In Uncategorized on 05/16/2017 at 07:50

No, this is not about athletic prowess. This is yet another instance of imperfectly guided Congressional largesse.

Hear now the story of Xing F. Wang and Kathleen P. Lee, 2017 T. C. Memo. 81, filed 5/15/17. It’s all, or substantially all, Xing’s story, as Kat is aboard only for some SE she got from Xing’s non-corporation.

Xing is a bioengineer with a Ph.D., like my son-in-law the Texan. Only Xing is a fellow of the American Heart Association, because he developed “a multiparameter method of screening for atherosclerosis-related coronary artery disease or stroke.” 2017 T. C.Memo. 81, at p. 3.

Xing took advantage of the controversial Patient Protection and Affordable Health Care Act, specifically that part or portion of which engrafted Section 48D onto the IRC, providing small businesses with the aforesaid largesse if they engaged in qualifying therapeutic discovery projects.

This Xing did with gusto, through an entity employing himself, his engineer wife and their Harvard Ph.D. candidate son. But Xing never incorporated or otherwise manifested the creation of said entity, nor filed Form 1128. But he reported on a fiscal year.

That of course goes down. You don’t get to pick your tax reporting year, unless Treasury blesses same.

Xing doesn’t spend a sufficient part of the largesse in the appropriate year, nor does he amend his MFJ return for that year to reduce his claimed expense deductions by half per Section 48D(e)(2), and recapture excess largesse.

Xing does get to depreciate his car. IRS doesn’t play the Section 274 card, conceding the business use thereof, but not allowing a Section 179 credit because Xing had no gross income from his scientific endeavors.

Xing’s patent amortization, computer and home office deductions evaporate for want of documentation or corroboration. His attempted offset of a short-term capital gain  with an undocumented capital loss carryforward fares no better.

And though the Section 48D grant may not be taxable, compensation paid to employees isn’t, and is subject either to withholding or SE. Xing and Kat paid neither.

As for the title of this blogpost, here’s Judge Nega to tell you all about it.

“Although respondent determined in the notice that petitioners were liable for a QTDP recapture tax for 2009, respondent now contends that petitioners are liable for the recapture tax for the 2010 taxable year as a result of our holding in Silver Med., Inc. v. Commissioner, 147 T.C. at __ (slip op. at 11-15), where we held that a taxpayer was liable for the recapture tax in the taxable year the grant funds were disbursed. Petitioners received the grant funds in 2010, and therefore, if petitioners are liable for the recapture tax, they are liable for the 2010 tax year.” 2017 T. C. Memo. 81, at p. 23 (Footnote omitted).

They are and they are.

As for Silver, see my blogpost “Going Short to Go Long,” 12/19/16.

Whatever the fate of the Patient Protection and Affordable Health Care Act, I look forward to plenty of good blogfodder therefrom.


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