring to these types of principles or holdings.

Abdo v. Commr., 162 T.C. No. 7 (2024). (Marshall)

Mayo Found. for Med. Educ. & Rsch. v. United States, 562 U.S. 44 (2011) (confirming that Chevron deference applies to both specific authority and general authority Treasury regulations)

Abdo v. Commr., 162 T.C. No. 7 (2024). (Marshall)

Kingdomware Techs., Inc. v. United States, 579 U.S. 162, 172 (2016) ("When a statute distinguishes between 'may' and 'shall,' it is generally clear that 'shall' imposes a mandatory duty.")

Belcik v. Commr., T.C. Memo. 2024-49. (Goeke)

Price v. Commissioner, T.C. Memo. 2004-103 (holding that a taxpayer's gross income includes deposits into bank accounts over which he has dominion and control)

Belcik v. Commr., T.C. Memo. 2024-49. (Goeke)

Woodward v. Commissioner, 397 U.S. 572, 575 (1970) (explaining that taxpayers cannot deduct a capital expenditure under section 162)

Belcik v. Commr., T.C. Memo. 2024-49. (Goeke)

Lerch v. Commissioner, 877 F.2d 624, 627-29 (7th Cir. 1989) (refusing to apply the Cohan rule where the taxpayer failed to present evidence to support claimed deductions)

Giambrone v. Commr., T.C. Memo. 2024-47. (Urda)

Grothues v. Commissioner, T.C. Memo. 2002-287 * * * (disallowing theft loss deduction claimed by sole shareholder for embezzlement suffered by corporation)

Hartmann v. Commr., T.C. Memo. 2024-46. (Jones)

Balsamo v. Commissioner, T.C. Memo. 2012-109 * * * (stating that a taxpayer must be current with filing requirements to qualify for an [offer in compromise])

Mukhi v. Commr., 162 T.C. No. 8 (2024). (Greaves)

United States v. Allen, 406 F.3d 940, 946 (8th Cir. 2005) ("When we are confronted with several possible grounds for deciding a case, any of which would lead to the same result, we choose the narrowest ground in order to avoid unnecessary adjudication of constitutional issues.")

Pascucci v. Commr., T.C. Memo. 2024-43. (Gustafson)

[Under the investor control doctrine] While ownership of the assets in the separate accounts of a variable life insurance policy is assumed to belong to the insurance company, a policyholder will be considered the owner for tax purposes if his "incidents of ownership over those assets become sufficiently capacious and comprehensive".

Phillips v. Commr., T.C. Memo. 2024-44. (Greaves)

It is well established that the burden falls upon the taxpayer to keep the IRS informed of his proper address.

Zienkowski v. Commr., T.C. Memo. 2024-39. (Lauber)

Berkery v. Commissioner, T.C. Memo. 2011-57 * * * (noting that the purpose of filing [a notice of federal tax lien] is to protect the Government's interest in a taxpayer's property against the claims of other creditors)


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Announcements, Notices, Revenue Procedures, and Revenue Rulings

In April 2024, the IRS published 10 Announcements, Notices, Revenue Procedures, and Revenue Rulings, which included a total of 553 pages.

April 2024 Rev. Rul.s, Etc. Sections referenced

Written Determinations

In April 2024, the IRS published 64 Written Determinations, which included a total of 407 pages.

April 2024 PLRs Sections referenced

Tags: Statistics

2024 1st Quarter Published Expatriates

2024-05-01

Yesterday the Treasury Department published the names of individuals who renounced their U.S. citizenship or terminated their long-term U.S. residency (“expatriated”) during the first quarter of 2024.

The number of published expatriates for the first quarter was 344. See the chart below for the quarterly expatriates from 2014 to the first quarter of 2024.

