Archive for September, 2022|Monthly archive page


In Uncategorized on 09/30/2022 at 22:09

Judge Christian N. (“Speedy”) Weiler is tasked with keeping a witness whose deposition testimony might have been somewhat parsimonious on the straight-and-narrow, while not actually imposing the sanctions IRS wanted.

Once again we’re looking at Buckelew Farm, LLC f.k.a. Big K Farms LLC, Big K LLC, Tax Matters Partner, Docket No. 14273-17, filed 9/30/22. All y’all will recollect that Judge Speedy Weiler ordered a Rule 81 deposition; if not, see my blogpost “Stall Your Case At Discovery,” 4/28/22. The Buckalews sent in Mr. A. (name omitted), the managing director of the manager of Buckalew Farm, LLC, to testify.

IRS says Mr. A. answered 100 (count ’em, 100) times “I don’t recall.” Order, at p. 2. So IRS claims evasion is equivalent to not showing up at all. IRS wants an order imposing sanctions, freezing Mr. A.’s testimony, so any testimony at variance therewith will be stricken.

The Buckalews claim that depositions are not memory exams, that IRS took sound bites from Mr. A.’s testimony, and Mr. A. testified for eight (count ’em, eight) hours. Maybe he couldn’t recall conversations and documents from ten years ago.

Judge Speedy Weiler is inventive.

“After reviewing the deposition, we agree with petitioner that ‘excerpts [r]espondent cites in its [M]otion [to Impose Sanctions] are sound bites or snippets that do not accurately reflect the . . . testimony that Mr. A gave.’ Contrary to respondent’s contention that Mr. A was being evasive, we find that Mr. A attempted to answer respondent’s questions or at least addressed the topics presented. Respondent has not shown to our satisfaction that Mr. A inadequately prepared, acted in bad faith, prejudiced respondent, or disrupted the deposition to warrant sanctions in this case.  However,  we caution petitioner that should Mr. A’s testimony at trial differ substantially from his deposition testimony, petitioner must provide a good faith justification for such deviation. Therefore, we find that respondent has failed to satisfy his burden of proof under Rule 104(c) and that sanctions are not warranted in this case.” Order, at p. 3. (Citation omitted).

When is a sanction not a sanction? When Judge Speedy Weiler is on the case.



In Uncategorized on 09/29/2022 at 16:21

Judge Mark V (“Vittorio Emanuele”) Holmes has suggested that stips of agreed issues may be invalid as to pro ses who are unjustly or oppressively overwhelmed thereby; see my blogpost “Couple Questions of Great Significance,” 9/27/22.

I’ve already stated my views; “stipulate, don’t capitulate” is my shibboleth. But there are exceptions.

William T. Ashford, T. C. Memo. 2022-101, filed 9/29/22, is a protester. And he gives away whatever hopes he had (and I don’t see too many), by stipulating to the source and amounts of wages and self-employment he got. And he frivols with “wages aren’t income” and Social Security Administration dropping his SE when IRS prematurely assessed tax. IRS lost his year at issue’s exam file, but  Wm can’t show that anything therein would help him now.

Wm claims SSA dropping his SE is a concession that he doesn’t owe. Judge Vasquez isn’t buying.

“To the contrary, the parties stipulated that petitioner had received $89,977 from [employer] for [year at issue]. They also stipulated the authenticity of a wage and income transcript showing that the $89,977 was reported as nonemployee compensation. Because petitioner’s argument conflicts with stipulated facts, it has no merit.  See Rule 91(e) (‘A stipulation shall be treated, to the extent of its terms, as a conclusive admission by the parties to the stipulation, unless otherwise permitted by the Court or agreed upon by those parties.’). T. C. Memo. 2022-101, at pp. 5-6. (Footnote omitted).

And Wm gets the Section 6673 yellow card from Judge Vasquez at no extra charge.

There are times when you might just as well capitulate.


In Uncategorized on 09/29/2022 at 15:55

The question that bedeviled the Minihans in their innocent spouse joust takes a different form in Stephen H. Collins, T. C. Sum Op. 2022-20, filed 9/29/22.

