United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Litigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

UNITED STATES TAX COURT

T.C. Summary Opinion 2017-25-LEGAL AND PROFESSIONAL SERVICE EXPENSES

April 27, 2017.

DRECK SPURLOCK WILSON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 3752-15S.

Charles A. Ray, Jr. , for petitioner.

William J. Gregg and Deborah Aloof , for respondent.

SUMMARY OPINION

ARMEN, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.

Respondent determined a deficiency in petitioner’s 2011 Federal income tax of $7,504 and an accuracy-related penalty under section 6662(a) of $1,501. After concessions by the parties,2 and without regard to adjustments that are essentially mechanical or in petitioner’s favor, the issues for decision are:

(1) whether petitioner is entitled to a Schedule C deduction for legal and professional services expenses;

(2) whether petitioner overstated other income by $62,911 on his Schedule C; and

(3) whether petitioner is liable for the accuracy-related penalty under section 6662(a).

Background

The evidence in this case consists of testimony, oral stipulations agreed on by the parties at trial, and documentary evidence introduced at trial.

Petitioner resided in the District of Columbia at the time that the petition was filed with the Court.

During the year in issue petitioner owned and operated a landscape design business known as Landscape Consortium, Ltd. (Landscape Consortium). Petitioner also performed services for a company known as D&E Development Corp.

Petitioner resided on Dahlia Street, N.W., in Washington, D.C. (Dahlia residence), during the year in issue and for many prior years. The Dahlia residence consisted of a kitchen, a living room, a dining room, and two or more bedrooms. At trial petitioner referred to the dining room as his “home office” for Landscape Consortium.

During the year in issue petitioner was involved in litigation regarding ownership of and possessory rights to the Dahlia residence.

Petitioner maintained a personal checking account with Capital One Bank (Capital One) during the year in issue.

Petitioner self-prepared and timely filed his 2011 Federal income tax return. Petitioner attached to his return a Schedule C for Landscape Consortium. In Part I (“Income”) of his Schedule C petitioner reported gross receipts of $10,528, other income of $62,911, and gross income of $73,439, i.e., $10,528 + $62,911. In Part II (“Expenses”) of his Schedule C petitioner claimed, as relevant, a deduction for legal and professional services of $4,150. Ultimately, on line 31 of his Schedule C petitioner reported a net profit of $62,035, which he then carried to line 12 (“Business income”) of his Form 1040, U.S. Individual Income Tax Return. Business income of $62,035 constituted fully 70% of the total income petitioner reported on line 22 of his Form 1040.

Petitioner also attached to his 2011 income tax return a Schedule SE, Self-Employment Tax. On the Schedule SE petitioner computed self-employment tax of $7,619 on the basis of his reported net profit of $62,035. This self-employment tax constituted nearly 40% of the total tax of $19,725 that he reported on line 61 of his Form 1040.

Petitioner did not claim any payments or credits on his 2011 income tax return and thus reported $19,725 on line 76 of his Form 1040 as “Amount you owe”.

After filing his 2011 income tax return petitioner submitted a series of identical amended Federal income tax returns for 2011. Petitioner attached a Schedule C for Landscape Consortium to each of the amended returns and listed thereon gross income of $10,528, total expenses of $94,142, and a net loss of $83,614, i.e., $10,528 – $94,142. Notably, petitioner excluded from the Schedules C attached to the amended returns the $62,911 of other income reported on the Schedule C attached to his original return. Notably also, petitioner increased the deduction for legal and professional services from $4,150 as claimed on the Schedule C attached to the original return to $46,912 as claimed on the Schedules C attached to the amended returns. Respondent did not accept any of the amended returns.

In November 2014 respondent sent petitioner a notice of deficiency based on petitioner’s original return. As relevant, respondent disallowed the deduction claimed for legal and professional services. Additionally, respondent determined that petitioner was liable for an accuracy-related penalty under section 6662(a) on the grounds of both negligence or disregard of rules or regulations and a substantial understatement of income tax.

In response to the notice of deficiency petitioner filed a timely petition for redetermination with the Court.

Discussion

I. Burden of Proof

In general, the Commissioner’s determinations in a notice of deficiency are presumed correct, and the taxpayer bears the burden of showing that those determinations are erroneous. Rule 142(a); Welch v. Helvering , 290 U.S. 111, 115 (1933). Pursuant to section 7491(a), the burden of proof as to factual matters shifts to the Commissioner under certain circumstances. Petitioner has neither alleged that section 7491(a) applies nor established his compliance with its requirements. Accordingly, petitioner bears the burden of proof. See Rule 142(a).

II. Deduction Claimed for Legal and Professional Services

Deductions are allowed solely as a matter of legislative grace, and the taxpayer bears the burden of proving his or her entitlement to them. Rule 142(a); INDOPCO, Inc. v. Commissioner , 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering , 292 U.S. 435, 440 (1934). Section 6001 requires taxpayers to maintain records sufficient to establish the amount of each deduction. Hradesky v. Commissioner , 65 T.C. 87, 89 (1975), aff’d per curiam , 540 F.2d 821 (5th Cir. 1976); sec. 1.6001-1(a), (e), Income Tax Regs.

A taxpayer may deduct the costs of legal and professional services if the costs are ordinary and necessary and directly connected with the taxpayer’s business. See sec. 162; Levenson & Klein, Inc. v. Commissioner , 67 T.C. 694, 719-721 (1977); sec. 1.162-1, Income Tax Regs. However, section 280A(a) disallows a deduction for business expenses with respect to the use of a dwelling unit used by the taxpayer during the taxable year as a residence, with certain exceptions. Section 280A(c)(1)(A) provides an exception to section 280A(a) for certain business use of a dwelling unit, provided that a portion of the dwelling unit is exclusively used on a regular basis as the taxpayer’s principal place of business. Lofstrom v. Commissioner , 125 T.C. 271, 278 (2005).

