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Feb 2023 Tax Updates By Tax Attorney Chaya Kundra

On Behalf of | Feb 13, 2023 | Blog |

Allocation of Income Regs Valid Under Chevron, State Farm Says USTC.  See, 3M Company and Subsidiaries, (2/9/2023) 160 T.C. No. 3, where the Tax Court upheld the proposition that various regulations under Code Sec. 482 are valid under the two Supreme Court tests for promulgation of administrative regulations.

Use of Bank Deposit Method & Income Reconstruction.  In Haghnazarzadeh v. Comm., CA9, 131 AFTR 2d ¶2023-377, taxpayers failed to rebut presumptive correctness of IRS’s determination and Court didn’t abuse its discretion in excluding taxpayers’ accountant from testifying at trial, or in denying reconsideration motion that taxpayers didn’t support with any showing of substantial error, unusual circumstances, or other valid grounds for relief.

Charitable Contributions to Revoked Entities.  IRS revoked Code Sec. 501(c)(3) status of specified org. for failure to meet IRC requirements rendering the contributions made no longer deductible under Code Sec. 170(b)(1)(A).  Were the contributor to still take the deduction and be audited, be aware.

PLR 202306014, Final Adverse Determination of 501: Organization exceeded 35% nonmember gross receipts limitation for stated years; IRC 501 (c)(7) was revoked.

Taxation of nonresident alien individuals: PS Interest, Inventory, Sourcing Rules; IRC Sec. 871.  NRA sold interest in US PS denied SJ on her claim that portion of proceeds attributable to inventory items was non-U.S. source income and as such not taxable to her.  This position failed as Code Sec. 741’s general rule for analyzing sold partnership interests gave way here to Code Sec. 751(a)(2)’s specific provision treating portion attributable to inventory items as from “property other than capital asset”; and as result, Code Sec. 865(b)’s specific sourcing rule for inventory property, not Code Sec. 865(a)(2)’s default rule, applied. Taxpayer might still show for Code Sec. 865(b) purposes that source of her inventory gain was “without U.S.,” and had not done so here/for summary judgment purposes. See, Indu Rawat v. Commissioner, (2023) TC Memo 2023-14, 2023 RIA TC Memo ¶2023-14.

IRC 6502 Collections: State vs. Federal Law: Fraudulent Conveyances, Liens, Alter Ego. Judge recommended denying LLC’s limitations period-based motion to dismiss Louisiana “revocatory action,” govt. filed seeking to annul electric co. owner/alter ego’s transfer to LLC of property against which govt. sought to enforce liens for outstanding taxes.  While Louisiana law carried short extinguishment period, federal law/ Code Sec. 6502 controlled.  See, U.S. v. SSJ Development Co, LLC, et al., DC LA, 131 AFTR 2d ¶2023-371

IRC 2010 Extension of Unified credit against estate tax—portability election—deceased spousal unused exclusion. Estate granted 120-day extension from date of letter issued to make Code Sec. 2010(c)(5)(A) portability election, to allow surviving spouse to include unused DSUE amount, where estate acted reasonably and in good faith and granting relief wouldn’t prejudice govt.’s interests.  See, PLR 202306007.

 Chaya Kundra, Chair