Steve also wants a refund, but not of proceeds levied from a joint account. Rather, the local domestic relations court increased Steve’s support payments to reimburse loved-once for half of the unpaid tax on the State pension draw she took, from which Steve never got any benefit. Loved-once paid the tax to IRS.

Loved-once intervened when Steve sought innocent spousery, but Judge Elizabeth Crewson Paris tossed loved-once for nonprosecution. IRS folded on Steve’s Section 6015(c) apportioned relief claim, denied both 6015(b) all-the-way and 6015(f) equitable, and Steve’s OK with that.

But Steve wants a refund of the one-half of the tax on the State pension draw.

No, says Judge Paris.

“Even assuming arguendo that petitioner is eligible for relief under section 6015(b) or (f),  he would not be entitled to a refund because he did not remit any tax payments to respondent with respect to the understatement. Before any taxpayer may be allowed a refund or credit, there must be a determination that the taxpayer made an overpayment. Minihan v. Commissioner, 138 T.C. 1, 8 (2012); Cutler v. Commissioner, T.C. Memo.  2013-119, at *27. A taxpayer makes an overpayment if he remits funds to the Secretary in excess of the tax for which he is liable. Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947); Minihan, 138 T.C. at 9. To prove that he has made an overpayment, the requesting spouse must establish that he (and not the nonrequesting spouse) provided the funds for the overpayment, and that the payments were not made with the joint return and were not joint payments or payments that the nonrequesting spouse made. Minihan, 138 T.C. at 9 (and cases cited thereat); Cutler, T.C. Memo. 2013-119, at *28; see also Rev. Proc. 2013-34, § 4.04, 2013-43 I.R.B. 397, 403.” T. C. Sum. Op. 2022-20, at p. 5.

For Minihan, see my blogpost “Whose Money Is It, Anyway?” 1/11/12.

Once again, when family law meets tax law, the result is a muddle. Had Steve paid half directly to IRS, he could claim his refund, as the understatement was entirely loved-once’s doing. But either divorce counsel were unaware, or the Stark County (OH) Domestic Relations Court was not advised, that their reimbursement maneuver cost Steve more than it should have done.


In Uncategorized on 09/28/2022 at 16:41

Judge Albert G (“Scholar Al”) Lauber gets ’em all, from GA boondocks to IN cornfields.

Donald Furrer and Rita Furrer, T. C. Memo. 2022-100, filed 9/28/22, are farmers who donated a lot of the soybeans and corn they grew on their IN farmstead to two (count ’em, two) charitable remainder annuity trusts (CRATs, in taxspeak) in two different years. The trustee (their son) immediately sold the crops to the usual buyer, who paid cash. From that, the trustee distributed some small interest earned on the cash (which Don and Rita reported) and a lot of cash (which they didn’t report, claiming return of investment).

IRS allowed some of this at Exam, but bounced the rest, and amended their answer to disallow the whole lot when Don and Rita petitioned the bounce.

The matter comes up on partial summary J to the scholar, Judge Albert G (“Scholar Al”) Lauber. IRS has BoP, as the disallowance is new matter.

First, Don and Rita have zero basis in the crops, as they expensed all the costs of producing same on their Sched Fs. And they admit they have zero basis.

Don and Rita claim charitable contribution for whatever portion of the crops would vest in the 501(c)(3) remaindertypes. But they submitted no Form 8283 or qualified appraisal of the crops, and compliance is a strict requirement per Section 170(f)(11)(a)(i). FMV is irrelevant, because the crops are ordinary income property (goods held for sale in the usual course of business), and Section 170(e)(1)(A) says that grantor thereof only gets a deduction for whatever isn’t taxable at ordinary rates. But all of the proceeds are, because Don and Rita expensed their costs of production. So their contribution for tax purposes is zero.

See also Section 1015. The trusts get the donors’ carryover basis, except where basis is more than FMV at date of donation (in which case trusts’ basis is FMV), plus any gift tax paid. None was paid, and basis is less than FMV here.