Petitioner claimed a deduction for legal and professional services of $4,150 on the Schedule C attached to his original return.3 Petitioner now claims that he is entitled to a deduction for legal and professional services in a much greater amount.4 According to petitioner, he incurred expenses for legal and professional services in connection with litigation regarding the Dahlia residence. Petitioner cites United States v. Gilmore , 372 U.S. 39, 49 (1963), for the proposition that “the origin and character of the claim with respect to which an expense was incurred, rather than its potential consequences upon the fortunes of the taxpayer, is the controlling basic test of whether the expense was ‘business’ or ‘personal’ and hence whether it is deductible or not”. Petitioner contends that because he used his dining room in the Dahlia residence as his home office for Landscape Consortium, expenses for legal and professional services allocable to that portion of the residence constitute a deductible business expense. Respondent contends that petitioner failed to satisfy the home office expense deduction requirements under section 280A(c)(1)(A) and therefore is not allowed to deduct any expense for legal and professional services incurred in connection with the Dahlia residence. We agree with respondent.

We are not convinced that petitioner’s dining room was exclusively used on a regular basis as the principal place of business for Landscape Consortium. The fact that petitioner may have used the dining room for business purposes for some portion of the time is insufficient for the Court to allow any deduction attributable to that use. See Lofstrom v. Commissioner , 125 T.C. at 278. In addition, petitioner failed to persuasively demonstrate the portion of the Dahlia residence that the dining room represents. Accordingly, because petitioner has failed to establish that he satisfies the requirements of section 280A(c)(1), the deduction for legal and professional services is not allowable, and respondent’s determination on this issue is therefore sustained.

III. Schedule C Other Income

Petitioner contends that he erroneously reported other income of $62,911 on his Schedule C. “Statements made on a tax return signed by the taxpayer have long been considered admissions, and such admissions are binding on the taxpayer, absent cogent evidence indicating they are wrong.” Pratt v. Commissioner , T.C. Memo. 2002-279, slip op. at 13 (citing Waring v. Commissioner , 412 F.2d 800, 801 (3d Cir. 1969), aff’g T.C. Memo. 1968-126; Lare v. Commissioner , 62 T.C. 739, 750 (1974), aff’d without published opinion , 521 F.2d 1399 (3d Cir. 1975); and Rankin v. Commissioner , T.C. Memo. 1996-350, aff’d , 138 F.3d 1286 (9th Cir. 1998)).

Petitioner self-prepared and signed his original return under penalties of perjury. Relying on Capital One bank account statements, petitioner now claims that he did not receive other income of $62,911 and that the overstatement was due to a “data entry error” he made when preparing his original return.

First, we note that the bank statements in the record are incomplete. Moreover, we think that petitioner would have noticed such a substantial data entry error given its significant effect on his self-employment tax and the tax imposed by section 1. As previously indicated, petitioner’s Schedule C net profit of $62,035 constituted 70% of the total income reported on his Form 1040. Furthermore, petitioner’s self-employment tax of $7,619, which was based on his Schedule C net profit of $62,035, constituted nearly 40% of the total tax that he reported on his Form 1040. Disregarding petitioner’s self-serving and uncorroborated testimony on the point, see Niedringhaus v. Commissioner , 99 T.C. 202, 212 (1992), the Court is not persuaded that petitioner erroneously included $62,911 of other income on his Schedule C.

IV. Accuracy-Related Penalty

As relevant herein, section 6662(a) and (b)(1) and (2) imposes a penalty equal to 20% of the amount of any underpayment attributable to negligence or disregard of rules or regulations or to a substantial understatement of income tax. See sec. 6662(c) (regarding negligence) and (d) (regarding substantial understatement of income tax).

An understatement of income tax is “substantial” if it exceeds the greater of $5,000 or 10% of the tax required to be shown on the return. Sec. 6662(d)(1)(A). By definition an understatement is the excess of the tax required to be shown on the tax return over the tax actually shown on the return. Sec. 6662(d)(2)(A).

With respect to a taxpayer’s liability for the penalty, section 7491(c) places on the Commissioner the burden of production, thereby requiring the Commissioner to produce sufficient evidence indicating that it is appropriate to impose the penalty. Higbee v. Commissioner , 116 T.C. 438, 446-447 (2001). Once the Commissioner satisfies the burden of production, the taxpayer must produce persuasive evidence that the Commissioner’s determination is incorrect. See Rule 142(a); Welch v. Helvering , 290 U.S. at 115; Higbee v. Commissioner , 116 T.C. at 447.

The Commissioner may satisfy his burden of production for the accuracy-related penalty based on a substantial understatement of income tax by showing that the understatement on the taxpayer’s return satisfies the definition of “substantial”. See Graves v. Commissioner , T.C. Memo. 2004-140, aff’d , 220 F. App’x 601 (9th Cir. 2007); Janis v. Commissioner , T.C. Memo. 2004-117, aff’d , 461 F.3d 1080 (9th Cir. 2006), and aff’d , 469 F.3d 256 (2d Cir. 2006). Here, respondent has satisfied his burden of production because the record shows that petitioner substantially understated his income tax by an amount that exceeds the greater of 10% of the tax required to be shown on the return or $5,000.5 See sec. 6662(d)(1)(A); Higbee v. Commissioner , 116 T.C. at 447-449. In any event, petitioner’s concessions regarding (1) his failure to report unemployment benefits of $19,388 and (2) the nondeductibility of miscellaneous itemized deductions of $15,218, as well as the Court’s holding sustaining the disallowance of the deduction for legal and professional services, are all emblematic of negligence. See sec. 1.6662-3(b)(1), Income Tax Regs.

