In Mainstay Business Solutions v. Comm'r, 156 T.C. No. 7 (Mar. 4, 2021), the Tax Court held that a Tax Court petition to review the denial of interest abatement can be withdrawn by the taxpayer without the Tax Court entering a decision in the IRS’s favor. This is in contrast to petitions to redetermine a tax deficiency—where dismissal of the petition is dispositive on the merits—and is consistent with the Tax Court’s prior holdings allowing for the withdrawal of petitions to review collection, innocent spouse, and whistleblower award determinations. Background: The Taxpayer filed a petition un ..read more

In Anikeev v. Comm'r, T.C. Memo. 2021-23, the Tax Court held that rewards earned from the purchase of gift cards that are not redeemable for cash are not directly includible in gross income because they are a purchase price reduction. Thus, the proper tax treatment is to reduce the taxpayer’s bases in the gift cards by the value of the rewards earned and to realize gain from the subsequent exchange of the gift cards for cash equivalents. Background: Through an elaborate scheme, the Taxpayers earned approximately $36,000 and $277,000 in Reward Dollars in 2013 and 2014, respectively, by (1) purc ..read more

In San Jose Wellness v. Comm'r, 156 T.C. No. 4 (Feb. 17, 2021), the Tax Court held that, pursuant to section 280E, a medical cannabis dispensary could not take depreciation deductions under section 167(a) or charitable contribution deductions under section under section 170(a). The result in this case is consistent with prior decisions and highlights the need for Congressional or administrative action to rein in the draconian effects of section 280E. Background: Section 280E provides as follows: No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in ..read more

In Grajales v. Commissioner, 156 T.C. No. 3 (Jan. 25, 2021), the Tax Court—following a line of earlier decisions—held that the IRS does not have to obtain supervisory approval before imposing the 10% additional tax under section 72(t). The underlying reasoning of this decision is that the section 72(t) exaction is a “tax” and not a “penalty” for purposes of applying other Internal Revenue Code provisions. Background: A 42 year-old taxpayer (“Taxpayer”) received an early distribution from her retirement plan. The IRS issued to the taxpayer a notice of deficiency that determined a 10% additional ..read more

In Exxon Mobil Corp. v. United States, No. 3.16-CV-02921 (N.D. Tex. Jan. 13, 2021), a district court held that the reasonable basis exception to the erroneous claim for refund penalty under section 6676 as first enacted prescribes an objective standard—that is, the taxpayer does not need to have actually relied on the supporting authorities. This is by contrast to the reasonable basis exception to the negligence penalty under Treas. Reg. § 1.6662-3(b)(3), which the Eight Circuit recently held prescribes a subjective standard. See Wells Fargo & Co. v. United States, 957 F.3d 840 (8th Cir. 2 ..read more

In United States v. Kaufman, No. 3:18-cv-00787 (D. Conn. Jan. 11, 2021), a district court held that the penalty for the non-willful failure to file an FBAR—which is statutorily capped at $10,000—must be assessed on a per form basis and not on a per account basis. If the result in this case stands, taxpayers will not have to pay multiple non-willful FBAR penalties simply because they happen to have multiple foreign financial accounts. The same issue is currently on appeal in the Fifth and Ninth Circuits, and is certainly one that tax practitioners should watch closely. Background: In this case ..read more

In Tangel v. Commissioner, T.C. Memo. 2021-1, the Tax Court sustained the IRS’s disallowance of certain section 41 research credits claimed by several shareholders of a subchapter S corporation (“Taxpayers”) that developed technology for a power company. The court concluded that the subchapter S corporation could not claim the research credit for related expenses because the power company funded the research and the subchapter S corporation did not retain substantial rights in the developed technology. Background: In February 2009, a power company, Vericor Power Systems, LLC (“Vericor”) hired ..read more

In In re Quezada, No. 19-51000 (5th Cir. Dec. 11, 2020), the Fifth Circuit held a wrong tax form can trigger the running of the period of limitations on assessment if the wrong returns contained sufficient information for the IRS to determine the relevant tax liability. In so holding, the IRS joined the Second, Sixth, Ninth, Eleventh, and Federal Circuits in recognizing that a form other than the one prescribed by Treasury regulations can be “the return” that triggers the running of the period of limitations on assessment. Background: One of the taxpayers in this case owned a masonry company ..read more

In Coca-Cola Co. & Subs. v. Commissioner, 155 T.C. No. 10 (Nov. 18, 2020), the Tax Court sustained IRS deficiency determinations of approximately $3.4 billion for 2007 – 2009. The deficiencies arose from transfer pricing adjustments to the amount that its foreign manufacturing affiliates paid to the U.S. parent corporation. In doing so, the Tax Court held that a 1996 closing agreement that Coca-Cola entered into with the IRS does not bar the IRS from adjusting Coca-Cola’s income in later years because the agreement did not expressly preclude the IRS from adjusting subsequent years. Backgro ..read more

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