Chicago Tax Court Calendar: Chuhak & Tecson cases for March 9, 2009

Case 1
Decedent died on December 12, 2002 and filed an estate tax return reflecting a taxable estate plus adjusted gifts of $4,972,781. The Internal Revenue Service issued a notice of deficiency increasing the taxable estate plus adjusted gifts by $2,678,022 to $7,650,803 and increasing the estate tax by $1,113,731.

Decedent sold a limited partnership interest to her grantor trust prior to death. However, the transaction was improperly implemented as decedent retained control over the grantor trust. The primary issue in the case was discounts available to the limited partnership interest.

The parties have reached a settlement whereby the estate has a deficiency of only $200,000 before deductions for attorney and other administration fees. Thus the deficiency was reduced over 82 percent.

Case 2
IRS issued a notice of deficiency for 2002 having adjustments to income of $854,779 and increasing tax of $94,519 and assessing penalties of $18,903.80. Also as a result of increasing income, taxpayer’s net operating loss carryback was disallowed.

The primary issues were whether losses from taxpayer’s business were subject to the passive activity loss rules, whether the cost to repair a helicopter engine was deductible or should be capitalized and whether shareholder loans were to be considered income.

The parties have reached a settlement whereby the IRS conceded adjustments of at least $750,248. Many other adjustments will also be reversed because they resulted from automatic mathematical calculations. Also, no penalties will be assessed.

Case 3-A
The IRS issued a notice of deficiency for 2003 adjusting income by $251,729 and increasing tax by $88,106 and assessing penalties of $17,621.20.

The primary issue was substantiation of business expenses. Taxpayer refused to provide names and contact information of business contacts in China to substantiate her travel expenses. Thus, IRS conceded all business expenses incurred in the United States, but denied all business expenses incurred in China.

A decision document will be entered that taxpayer has a tax liability of $23,043 and all penalties will be abated.

Case 3-B
The IRS issued a notice of deficiency for 2004 adjusting income by $139,203 and increasing tax by $44,327 and assessing penalties of $8,865.40.

The issues were substantiation of business expenses and constructive receipt of income. Taxpayer refused to provide names and contact information of business contacts in China to substantiate her travel expenses. Thus, IRS conceded all business expenses incurred in the United States, but denied all business expenses incurred in China.

A decision document will be entered that taxpayer has a tax liability of $37,284 and all penalties will be abated.

Case 4
At issue is whether the corporation can deduct payments to a Voluntary Employees’ Beneficiary Association (VEBA) to fund death benefits for employees and whether a loan from the VEBA constitutes income. The IRS has asserted that the transaction is a tax shelter under IRS Notice 2003-24 and is a sham transaction.

In another Tax Court case involving similar facts, the IRS conceded that the transaction was not a sham transaction. We filed a motion for partial summary judgment that the IRS should be barred under the doctrine of judicial estoppel from claiming that the taxpayer’s transaction was a sham transaction. A hearing was held and we are awaiting a ruling by the Judge.