Section 6664 provides an exception to the imposition of the accuracy-related penalty if the taxpayer establishes that there was reasonable cause for, and the taxpayer acted in good faith with respect to, the underpayment. Sec. 6664(c)(1); sec. 1.6664-4(a), Income Tax Regs. The decision whether a taxpayer acted with reasonable cause and in good faith is made on a case-by-case basis, taking into account all pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Generally, the most important factor in so deciding is the extent of the taxpayer’s effort to assess the proper tax liability. Id.

Petitioner did not introduce any persuasive evidence that he was entitled to the claimed deduction for legal and professional services. Furthermore, petitioner failed to explain (1) why he omitted from income all of his unemployment compensation and (2) the basis for the Schedule A deduction for miscellaneous “other expenses”, which he conceded. See supra note 2. Accordingly, the Court sustains respondent’s determination that petitioner is liable for the accuracy-related penalty.

To reflect the foregoing,

Decision will be entered under Rule 155 .

Footnotes

1 Unless otherwise indicated, all subsequent section references are to the Internal Revenue Code, as amended and in effect for 2011, the taxable year in issue. All Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts have been rounded to the nearest dollar.

2 Respondent concedes that petitioner did not understate gross receipts by $1,793 on his Schedule C, Profit or Loss From Business. Petitioner concedes that he: (1) failed to report unemployment compensation of $19,388 and (2) is not entitled to a deduction for miscellaneous “other expenses” of $15,218 as claimed on his Schedule A, Itemized Deductions.

3 Respondent concedes that petitioner substantiated $2,400 in legal and professional services paid during 2011; however, according to respondent petitioner is not entitled to the deduction because no part of this expense was incurred in connection with a trade or business. See sec. 280A.

4 On the Schedules C attached to his amended returns petitioner claimed a deduction for legal and professional services of $46,912. However, in his posttrial brief he claimed that he was entitled to a deduction for legal and professional services in a lesser amount, i.e., $36,905.

5 Respondent’s concession that petitioner did not underreport gross receipts by $1,793 on his Schedule C will not serve to decrease the understatement of tax below the threshold amount of the greater of $5,000 or 10% of the tax required to be shown on the return.

[End of Document]

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court LiItigator works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

UNITED STATES TAX COURT

T.C. Memo. 2017-60

APPEALS & HEARINGS

April 10, 2017

DENISE LLOYD, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

 Docket No. 17559-15L.

Charles A. Ray, Jr. , for petitioner. Rachel L. Rollins , for respondent.

MEMORANDUM OPINION

LAUBER, Judge : In this collection due process (CDP) case, petitioner seeks review pursuant to section 6330(d)(1)1 of the determination by the Internal [*2] Revenue Service (IRS or respondent) to uphold a notice of intent to levy. The IRS served the levy notice to assist in collecting unpaid trust fund recovery penalties (TFRPs) from petitioner for 10 calendar quarters during 2010-2012. The sole issue for decision is whether the IRS settlement officer abused his discretion in declining to accept a $3,000 offer-in-compromise (OIC). Respondent has moved for summary judgment on this question, and we will grant his motion.

Background

The following facts are based on the parties’ pleadings, respondent’s motion, and petitioner’s opposition, including the attached affidavits and exhibits. Petitioner resided in Maryland when she filed her petition.

Petitioner was the sole shareholder of D.H. Lloyd & Associates, Inc. (D.H. Lloyd), a District of Columbia corporation engaged in the commercial insurance brokerage business. D.H. Lloyd became delinquent on its employment tax liabilities for the 10 quarters in question. The IRS subsequently assessed TFRPs against petitioner under section 6672, having determined that she was a “responsible person” required to collect, account for, and pay over the withheld employment taxes. The aggregate amount of the assessed penalties is approximately $100,000. [*3] On May 12, 2014, in an effort to collect these unpaid liabilities, the IRS sent petitioner a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing. Petitioner timely requested a CDP hearing, indicating that she sought a collection alternative in the form of an installment agreement. She did not indicate an intention to challenge her underlying liability for any quarter in question.

After receiving petitioner’s case on July 18, 2014, a settlement officer (SO) from the IRS Appeals Office reviewed her administrative file and confirmed that the penalties in question had been properly assessed and that all other requirements of applicable law and administrative procedure had been met. The SO scheduled a telephone CDP hearing for August 22, 2014. He informed petitioner that, in order for him to consider a collection alternative, she needed to supply a completed Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a Form 656, Offer in Compromise, with supporting financial information.

Petitioner submitted a Form 656 on which she sought an OIC based on doubt as to collectibility, offering to pay $3,000 to compromise her outstanding liabilities for the 10 quarters in question. She included a Form 433-A showing monthly income of $16,621, monthly expenses of $16,847, assets of $980,000, and [*4] liabilities of $922,854. Her expenses included housing expenses of $6,964 per month and vehicle ownership expenses of $1,617 per month. The latter included a $1,200 monthly lease payment for a 2012 model Lexus.

A telephone CDP hearing was held with petitioner’s representative on August 22, 2014. During that call the SO advised that petitioner’s offer would be forwarded to the IRS OIC processing unit (unit) for evaluation. On March 30, 2015, the unit returned the OIC with a recommendation that it be rejected because it was less than petitioner’s “reasonable collection potential” (RCP), which the unit calculated to be $175,035. It determined this RCP solely on the basis of petitioner’s net income, excluding from its calculations her assets and liabilities. The unit determined that her reported monthly expenses, particularly for housing and vehicle expenses, exceeded the applicable local standards by more than $1,000 per month. Employing the local standard amounts, the unit concluded that petitioner could pay a total of $175,035 during the remainder of the collection limitations period.

After receiving the unit’s response the SO wrote petitioner’s representative to schedule another telephone call. During that call the SO explained that petitioner’s actual housing and vehicle expenses significantly exceeded the IRS local standards. Her representative then requested a deviation from these standards. [*5] With respect to housing expenses, petitioner contended that her primary residence was an essential business asset because she sometimes worked from home and that the IRS should allow a household size of four for purposes of computing housing costs. With respect to the vehicle expenses, she contended that her work as an insurance broker necessitated a high-quality vehicle.