The 8-quarter moving average continues to be below 1,000 names per quarter.

quarterly chart of the number of people expatriating

FATCA FFI Rules Were What Drove the Historic Increase in Expatriations

I recently added some notes to the annual expatriation chart (see below). The increase in the number of individuals expatriating was largely due to the enactment of FATCA in 2010. The FATCA foreign financial institution (“FFI”) rules were phased in over several years. Many dual citizens were permanently living outside the U.S. and were not filing U.S. tax returns. When foreign banks informed their U.S. citizen-customers that the banks would soon be reporting the individuals’ foreign bank accounts to the IRS, many of these individuals decided that being a U.S. citizen was more of a liability than an asset. Therefore, they decided to renounce their U.S. citizenship.

This balancing of the costs and benefits continues to this day. Several thousand individuals each year decide that the costs of filing U.S. tax returns, and at times paying U.S. tax, is greater than the benefit of retaining their U.S. citizenship.

The Peak of Expatriations Was in 2016

During 2016, over 5,400 names were published in the Federal Register. The 3-year moving average of the number of names published has trended downward since 2017.

The high number in 2020 was an aberration. The number of names published in the last two quarters of 2019 was very low (183 and 261, respectively). In contrast, the number of names published in the first two quarters of 2020 was very high (2,909 and 2,406, respectively). The 2019 numbers were artificially low, and the 2020 numbers were artificially high.

The pandemic began in early 2020, and many IRS personnel began working from home. My speculation is that the IRS person responsible for creating the list of names was able to work on this from home, and he or she worked through a backlog while working from home.

annual chart of the number of people expatriating with notes

For our prior coverage of expatriation, see all posts tagged Expatriation.

Tags: 877A Individual Expatriation

Chart for the Tax Court Case of PICCIRC, LLC --- Disguised Sale & Partnership Shams

2024-04-23

Yesterday the Tax Court published its opinion for PICCIRC, LLC v. Commr., T.C. Memo. 2024-50. The court held that a contribution into a partnership was a disguised sale and that the partnerships were shams.

A chart of the case can be found here.

Tags: 701 Partnerships, Charts - Situational Charts

Famous Tax Quotes - The Proof of the Pudding is in the Eating

2024-04-21

Continuing our series on Famous Tax Quotes, today's tax quote is from a Tax Court case by Judge Lauber.

In the case, the taxpayers argued that their signatures on an IRS closing agreement were forged. The closing agreement prohibited the taxpayers from claiming the foreign earned income exclusion (“FEIE”). The court found as a fact that they had signed the closing agreement.

The taxpayers did not claim the FEIE on their originally-filed 2016 tax return. In 2018, presumably after being contacted by John Castro, the taxpayers amended their 2016 tax return and claimed the FEIE.

Judge Lauber wrote:

Finally, the proof of the pudding is in the eating. Mr. Diaz received wages from his employment at Pine Gap during 2015, but petitioners did not claim the FEIE on their 2015 tax return. Mr. Diaz received wages from his employment at Pine Gap during 2016, but petitioners did not claim the FEIE on the return they originally filed for 2016. Mr. Diaz asserted that he regarded the FEIE as such a valuable tax benefit that he would rather quit his job than forfeit that benefit. If that were true, petitioners’ failure to claim the FEIE on two consecutive tax returns is inexplicable.

Diaz v. Commr. , T.C. Memo. 2024- 45

Footnote 3 in the case provides in part:

A 19-page post-trial brief was submitted on petitioners’ behalf. It is devoted largely to technical questions about tax treaties, Australian law, and other matters irrelevant to the signature authenticity issue. Petitioners admitted at trial that they were “working with” a lawyer named John Castro. Mr. Castro did not enter an appearance in this case; he is not admitted to practice in this Court (or apparently in any other court); and he was recently indicted for tax crimes. See Press Release, U.S. Dep’t of Justice, Mansfield Man Charged in Fraudulent Tax Return Scam (Jan. 10, 2024), https://www.justice.gov/usao-ndtx/pr/mansfield-man-charged-fraudulent-tax-return-scam. The Court believes that petitioners’ post-trial brief was likely ghost-written by Mr. Castro or someone associated with him. * * *

Tags: Other - Famous Tax Quotes, 911 Foreign Earned Income Exclusion

Last Month in the Tax Court & at the IRS --- March 2024

2024-04-01

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In March 2024, the Tax Court published 18 opinions, which included a total of 366 pages. Below are graphs showing for the month: (i) the top 20 code sections referenced, (ii) cases cited 4 or more times, (iii) the number of opinions by judge, and (iv) the number of pages by judge. Below the charts are selected excerpts from the cases.