So when the trustee sold the crops, all the proceeds were taxable gain.

Except CRATs are tax-exempt.

Except distributions from CRATs are taxable to non-exempt recipients. Trust me, they are: I have a CRAT, and I know.

“A distribution from a CRAT is deemed to consist first of income that is subject to the highest Federal tax rate (ordinary income), and then, upon exhaustion of that class, of income subject to progressively lower tax rates. Only after all taxable income has been distributed is a beneficiary deemed to receive a nontaxable return of corpus.” T. C. Memo. 2022-100, at p. 9.

Don’s and Rita’s trusty attorney gets a ding from Judge Scholar Al.

“Petitioners’ response to the summary judgment motion is not a model of clarity. As best we can tell, they appear to make three arguments. None has merit.” T. C. Memo. 2022-100, at p. 10.

Trusty attorney claims sale to CRATs, except CRATs had nothing wherewith to pay, and any gain on a sale would have been taxable to Don and Rita. The trustee claimed a basis in the donated corn and soybeans when he sold them, but his numbers are “utterly implausible,” T. C. Memo. 2022-100, at p. 11.

Trusty attorney claims distributions should be exempt, as CRAT is exempt.

Section 664(a) exempts the CRAT, but Section 664(b) taxes the distributions.

Finally, trusty attorney tries the Section 72 investment-in-the-contract argument, except Section 72(a)(1) defers to the Section 664 waterfall. And even if Section 72 applied, the basis (investment in the contract) is still zero.


In Uncategorized on 09/27/2022 at 19:23

I trust my faithful readers (few in number, mighty in endurance) will entertain no doubt as to the identity of the judge who wrote the above-captioned. The significant questions are (1) can parties agree to settle a deficiency case without agreeing on the numbers and (2) what does it mean to file a return.

The order, written as an order to spare the parties any further agony, is Frank W. Dollarhide & Michelle D. Dollarhide, Docket No. 21366-14, filed 9/27/22. And, of course, the order is nonprecedential and doesn’t definitively answer the questions. But Judge Mark V (“Vittorio Emanuele”) Holmes is good for ten (count ’em, ten) pages.

The Dollarhides petitioned three SNODs, two personal and one for a corporation Frank controlled. The disputes were unreported income, and the parties filed a stip of settled issues six years ago.

“Their settlement did not take the form of an agreed decision for each of the three cases, but instead a ‘stipulation of settled issues.’ This is an exceptionally common way for parties to wind down litigation in the Court. Because tax returns and notices of deficiency can include so many disputed items, settlements often consist of lists of issues in which the parties make mutual concessions or compromises. A taxpayer’s final bill — the amount he has to write a check for — is usually harder to figure out. The calculation often includes a computation of interest, arithmetic adjustments to other items (e.g.  limits on deductibility computed by reference to a percentage of adjusted gross income), and a summing of penalties and additions to tax computed as a percentage of the resulting deficiency, reduced by any allowable credits.” Order, at pp. 2-3. (Footnote omitted, but it says that a deficiency is just the amount the return should have showed, but didn’t, less what it showed; there may be credits, estimateds and withholdings that reduce what the taxpayer actually owes.)

The problem is overpaid FICA and withheld pay. No question they were entitled to them. But when IRS did the numbers, they weren’t included because the Dollarhides didn’t claim them until they filed a return four (count ’em, four) years after they should have filed. Thus, IRS treated those amounts as a claim for a refund, and that blew the three-year lookback in Section 6511(b)(2).

The Dollarhides hollered that they would never have settled if they couldn’t get the overpayment credits, but that’s not fraud; they could have checked out the statute. They appealed, but 9 Cir threw out the settlement claiming no meeting of the minds. The corporation was already off the hook, but what else?

Well, Judge Holmes parses the caselaw and finds there’s short-Circuitry on whether or not a stip of settled issues settles anything if there’s no agreement on the numbers. “It may mean that partial settlements that don’t include a final deficiency amount are now unenforceable in the Seventh and Ninth Circuits despite the usual maxims of contract law that suggest they are. Or it may just be that, under those general rules of contract law, stipulations of settled issues that don’t include a deficiency amount may be unenforceable against unrepresented parties as inherently ‘unjust’ or ‘oppressive’. Order, at p. 8.