The SO rejected these contentions. He concluded that petitioner’s house was not an essential business asset because she could work from other locations and that her household size was properly set at two on the basis of her last-filed Federal income tax return.2 And he concluded that petitioner’s work did not require use of any specialized vehicle. The SO accordingly rejected petitioner’s request for a deviation from IRS local standards.

The SO informed petitioner that he could consider a six-year installment agreement of $1,545 per month. Petitioner rejected this offer. The SO accordingly closed the case and, on June 10, 2015, issued petitioner a notice of determination sustaining the proposed levy for the 10 quarters in question. [*6] Petitioner timely petitioned this Court for review of the notice of determination. On October 13, 2016, respondent filed a motion for summary judgment, to which petitioner timely replied.

Discussion

The purpose of summary judgment is to expedite litigation and avoid costly, time-consuming, and unnecessary trials. Fla. Peach Corp. v. Commissioner , 90 T.C. 678, 681 (1988). Under Rule 121(b), the Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Sundstrand Corp. v. Commissioner , 98 T.C. 518, 520 (1992), aff’d , 17 F.3d 965 (7th Cir. 1994). In deciding whether to grant summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Ibid. However, the nonmoving party may not rest upon the mere allegations or denials of her pleadings but instead must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see Sundstrand Corp. , 98 T.C. at 520. We find that no material facts are in dispute and that this case is appropriate for summary adjudication. [*7] Where (as here) there is no challenge to the amounts of the taxpayer’s underlying liabilities for the quarters in question,3 we review the IRS determination for abuse of discretion. Goza v. Commissioner , 114 T.C. 176, 181-182 (2000). Abuse of discretion exists when a determination is arbitrary, capricious, or without sound basis in fact or law. See Murphy v. Commissioner , 125 T.C. 301, 320 (2005), aff’d , 469 F.3d 27 (1st Cir. 2006). In deciding whether the SO abused his discretion in sustaining the levy, we review the record to determine whether he: (1) properly verified that the requirements of applicable law or administrative procedure have been met; (2) considered any relevant issues petitioner raised; and (3) considered “whether any proposed collection action balances the need for the effi[*8] cient collection of taxes with the legitimate concern of * * * [petitioner] that any collection action be no more intrusive than necessary.” See sec. 6330(c)(3).

Section 7122(a) authorizes the IRS to compromise an outstanding tax liability. The regulations set forth three grounds for such compromise: (1) doubt as to liability; (2) doubt as to collectibility; or (3) promotion of effective tax administration. Sec. 301.7122-1, Proced. & Admin. Regs. Petitioner based her OIC on doubt as to collectibility.

The Secretary may compromise a tax liability on the basis of doubt as to collectibility where the taxpayer’s assets and income render full collection unlikely. Id. para. (b)(2). Conversely, the IRS may reject an OIC when the taxpayer’s RCP exceeds the amount she proposes to pay. See Johnson v. Commissioner , 136 T.C. 475, 486 (2011), aff’d , 502 F. App’x 1 (D.C. Cir. 2013). Generally, Appeals officers are directed to reject offers substantially below the taxpayer’s RCP unless “special circumstances” justify acceptance of such an offer. See Fairlamb v. Commissioner , T.C. Memo. 2010-22; Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517.

We do not independently assess the reasonableness of the taxpayer’s proposed offer. Rather, our review is limited to ascertaining whether the decision to reject her offer was arbitrary, capricious, or without sound basis in fact or law. [*9] Murphy , 125 T.C. at 320. We do not substitute our judgment for the settlement officer’s as to the acceptability of any particular offer. See, e.g. , Johnson , 136 T.C. at 488.

The SO determined petitioner’s RCP on the basis of her monthly income of $16,621 less allowable expenses. In calculating allowable housing and vehicle expenses, he used the IRS local standard amounts, which were significantly lower than petitioner’s actual expenses. Petitioner concedes as much; her sole contention is that she was entitled to a deviation from those standards.

The Code provides that the IRS shall create and publish schedules of “national and local allowances” to ensure that taxpayers entering into OICs have adequate means to provide for basic living expenses. Sec. 7122(d)(1) and (2)(A). This Court has upheld the IRS’ use of published local standards to determine basic living expenses in the context of evaluating collection alternatives. See, e.g. , Speltz v. Commissioner , 124 T.C. 165, 179 (2005), aff’d , 454 F.3d 782 (8th Cir. 2006). Allowable housing and vehicle expenses are those that are “necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production of income.” Internal Revenue Manual (IRM) pt. 5.15.1.7(1) (Oct. 2, 2012).

Ordinarily, settlement officers are directed to allow the taxpayer the lesser of the local standards or the amounts actually paid monthly for housing and vehi[*10] cle expenses. See IRM pt. 5.15.1.9 (Nov. 17, 2014); IRM pt. 5.15.1.7(4) (Oct. 2, 2012). Only if the local standards are “inadequate to provide for a specific taxpayer’s basic living expenses” should the SO allow a deviation. IRM pt. 5.15.1.7(5). The taxpayer bears the burden of providing sufficient information to the SO to justify deviation from local standards. See Thomas v. Commissioner , T.C. Memo. 2015-182.

With respect to her monthly housing expenses of $6,964, petitioner contends that her primary residence was integral to her business and that her housing expenses should have been calculated for a four-person rather than a two-person household. On the first point the SO noted that petitioner’s business reported rental expenses for two distinct office locations. He reasonably concluded that, while she sometimes worked from home, her ability to work from those locations meant that her residence was not an essential business asset.