Below the Tax Court data are charts of documents published by the IRS during March 2024.

March 2024 Cases Sections referenced

March 2024 Cases Cited

March 2024 Number of Opinions By Judge

March 2024 Number of Pages By Judge

Excerpts from March 2024 Tax Court Cases

I am always interested in learning well-established tax principles. Often, court cases will explicitly indicate that a tax principle is well established or well settled. Or the court may concisely state the holding of a prior case in a parenthetical. Below are excerpts from the March 2024 Tax Court cases with these types of principles or holdings.

Aulisio v. Commr., T.C. Memo. 2024-29. (Marshall)

Green Gas Del. Statutory Tr. v. Commissioner, 147 T.C. 1, 65 (2016) (declining to apply the Cohan rule where only corroboration for documentary evidence was taxpayer's self-serving testimony)

Aulisio v. Commr., T.C. Memo. 2024-29. (Marshall)

Rosser v. Commissioner, T.C. Memo. 2001-79, 81 T.C.M. (CCH) 1467, 1471 (finding tax returns did not establish that the taxpayer had income and losses in the amounts reported on the returns)

Chappell v. Commr., T.C. Summary Opinion 2024-2. (Copeland)

Curphey v. Commissioner, 73 T.C. 766, 777-78 (1980) (holding that commuting expenses between a taxpayer's home office and a business location may be deductible if the home office is the taxpayer's principal place of business)

Gondal v. Commr., T.C. Memo. 2024-36. (Jones)

Magnon v. Commissioner, 73 T.C. 980, 993-94 (1980) ("Where a corporation confers an economic benefit on a shareholder without the expectation of repayment, that benefit becomes a constructive dividend, taxable to the shareholder, even though neither the corporation nor the shareholder intended a dividend.")

Gondal v. Commr., T.C. Memo. 2024-36. (Jones)

Castillo v. Commissioner, 84 T.C. 405, 408 (1985) ("The burden of proving fraud is on respondent, and he must do so by clear and convincing evidence.")

Hutchings v. Commr., . (Buch)

McKelvey v. Commissioner, T.C. Memo. 2002-63 (finding a taxpayer's research into and investigation of the business potential of creating a tree farm was not yet a functioning business.)

Hutchings v. Commr., . (Buch)

It is well established that the existence of a genuine profit motive is the most important criterium for finding that a given activity constitutes a trade or business.

Patel v. Commr., T.C. Memo. 2024-34. (Jones)

Crimi v. Commissioner, T.C. Memo. 2013-51, at *40 ("An expert witness may be allowed to testify in a proceeding before this Court when his or her scientific, technical, or other specialized knowledge might help us to understand the evidence or decide a fact in issue.")

Savannah Shoals, LLC v. Commr., T.C. Memo. 2024-35. (Goeke)

Lord v. Commissioner, T.C. Memo. 2010-196, slip op. at 5 (holding that the taxpayer did not substantially comply where the appraisal omitted the donation date, the date of the appraisal, and the fair market value of the donated property)

Savannah Shoals, LLC v. Commr., T.C. Memo. 2024-35. (Goeke)

Brooks v. Commissioner, T.C. Memo. 2022-122, at *17 (explaining that Congress "specifically" enacted the heightened substantiation requirements "to prevent the Commissioner from having to sleuth through the footnotes of millions of returns")

Standifird v. Commr., T.C. Memo. 2024-30. (Greaves)

Ernest S. Ryder & Assocs., Inc. v. Commissioner, T.C. Memo 2021-88, at *187-88 (finding fraudulent intent when a taxpayer created a complex business structure and assigned income to various entities to conceal income)