I’ll have my own comments at the foot hereof.

Next question: the Dollarhides claim they handed the return showing the credits to the RA at the audit. This took place more than three years after the return was due. The record shows a return within the three-year window, but that seems to be a SFR, which doesn’t count. Anyway, a bunch cases (this is Judge Holmes, remember) say that a return isn’t “filed” unless it gets to the party designated to receive same, and the RA at Exam is not one such. Except good old 9 Cir. just held that if an official authorized to obtain and process a return asks, and the return is handed over, that’s filing.

So Judge Holmes asked if the Dollarhides want a trial on this issue, and Frank “definitely” said no. I can imagine the deleted expletives.

Judge Holmes notes that the 9 Cir case involved a partnership return, but the distinction between a 1065 and a 1040 seems a distinction without a difference.

So Judge Holmes vacates all the previous stuff, and enters decision that the Dollarhides owe nothing.

Taishoff says Oh, what a lovely silt-stir! But this was inevitable. Everybody wants to dispose of the case…parties and judges. Lawyers can’t add, judges love settlements, the average pro se is out of their depths on anything beyond a 1040A, and doing ex post facto tax return prep is the ultimate drag.  So roll on the stip of settled issues. And do the numbers later.


It’s almost fifty years since one of my first law partners (and the only one now living) intoned the immortal words “It’s all about the numbers.” I’ll say it again: it’s all about the numbers.

As the Great Beekeeper would have said “If you have not made certain of the numbers, then you have made certain that you have made certain of nothing.”


In Uncategorized on 09/27/2022 at 16:20

While most of their deductions fail for want of documentation, Lori Michelle Patitz and Andrew Robert Moody, T. C. Memo. 2022-99, filed 9/27/22, get whatever automobile mileage for which they were not reimbursed.

Judge Christian N. (“Speedy”) Weiler finds their electronic logbooks pass muster per Reg Section 1.274-5T(c)(2).

“Specifically, Mrs. Patitz testified to handwritten mileage logs she created when she visited clients and would subsequently transfer this information to electronic logbooks. The electronic logbooks Mrs. Patitz provided documented her weekly total mileage, her weekly business mileage, and her weekly commuting mileage. However, she also testified that while the mileage log was written contemporaneously, she inadvertently commingled her business mileage between [employer] and her  [side hustle] activities. During trial Mrs. Patitz conceded that her [side hustle] miles should be excluded, and we agree.

“Mr. Moody also testified that he would transfer the handwritten travel logs that he created to an electronic logbook. Mr. Moody’s electronic logbooks documented the total miles he drove each week and the business purpose of the drive.

“Having observed petitioners’ appearance and demeanor at trial, we find their testimony to be credible with respect to their claimed deductions for vehicle mileage on behalf of their respective employers. Consequently, respondent’s disallowance is overruled, and the Court finds that petitioners are entitled to their claimed deductions for Schedule A vehicle expenses for Mr. Moody’s … vehicle milage [sic] expenses to the extent he was not reimbursed by [employer] and for Mrs. Patitz’s … vehicle expenses to the extent of her [employer] business miles.” T. C. Memo. 2022-99, at p .14.


In Uncategorized on 09/26/2022 at 19:14

I’m going to leave to the trade press and the blogosphere the technicalities of the proper reporting of excess loss accounts for tiered consolidated groups, per the regulations to Section 1502. Most of my readers will never encounter such arcana. But the duty of consistency raises its Hydra heads far and wide.

Y’all will recall that the duty of consistency (son of tax benefit rule) says you can’t take a position on a now-closed year, and take a directly contradictory position on an open year, so IRS can’t go back and hit you for the closed year.

Wherefore I will suggest a close review of the cases cited in Belmont Interests, Inc., T. C., Memo.2022-98, filed 9/26/22. IRS comes unglued because a mutual mistake of law negates the duty of consistency, where both taxpayer and IRS have the same facts and the same erroneous view of the applicable law.