The SO rejected petitioner’s claim for a larger household size because she had reported only two people in her household on her last-filed return, which was for tax year 2013. See IRM pt. 5.15.1.9(1). Petitioner contends that the SO should have based his household size determination on her 2014 return, which showed four household members. But she requested an extension of time, until October 15, 2015, to file her 2014 return, and the SO issued the notice of deter[*11] mination on June 10, 2015, four months before that return was due. It was not an abuse of discretion for the SO to base his determination on petitioner’s 2013 return, which was her most recently filed return at the time the SO made his determination.4

With respect to vehicle expenses, petitioner contends that she needed her Lexus for work purposes and that $1,617 of the reported monthly expenses, including a lease payment of $1,200, should be allowed. The SO reasonably rejected this contention and limited petitioner to the standard vehicle allowance. He found that she had not shown a “special vehicle requirement” for her work and that a less expensive vehicle would have been perfectly suitable. IRM pt. 5.8.5.22.3 (Sept. 30, 2013).

The SO did not act arbitrarily or capriciously in determining that petitioner’s RCP greatly exceeded her $3,000 offer. He reasonably rejected her request for a deviation from the local standards because she failed to demonstrate that they were inadequate to provide for her basic living expenses. He reasonably determined that petitioner had no “special circumstances” that would warrant accept-[*12] ance of an offer substantially below her RCP.5 Instead he offered petitioner a six-year installment agreement of $1,545 per month, which she rejected. Finding no abuse of discretion in any respect, we will sustain the proposed collection action.

To reflect the foregoing,

An appropriate order and decision will be entered .

Footnotes

1All statutory references are to the Internal Revenue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. We round all monetary amounts to the nearest dollar.

2Petitioner also contended that the mortgage on her house was “underwater.” However, her Form 433-A indicated that the house had a fair market value (FMV) of $960,000 and encumbrances of only $810,854; the mortgage could be regarded as “underwater” only if the FMV were reduced by 20% to produce an estimate of a “quick sale” price. In any event, the SO concluded that the value of the house was immaterial because it was not being considered an asset in the RCP calculation.

3Petitioner did not challenge her liability for the TFRPs during the CDP hearing or in her petition to this Court. She is thus precluded from challenging those liabilities here. See Rule 331(b)(4) (“Any issue not raised in the assignments of error shall be deemed to be conceded.”); Thompson v. Commissioner , 140 T.C. 173, 178 (2013) (“A taxpayer is precluded from disputing the underlying liability if it was not properly raised in the CDP hearing.”); sec. 301.6330-1(f)(2), Q&A-F3, Proced. & Admin. Regs. Petitioner likewise did not allege during the CDP hearing, in her petition, or in her response to the motion for summary judgment that the TFRPs, which are assessable penalties, were not “personally approved (in writing) by the immediate supervisor of the individual making * * * [the penalty determination].” Sec. 6751(b)(1). That issue is therefore deemed conceded. See Rule 331(b)(4) (“Any issue not raised in the assignments of error shall be deemed to be conceded.”); Triola v. Commissioner , T.C. Memo. 2014-166, 108 T.C.M. (CCH) 185, 187; Dinino v. Commissioner , T.C. Memo. 2009-284.

4Even if an increase to petitioner’s household size were warranted, the SO noted that he would then have to factor into his calculations the income of her nonliable spouse, which might have increased her RCP substantially.

5Special circumstances that may warrant acceptance of an OIC where the RCP is more than the offer amount include: (1) facts demonstrating that the taxpayer would suffer “economic hardship” if the IRS were to collect from her an amount equal to the RCP and (2) compelling public policy or equity considerations that provide sufficient basis for compromise. See Murphy , 125 T.C. at 309; McClanahan v. Commissioner , T.C. Memo. 2008-161; IRM pt. 5.8.4.2(4) (May 10, 2013).

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, as a litigator, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Wharton M.B.A. Expenses Deducible as Unreimbursed Employee Expenses

The Tax Court held that a taxpayer could deduct the cost of a Wharton M.B.A. degree as an unreimbursed employee expense because his studies improved on preexisting skills and did not, as the IRS argued, qualify him for a new trade or business. Thus, the taxpayer could deduct the education expenses as miscellaneous itemized deductions on Schedule A, Itemized Deductions, to the extent the expenses exceeded 2 percent of his adjusted gross income. Long v. Comm’r, T.C. Summary 2016-88.

Background

From March 2005 to May 2011, Tao Long worked for Broadcom Corp., a semiconductor company in Silicon Valley that makes computer chips. He started as a design engineer and was promoted to the positions of product marketing manager, senior product marketing manager, and product line manager. While he was working at Broadcom, Long passed levels I, II, and III of the Chartered Financial Analyst (CFA) Institute exam. At Broadcom, Long’s responsibilities in the product marketing department included market, product, and trend analysis, creating proposals about products for upper management that included financial analysis, and managing teams that developed and introduced products to the market.

In May 2010, Long enrolled in the M.B.A. program at the Wharton School, University of Pennsylvania (Wharton M.B.A. program). He graduated with honors in April 2012. His coursework for the program was finance and management-related; he took courses such as financial accounting, new product management, and corporate valuation.

Broadcom had an educational assistance policy providing financial reimbursement, up to $5,250 per employee per calendar year, for tuition, fees, books, supplies, and equipment. To be eligible for reimbursement an employee had to be active (not on an unpaid leave of absence), working full time, and have preapproval of each course. Employees had to request the reimbursement within 60 days after the completion of the course. An employee who terminated his employment within one year of receiving reimbursement was required to repay the reimbursement in full at the time of termination.

In May 2011, Long resigned from Broadcom and, in June 2011, Long began a full-time summer internship in the investment division of Barclays Capital, an investment bank. He worked for Barclays Capital from June through August 2011. Long did not work again until January 2012 when he began working at Connective Capital Management, LLC (Connective Capital), as a senior research analyst in nearby Palo Alto, California. The job posting under which Long applied stated that the senior research analyst would “lead research activities in technology and industrial sectors, with responsibility for all aspects including idea generation, technology/product review, business model and competitive analysis, primary research utilizing Connective’s industry network, valuation modeling, and risk management.” Requirements listed for the senior investment analyst position included technology-related industry experience, a financial and/or engineering background, and “[t]echnical undergraduate and MBA from top university preferred.”