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

Balt. Gas & Elec. Co. v. United States, 817 F.2d 108, 116 (D.C. Cir. 1987) (noting that under the arbitrary and capricious standard of review, an agency is "required to respond to significant comments that cast doubt on the reasonableness of the rule the agency adopts")

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

Belair Woods, LLC v. Commissioner, T.C. Memo. 2018-159, at *10 (finding that the taxpayer did not substantially comply with reporting requirements when it failed to disclose cost or adjusted basis)

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

Bond v. Commissioner, 100 T.C. 32, 42 (1993) (finding that the taxpayer substantially complied with reporting requirements notwithstanding omission of appraiser's qualifications)

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

Lawrence v. Commissioner, 27 T.C. 713, 716-17 (1957) (observing that when one of our decisions is reversed by an appellate court, we must "thoroughly reconsider the problem in the light of the reasoning of the reversing appellate court and, if convinced thereby, . . . follow the higher court")

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

To be sure, "[t]he doctrine of stare decisis is important to this Court, and we are mindful of its role in [relevant cases]." Analog Devices, 147 T.C. at 443. But where, as here, we are faced with "issues on which a Court of Appeals has reversed our prior decision," see id., we are obligated to thoroughly reconsider our position, Lawrence, 27 T.C. at 716-17.

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

Stare decisis is "[t]he doctrine of precedent, under which a court must follow earlier judicial decisions when the same points arise again in litigation." Stare decisis, Black's Law Dictionary (11th ed. 2019). Courts have repeatedly taken the position that "[s]tare decisis is the preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process." Payne v. Tennessee, 501 U.S. 808, 827 (1991).

Valley Park Ranch, LLC v. Commr., 162 T.C. No. 6 (2024). (Jones)

However, "any departure from the doctrine of stare decisis demands special justification." Arizona v. Rumsey, 467 U.S. 203, 212 (1984). This "special justification" is over and above the belief "that the precedent was wrongly decided." Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 266 (2014).

White v. Commr., T.C. Memo. 2024-31. (Fried)

Montgomery v. Commissioner, 122 T.C. 1, 8-9 (2004) (holding that taxpayers are allowed to challenge the underlying liability where the taxpayers self-assessed their underlying liability and did not receive a statutory notice of deficiency)

Wycoff v. Commr., T.C. Memo. 2024-37. (Lauber)

Even though petitioner is not a lawyer, a modest inquiry using an internet search engine would have led her to online sources showing the frivolous nature of these arguments. See Wnuck v. Commissioner, 136 T.C. 498, 504 (2011) ("Anyone with the inclination to do legal research . . . will confront such authorities."). The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file and litigate. Takaba v. Commissioner, 119 T.C. 285, 295 (2002)


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Announcements, Notices, Revenue Procedures, and Revenue Rulings

{last_month_name} {last_month_year} Rev. Rul.s, Etc. Sections referenced

Written Determinations

March 2024 PLRs Sections referenced

Tags: Statistics

Section 911 Housing Cost Amounts Updated for 2024

2024-03-21

seoul_skyline

Yesterday the IRS published Notice 2024-31 which provides adjustments to the limitation on housing expenses for specific locations in 2024.

Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2024 is $126,500.

The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.

For example, if an individual had Housing Expenses during 2024 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be 4,760 (25,000 - [126,500 X 16%]).

Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($37,950 for 2024). Thus, the maximum Housing Cost Amount for 2024 which is excludible from income would generally be $17,710 ($37,950 - [126,500 X 16%]).

The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2024-26 to provide adjustments to the limitation on Housing Expenses for high cost locations.

For example, the limitation on Housing Expenses for 2024 in Seoul, Korea is $49,200. Therefore, an individual living in Seoul with housing expenses in 2024 of $49,200 or more could exclude from income an amount of $28,960 ($49,200 - [126,500 X 16%]).

An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.

911_housing_exclusion_2024_03

Tags: 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, Authority - Notices, Form 2555