There is a bunch notes (hi, Judge Holmes) from seven (count ’em, seven) members of the group to pay losses they suffered. The question is when said notes became worthless, so that the group had to recognize cancellation of debt income. All the notes said TX law governs. But all my sophisticated readers will say “So what? State law may characterize what a transaction is, but Federal law characterizes how the transaction is taxed.”

True. But here both taxpayer and IRS thought the TX SOL for bringing suit on the notes was six years. Judge James S (“Big Jim”) Halpern checks out TX law and finds it’s four years. And while it might could be maybe so that the seven members had off-balance-sheet assets, “(W)e view as unlikely, and even implausible, that each Loss Subsidiary held sufficient assets not required to be shown on its balance sheet to avoid the application of Treasury Regulation § 1.1502-19(c)(1)(iii)(A) before [Year One]. Nonetheless, that prospect is at least theoretically possible.” T. C. Memo. 2022-98, at p. 33. Except the parties never raised the issue.

The seven claimed they had no assets years before. As both IRS and Belmont got the SOL wrong, that’s a mutual mistake of law, not a misrepresentation of fact relied on by IRS. Hence no duty of consistency as to Year One.

Summary J for the Belmonts on consistency and deficiency for Year One. But as for Year Two, there needs to be a trial, whereat IRS will need to prove that the notes had not been cancelled by the time the TX SOL ran out.

Clear? Thought not.


In Uncategorized on 09/23/2022 at 16:54

Although the famous law school maxim, which baffled me in my salad days On The Hill Far Above, was a primordial estate tax dodge, today I pick up on a frivolite, Shelley Tempelman, Docket No. 32737-21L, filed 9/23/22.

Shelley tries the Form 4852 renege on her W-2s via an amended return. This earns her a warning of an impending Section 6702 $5K chop, to which she replies with a photocopy of the amended return, earning a second Section 6702. IRS drops the second after the CDP hearing, per Kestin; see my blogpost “From the Serious to the Frivolous,” 8/29/19.

Judge Courtney D (“CD”) Jones spends a lot of time on the lead-in to Shelley’s CDP, but finds that IRS satisfied the Section 6751(b) Boss Hossery before telling Shelley she was under the gun for the Section 6702 chops. There’s discussion of the short-circuitry by and among 2 Cir, 9 Cir, and 11 Cir.

“We recognize that there is a split between the circuits as to whether written supervisory approval must be obtained before the IRS issues a formal communication of the penalty such as a notice of deficiency, Chai v. Commissioner, 851 F. 3d 190, 221 (2nd Cir. 2017), or merely before the assessment, Laidlaw’s Harley Davidson Sales, Inc. v. Commissioner, 29 F.4th 1066, 1071 (9th Cir.  2022); Kroner v. Commissioner, No. 20-13902, 2020 WL 414034, at *12-13 (11th Cir. Sep. 13, 2022),  rev’g and remanding T.C. Memo. 2020-73. The Third Circuit does not appear to have taken a position on the issue. See United States v. Komlo, 802. Fed. Appx. 676 (3d. Cir. Jan. 29, 2020); But Cf. United States v. Weiner, No. 18CV16034, 2020 WL 4596926 (D. N.J. Aug. 11, 2020). Accordingly, we follow this Court’s approach in the instant case. See, e.g., Graev v. Commissioner, 149 T.C. 485 (2017), supplementing 147 T.C. 460 (2016).” Order, at p. 9, footnote 13.

Taishoff says 2 Cir got it right, and 9 Cir and 11 Cir misunderstand what “assessment” means in this context.