Deductions Taken for Wharton M.B.A. Costs on 2010 and 2011 Tax Returns

Long reported salary income of $527,860 and $117,888 for 2010 and 2011, respectively. He claimed deductions for tuition expenses for attending the Wharton M.B.A. program. Long sought to deduct $86,100 and $84,450 for amounts paid to Wharton for tuition, fees, books, supplies, and room and board for tax years 2010 and 2011, respectively. While Long initially tried to tie the Wharton M.B.A. expenses to a real estate activity in which he was engaged, he subsequently sought to deduct the costs as unreimbursed employee expenses.

Education Expenses as Unreimbursed Employee Expenses

Generally, Code Sec. 162(a) allows a deduction for ordinary and necessary expenses paid or incurred in carrying on any trade or business. Under Reg. Sec. 1.162-5(a), an individual’s expenditures for education are deductible as ordinary and necessary business expenses if the education maintains or improves skills required in his employment or other trade or business. Generally, the performance of services as an employee constitutes a trade or business. A taxpayer may deduct unreimbursed employee expenses only as miscellaneous itemized

deductions on Schedule A, Itemized Deductions, and then only to the extent such expenses exceed 2 percent of the individual’s adjusted gross income. Itemized deductions may be limited under the overall limitations on itemized deductions under Code Sec. 68 and may have an alternative minimum tax implication under Code Sec. 56(b)(1)(A)(i).

Under Reg. Sec. 1.162-5(b)(2) and (3), no deduction for the following education expenses are allowed:

(1) those incurred to meet the minimum educational requirement for qualification in a taxpayer’s trade or business; and

(2) those which qualify a taxpayer for a new trade or business.

IRS’s Position

The IRS did not question whether Long’s M.B.A. degree was incurred to meet the minimum educational requirement of his trade or business. Instead, the IRS argued that the Wharton M.B.A. qualified Long for a new trade or business because it qualified him for the senior research analyst position with Connective Capital. The IRS highlighted the fact that the Connective Capital job description said that someone with an M.B.A. was preferred as evidence that the M.B.A. qualified Long for a new trade or business.

Tax Court’s Analysis

The Tax Court began its analysis by observing that an education that merely refines a taxpayer’s existing skills does not qualify him for a new trade or business. Citing its decisions in Allemeier v. Comm’r, T.C. Memo. 2005-207, and Sherman v. Comm’r, T.C. Memo. 1977-301, the court noted that a taxpayer may deduct the cost of an M.B.A. degree as an unreimbursed employee expense if the taxpayer’s studies improve on preexisting skills, such as management skills. A taxpayer is in the same trade or business, the court said, if he is still in the same general field and still using the same skills; for example, moving from one position to another that also uses management, administrative, and planning skills.

The court was satisfied that Long was qualified in the same trade or business both before and after the M.B.A. program. He was qualified in financial analysis, the court said, through his studies and personal investment experience before enrolling in the M.B.A. program in May 2010. The court also noted that Long had passed all three levels of the CFA exam by June 2009, spending an estimated 900 hours learning about investment tools and portfolio management to prepare for the exam. Long also acquired managerial and financial analysis skills through his employment and continued to develop those skills during the years in issue, the court said. Long developed managerial skills in his role at Broadcom by managing teams that would bring a product to market. The court concluded that Long’s management and finance courses in the Wharton M.B.A. program did not qualify him for a new trade or business, but rather developed skills he was already using in his current trade or business.

With respect to Connective Capital’s job description saying that an M.B.A. was preferred, the court said this was a mere preference, and Long had other qualifications listed in the job description, including personal and professional investment experience and a technical undergraduate degree.

With respect to Long’s unemployment for four months in 2011, the court said that it was clear that he intended to find another position and continue his professional career. Those four months, the court noted, were a transition period during which Long was actively seeking employment while pursuing a defined graduate degree program. As a result, the court concluded that Long was still carrying on his trade or business during this time.

The court then considered whether Long could deduct his educational expenses as an unreimbursed employee expense. In order to deduct employee expenses, the court noted that a taxpayer must not have received reimbursement or been eligible to receive reimbursement. The court observed that Long met the requirements of Broadcom’s educational assistance policy and thus may have been eligible for reimbursement of up to $5,250 per year for his Wharton M.B.A. expenses. However, the court said, since Long terminated his employment in May 2011, less than a year from the periods in which he was eligible for reimbursement, he would have had to immediately repay any reimbursement the day he resigned. Thus, the Tax Court concluded that Long’s decision to not seek reimbursement from Broadcom for his education expenses incurred during January 2010 through June 2011 was reasonable.

The court held that Long was entitled to deduct the costs of his Wharton M.B.A. program for 2010 and 2011 as unreimbursed employee expenses on Schedule A, subject to the applicable limitations on such expenses.

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, as a litigator, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Modified Child Support Order Didn’t Contradict Taxpayer’s Claim That He Was Custodial Parent

The United States Tax Court held that a taxpayer was entitled to take dependency exemptions, the earned income tax credit, and child tax credits for the year at issue. The court found that the IRS’s argument that the taxpayer wasn’t the custodial parent and wasn’t entitled to the exemptions and credits was entirely based on a child support order effective after the year at issue, and thus inapplicable. The court also determined that the taxpayer had reasonable cause for incorrectly claiming head of household filing status and thus was not liable for penalties assessed by the IRS. Tsehay v. Comm’r, T.C. Memo. 2016-200.

Background

Yosef Tsehay, whose first language is not English, worked as a custodian at a community college in Washington. He and his wife were married in 2001 and over the years their relationship was “on-again, off-again.” During 2013, the two were married and living together with their five children in a public housing apartment. Tsehay’s wife was responsible for paying the rent on the public housing unit, and he paid for food and other expenses of his family. In 2014, the couple separated, and during 2015 they were undergoing divorce proceedings.

Although Tsehay paid a tax return preparer to prepare his return, Tsehay electronically filed the 2013 Form 1040A himself. On the return, he claimed: (1) dependency exemption deductions for four children; (2) the earned income tax credit (EITC) for three children; (3) the child tax credit (CTC) for four children; and (4) head of household filing status. He did not attach a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a statement conforming to the substance of a Form 8332, to his Form 1040A for tax year 2013.

Following an audit, the IRS disallowed Tsehay’s claimed dependency exemption deductions, earned income tax credit, and child tax credit for 2013. The IRS also changed his filing status from head of household to single and determined an accuracy-related penalty under Code Sec. 6662(a).

Analysis

Under Code Sec. 151(c), an individual is allowed an exemption deduction for each “dependent,” which is generally defined as a qualifying relative or a qualifying child. In addition, taxpayers are entitled to claim the EITC under Code Sec. 32 and the CTC under Code Sec. 24 for qualifying children. Under Code Sec. 152(c), to be a qualifying child of the taxpayer, the child must have had the same principle place of above as the taxpayer for more than one-half of the tax year.

Under Code Sec. 2(b), a taxpayer can file as a head of household if the taxpayer is unmarried, has paid more than half the cost of keeping up a home for the year, and a qualifying person has lived with the taxpayer for more than half the year.

The Tax Court noted that the IRS’s determinations stemmed from its records showing that Tsehay was not the custodial parent of his minor children and from his failure to attach a copy of Form 8332 or its equivalent to his return. The IRS provided a copy of a child support order to establish that Tsehay was in fact a “noncustodial parent.” However, the court stated, the child support order was entered August 3, 2015, and thus did not apply for the year at issue. The court determined Tsehay had sufficiently established that he and his wife were married during 2013, and thus a Form 8332 to claim dependency exemptions was not required.

The court noted the children claimed on Tsehay’s return as dependents had the same principal place of abode as he did for more than one-half of the year at issue and were his qualifying chidlren, and determined that he was entitled to the dependency exemption deductions claimed on his 2013 return. In addition, because he had “three or more” qualifying children for tax year 2013, the court determined he was entitled to the earned income credit and to child tax credits and the additional child tax credits claimed.

With regard to his filing status, Tsehay explained to the court that because he and his wife had separated by the time he was ready to file his 2013 tax return, he had asked his preparer to file for him as “married filing separately.” The court noted that the preparer erroneously filed his return as “head of household.” Because Tsehay was married for 2013, the court stated he could not qualify for head of household filing status, and noted he also was not eligible to file as single as claimed by the IRS. Instead, the court said, his correct filing status for 2013 was in fact married filing separately.

With regard to the accuracy related penalty, the court observed that Tsehay had a language barrier, sought and relied on professional advice, and was separated from his wife when he filed his return. Under those circumstances, the court stated, Tsehay had reasonable cause and acted in good faith in filing his returns, and declined to impose penalties.

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

Wife Who Spent Time Caring for Disabled Son Was Not a Responsible Person for Payroll Tax Purposes

The Tax Court held in Fitzpatrick v. Comm’r, T.C. Memo. 2016-199 that the wife of a silent owner of a restaurant and wine bar was not a responsible person and was not liable for trust fund recovery penalties with respect to unpaid employment taxes. The court noted that the woman spent most of her time taking care of her severely disabled son and her role at the restaurant was ministerial.

In 2004, James Stamps and Edward Fitzpatrick purchased the franchise rights to a wine bar and restaurant in Jacksonville, Florida, called the Grape. They agreed to be equal partners with James being the president and managing partner overseeing the business operations while Edward would be a silent partner and passive investor with some executive authority but no day-to-day duties.

Edward’s wife, Christina, has a high school education had no ownership interest in the business. Her primary responsibility during the years at issue was to serve as caregiver to her disabled son, Evan, who suffers from a rare metabolic disorder called citrullinemia. As a result of the disorder, Evan has severe autism, cerebral palsy, and limited mobility. He is required to take over 50 pills a day and cannot be left for any significant amount of time without adult supervision. Because of the substantial amount of attention Evan required, Christina was unable to devote significant effort to any business enterprise.

James and Edward formed Dey Corp., Inc. Dey Corp. purchased and operated the Grape franchise. James was the only person listed in the articles of incorporation as an officer and director. Shortly after James and Edward began engaging in preliminary business matters, James was unexpectedly hired for a short-term job at a beverage distributor in Puerto Rico. Therefore most of the preopening responsibilities fell upon Edward. Because of his busy schedule, Edward directed Christina to carry out some of those responsibilities. She opened bank accounts and engaged the services of Paychex, a payroll company. One of the services provided by Paychex was the payment of payroll taxes and electronically filing Forms 941, Employer’s Quarterly Federal Tax Return.

The Grape opened in March 2005 and was run primarily by James and a general manager he hired, Kris Chislett. Kris was responsible for carrying out the day-to-day business operations and was Paychex’s main contact during the periods at issue, and he maintained control over the payroll process.

Christina did not have a significant role at the Grape. Her main responsibilities were delivering checks, relaying electronic bank account balances to Kris, and delivering the business’ mail that was sent to her private mailbox. She occasionally transferred funds to and from the corporate bank account at the direction of James or her husband and sometimes issued checks at their direction for some of the business’ recurring monthly expenses. Christina made no operational decisions and did not have the background, education, or training to hold a management position at the Grape. Because no one was usually at Grape on the Tuesday morning the PayChex payroll package was delivered, Paychex started delivering the Grape’s payroll package to Christina and Edward’s home. It was usually necessary for Christina to sign the checks because Tuesday was Kris’s day off and there was no one else onsite available to sign the payroll checks. Christina was not responsible for and did not review statements included in the Paychex package.