Judge CD Jones sorts out Shelley’s conflation of item 44 in Notice 2020-33 with item 44 in IRS’ electronic TXMODA system. “Mrs. Tempelman argues at length that Form 8278 and her TXMODA data shows that the frivolous return penalty was assessed against her using civil penalty argument 44, as listed in Notice 2010-33. Supra, p. 3. However, the internal Form 8278 and the internal electronic data (e.g., TXMODA data) used by the IRS do not reference public Notice 2010-33, rather they reference Internal Revenue Manual (IRM) Exhibit 25.25.10-1, which is the IRS’ own internal listing of the same designated frivolous positions found in Notice 2010-33. IRM argument code 44 applies when a taxpayer files “zero wages on a substitute form.” Mrs. Tempelman attached substitute Form 4852 to her amended return, and the form shows $0 of wages. IRM argument code 44 provides for the same substantive basis as listed frivolous position 1(e) in Notice 2010-33, and how the IRS chooses to internally refer to the designation is of no consequence.” Order, at p. 8 (Footnotes and citation omitted).

But at close of play, Judge CD Jones has the rule in this Shelley’s case. Play games, get chopped.

“…we have considerable latitude in determining when, and in what amount, to impose a penalty under section 6673 because these penalties serve to punish and deter the abuse of judicial resources. “The purpose of section 6673 is to compel taxpayers to think and to conform their conduct to settled principles before they file returns and litigate.’ Takaba v. Commissioner, 119 T.C. 285, 295 (2002).

“Though we will not impose a penalty under section 6673 upon Mrs. Tempelman in the instant case, we take this opportunity to sternly warn her that penalties, up to a maximum of $25,000, are very likely to be imposed upon her in any future cases before this Court if she advances similarly frivolous arguments again.” Order, at p. 10. (Citation omitted.)


In Uncategorized on 09/22/2022 at 15:39

No, not a new variant of COVID. Today Judge Albert G (“Scholar Al”) Lauber demonstrates yet again the fetters of brass which bind Tax Court in Oconee Landing Property, LLC, Oconee Landing Investors, LLC, Tax Matters Partner, filed 9/22/22.

In our last episode, IRS wanted to depose two non-parties; see my blogpost “Why He Canceled Tuesday,” 10/12/21. There followed the abortive waddle through the Fifth Amendment, more particularly bounded and described in my blogpost “45 and the Fifth Amendment,” 8/16/22, wherein the two recalcitrants were handed 45 (count ’em, 45) written interrogatories in lieu of another sit-down.

But their ever-inventive counsel, the Great Chieftain of the Jersey Boys, tries yet again to snatch transactional immunity from the brazen fetters aforesaid. Frantic Frank Agostino, Esq., first asked IRS’ counsel to dish whether the twain were subjects or targets, whether IRS would seek to have them immunized, or stip to immunity. Remember, when Judge Scholar Al went with the 45 questions, he directed that if Mr. Agostino raised any Fifth Amendment objections, he “…would need to supply a detailed explanation laying out the ground for the claim, cognizant that the Fifth Amendment only protects against real dangers, and not remote or speculative possibilities. ” Order, at p. 2.

IRS gave Frank the right-about-face and served the interrogatories. So Frank moves for Judge Scholar Al to do the honors.

I give Frank every credit. His never-say-die approach, his inexhaustible fount of improvisation, his willingness to do the Don Quixote, his endless pro bono efforts, earn him an honored place among practitioners.

But Judge Scholar Al is implacable.

“It is well established that this Court lacks jurisdiction to grant criminal immunity to a witness who may be called to testify before the Tax Court. This power resides solely with the U.S. District Courts and only upon the request of the U.S.  Attorney for the applicable district. 18 U.S.C. §§6001-6003; see, e.g., Coulter v. Commissioner, 82 T.C. 580, 583 (1984) (finding that ‘the Tax Court is not authorized to grant immunity’ to a taxpayer); Hartman v. Commissioner, 65 T.C. 542, 547 (1975) (denying a taxpayer’s request for immunity ‘since jurisdiction to take such action is vested exclusively in the United States District Courts, and then only upon application of a United States Attorney’); Reynolds v. Commissioner, T.C. Memo. 1981-364, 42 T.C.M. (CCH) 395, 397 (holding that a taxpayer’s request that we grant him immunity ‘is spurious since jurisdiction to take such action is vested exclusively in the U.S. District Courts, and then only upon application of a U.S. Attorney’). It is equally well established that this Court lacks jurisdiction to compel the IRS to seek an order of immunity for a witness. See Hartman, 65 T.C. at 547–48; Hershberger v. Commissioner, T.C. Memo. 1979-522 (finding that a taxpayer’s request that the Tax Court order the IRS to grant him transactional immunity was baseless). This Court has no  ‘inherent authority’ to confer immunity on a witness. Such discretionary power is statutorily reserved to the Executive Branch and is available to neither the Tax Court nor U.S. district courts (absent an application from a U.S. Attorney). See 18 U.S.C. §§ 6001-6005.” Order, at p. 2.

In the alternative, Frank asks that the duo be held to be “qualified appraisers” who prepared “qualified appraisals,” but those are fact questions for trial.

I don’t know if Frank is a New Jersey Devils fan, but he sure is a follower of the hockey players’ mantra: “Shoot the puck, it might go in.”


In Uncategorized on 09/21/2022 at 16:15

That’s the lesson Judge Travis A (“Tag”) Greaves has for the eight (count ’em, eight) family-farmer petitioners in John E. Vorreyer and Melissa D. Vorreyer, et al., T. C. Memo. 2022-97, filed 9/21/22. They ran the farm in a bunch entities (hi, Judge Holmes), but we’re concerned here with a Sub S Corp and a general partnership, in which all petitioners had various interests.

But Chris & John were the only shareholders in the SD Corp who ponied up $108K in property taxes on said farm, and $20K for the back utilities bill in Year One. They claim these were contributions to capital, wherefore passed through as deductions to Chris & John on their personal 1040s.

No, says Judge Tag Greaves.

“A taxpayer cannot deduct expenses paid on behalf of another taxpayer. This long-established principle extends to corporations as a corporation’s business is distinct from its shareholders. Thus, a shareholder may not deduct as personal expenses those expenses that further the business of the corporation.” T. C. Memo. 2022-97, at p. 4 (Citations omitted).

Chris & John don’t claim the “further the corporate business” exception, but Taishoff says it’s worth a try. If the county forecloses for back taxes, there goes the farm.

Judge Tag Greaves says a Sub S Corp is no different than a C Corp when it comes to shareholders paying corporate expenses. The S Corp is on its own.

“Although an S corporation’s income or loss eventually flows through to the shareholders, a corporation ‘remains a separate taxable entity [from its shareholders] regardless of whether it is a subchapter S corporation or a subchapter C corporation.’ Russell v. Commissioner, T.C. Memo. 1989-207, 1989 Tax Ct. Memo LEXIS 207, at *10. This means that the business expenses of an S corporation cannot be disregarded at the corporate level for section 162 purposes. See id.  Consequently, the income reaped by an S corporation must be matched at the corporate level against the S corporation’s expenses that were incurred to produce that income before the net income or loss amount can flow through to the shareholders. See § 1366(a)(2) (generally defining the income or loss that flows through to an S corporation shareholder as the S corporation’s ‘gross income minus the deductions allowed to the [S] corporation’ (emphasis added)). This matching is accomplished by reporting such items on an S corporation’s corporate return: Form 1120S.” T. C. Memo. 2022-97, at p. 5.

In Year Two, the partnership bought two “semi-trucks” for $70K. I take that means the motive power component of an 18-wheeler. They wrote off the expense on their Sched F (farming) as repairs and maintenance, but everybody agrees it wasn’t. The two vehicles would have qualified for a Section 179 deduction as business property. But the partnership never amended to take the deduction, and the time to amend has run out.

Judge Tag Graves can’t help.

“Petitioners… request that this Court make the election retroactively on [partnership]’s behalf on the basis of principles of equity. We decline to do so as [partnership]’s circumstances are of its own making.” T. C. Memo. 2022-97, at p. 7.

Remember, pore l’il ol’ Tax Court has no equitable powers.

But check out footnote 10 at page 7. Judge, didn’t you mean that “Respondent does not dispute that the truck expenses are qualifying property, e.g., that the semi-trucks constitute qualifying property whose costs are otherwise eligible for deduction” ?