Within a year of opening, the Grape was losing money. In 2008, Paychex attempts to withdraw money from the Dey Corp bank account to cover payroll taxes were rejected. Paychex continued to produce payroll checks and reference copies of Forms 941 and debit the funds from the Dey Corp bank account. However, it did not debit the payroll tax portion from the account, make payroll deposits on the business’ behalf, or file Forms 941. Christina was unaware these services had been canceled.

The Grape closed in 2011 and shortly thereafter, an IRS investigator went to the office of Dey Corp.’s CPA to discuss unpaid payroll taxes from the third quarter of 2008 through the closing of the restaurant. The CPA contacted Edward and Christina and notified them of the unpaid payroll taxes. This was the first time the couple had knowledge that federal payroll deposits had not been made for various quarters and that Forms 941 remained unfiled.

After conducting an investigation, an IRS officer recommended assessing trust fund recovery penalties (TFRPs) under Code Sec. 6672 against James, Kris, and Christina. Both James and Kris successfully administratively contested the assessments. James filed a request for abatement which was granted and Kris was granted relief by the IRS Office of Appeals. Christina challenged the liabilities during her CDP hearing but the IRS found her to be liable for the penalties which added up to over $150,000. Christina then took her case to the Tax Court.

Before the Tax Court, the IRS argued that Christina exercised substantial financial control over Dey Corp. and that at all times was a de facto officer of the corporation because she opened two corporate bank accounts, had signatory authority on both accounts, and signed checks on behalf of the corporation.

Christina argued that she lacked decision-making authority and did not exercise significant control over corporate affairs. She further asserted that despite her signatory authority, she was not a responsible person within the meaning of Code Sec. 6672 because she had a limited role in the business’ payroll process and merely signed payroll checks for the convenience of the corporation. According to Christina, James and Kris were responsible for running the corporation day to day and her duties were ministerial.

The Tax Court held that Christina was not a responsible person and thus was not liable for the TFRPs assessed against her. The court began by noting that liability for a TFRP is imposed only on (1) a responsible person who (2) willfully fails to collect, account for, or pay over the withheld tax. The court also commented on the credibility of the nine witnesses called to testify. The court found Christina and Edward, as well as a couple other witnesses to be credible. However, the court did not find the testimony of James, Kris, and another individual to be credible. The court also had little confidence in any of the documents the IRS obtained from Kris. The court found that the preponderance of the evidence showed that Christina’s role was ministerial and that she lacked decision-making authority.

The court also noted that Christina spent most of her time taking care of her disabled son and, that as a result of having to constantly lift Evan, she developed spinal stenosis which required periodic injections and epidurals. Consequently, she usually visited the corporation only once a week, on Tuesdays, for less than an hour each time.

Finally, the court said it was puzzled by the fact that James, the president of the corporation and a hands-on owner, and Kris, the day to-day manager, successfully evaded in the administrative phase any personal liability for the TFRPs.

United States Tax Court Decision for the Week – You be the Judge

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

IRS Collection Actions Were Abuse of Discretion Where the Settlement Officer Used Wrong Address: In Talbot v. Comm’r, T.C. Memo. 2016-191, the Tax Court determined that an IRS settlement officer (SO) abused her discretion in sustaining a levy and notice of federal tax lien for three of a taxpayer’s seven tax years because she had failed to properly verify that deficiency notices had been mailed to the taxpayer’s last known address for those years. The court noted the SO relied solely on the IRS’s certified mailing list, which contained an incorrect address for the taxpayer.

ROBERT TALBOT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

United States Tax Court Decision for the Week – You be the Judge

Unsubstantiated Business Deductions Denied; Penalties Upheld

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

The United State Tax Court, upholding accuracy-related penalties, sustained the IRS’s disallowance of an individual’s deductions for unsubstantiated employee business expenses for his work with a publishing company but allowed the individual to deduct mileage expenses for traveling to county courthouses around the state to build his law practice.
MARTY DALE MARTIN,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
 
T.C. Memo. 2016-189

United States Tax Court Decision for the Week – You be the Judge

Collection Action Against Couple Was Proper, United States Tax Court Says

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

The United States Tax Court, in a summary opinion, held that the IRS didn’t abuse its discretion in sustaining a collection action against a couple that reported no tax liability and claimed deductions for charitable contributions, the business use of their home, and $473,309 in casualty or theft losses, finding that the couple failed to participate in their Collection Due Process hearing.

ROBERT CARTER, JR. AND LOLA CARTER,
Petitioners
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Summ. Op. 2016-38

United States Tax Court Decision for the Week – You be the Judge

IRS Fails to Prove Fraudulent Intent; Fraud Penalties Inapplicable

The United States Tax Court held that the IRS failed to prove a couple’s fraudulent intent in underpaying their taxes, and they are not liable for fraud penalties; the court sustained an accuracy-related penalty for negligence, finding that they understated their tax liability for one year by failing to report income and claiming unsubstantiated deductions.

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

JAMES A. ERICSON AND REBECCA A. ERICSON,
Petitioners v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 2016-107

 

United States Tax Court Decision for the Week – You be the Judge

Accountant’s Law School Tuition Was Not a Deductible Expense

The United States Tax Court, declining to reconsider the validity of reg.section 1.162-5(b)(1), held that an accountant who prepared returns and provided other financial services for clients couldn’t deduct his tuition and fees for law school, finding that law school qualified him for a new trade or business as described in the regulation.

A recent Tax Court decision was reported that may be of interest to individuals potentially dealing with tax litigation. J. Frank Best, Certified Public Accountant and United States Tax Court Practitioner, works to stay current on all IRS decisions concerning tax litigation to ensure we are fully informed and prepared for our clients.

EMMANUEL A. SANTOS,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

T.C. Memo. 2016-100