Some Items of Interest

Originally published on Passive Activities and Other Oxymorons on December 22, 2010.
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I've got quite a few developments that I'd like to share that I can't seem to work into a full length treatment.  In rough chronological order they are :

NEW PHOENIX SUNRISE CORP. v. COMM., Cite as 106 AFTR 2d 2010-7116, 11/18/2010


Tentative title was "How Sweet it Is ?".  This was similar to the currency swap I wrote about in October. This deal had a business purpose fig leaf.  Even though the transaction on which millions of dollars of losses were claimed was almost guaranteed to have a loss of around $100,000 there was a chance of an enormous return :
The fourth possible outcome would occur if the spot rate for one of the option pairs “hit the sweet spot,” meaning that the long option and the short option comprising one of the option pairs expired in the money and out of the money, respectively. This would happen if the spot rate on December 12 were 127.75 or 127.76 yen per dollar, or if the spot rate on December 18 were 128.75 or 128.76 yen per dollar. Then, Capital would earn a profit of $73,500,000 on its net investment of $131,250 because it would have an additional receipt of $73,631,250 on either December 14 or December 20. The final possible outcome would occur if both option pairs hit the sweet spot. Then, Capital would earn a profit of $147,131,250 on its net investment of $131,250 because it would have additional receipts or $73,631,250 on both December 14 and December 20.

According to the IRS expert that the Court accepted there actually was no chance of the sweet spot being hit since the counter party had enough discretion and market clout to prevent it.

CC 2011-004

The following steps should be taken when a taxpayer is alleging, in an appeal to the Tax Court from a notice of determination sustaining a levy action, that the levy should not proceed because it would cause economic hardship: 1) the administrative record should be reviewed to determine whether the taxpayer raised economic hardship and whether the facts support the assertion that the levy would prevent the taxpayer from meeting necessary living expenses; and 2) if a credible argument of economic hardship was raised, but the settlement or appeals officer did not address the issue, a motion should be filed requesting that the case be remanded to Appeals so that the settlement or appeals officer can consider properly whether the levy action is inappropriate because the taxpayer would suffer an economic hardship if a levy is served.


This is a change in IRS policy regarding levies where taxpayers are not in current compliance.  Regardless of the current compliance, the appeals officer must consider hardship.  A study of collection cases sometimes makes me think that the income tax really is voluntary.

Hardy Ray Murphy, et ux. v. Commissioner, TC Memo 2010-264

Tentative title was "Brother Can You Spare a Deductible Dime". This was a substantiation case.  Taxpayer was taking a deduction for lunches that he bought for some homeless men that he befriended.  For a period of time he and his wife were regular churchgoers

Mr. Murphy claims he contributed between $100 and $200 each time he went to church for a total of $300 to $500 each week. While Lake Avenue Church did provide envelopes for contributions, petitioners did not use them. In addition to contributions to Lake Avenue Church, petitioners contend they made small contributions to San Gabriel Union Church and St. Mark's Episcopal School. Both Mr. Murphy and his daughter attended St. Mark's Episcopal School. Mr. Murphy asserted that the total amount of tithing to the two churches and the school was approximately $20,000.

The Tax Court pointed Mr. Murphy to the substantiation rules for charitable contribution.  I'd like to believe Mr. Murphy, but I don't recall any news reports of church ushers dying from shock when they found portraits of Benjamin Franklin in the collection plate so I'm a little skeptical.


U.S. v. BOWDEN, Cite as 106 AFTR 2d 2010-7195, 11/30/2010

Tentative title for this one was "King David Headed for the Clink".

Wesley David Bowden appeals his conviction on six counts of attempted tax evasion and his six concurrent prison terms of 24 months each. The Government has moved to dismiss the appeal as frivolous or for summary affirmance or, alternatively, for an extension of time.

Bowden asserts that the only issue on appeal is whether the district court had jurisdiction to convict him. He contends that it did not because he is a sovereign and not subject to the laws of the United States.

The Court found his appeal to be frivolous.  So maybe he should try jester rather sovereign.

NEVADA PARTNERS FUND, LLC v. U.S, Cite as 105 AFTR 2d 2010-2133, 04/30/2010

At the October 2, 2001, meeting, Williams and his attorneys met with KPMG agent Donna Bruce, who understood that the purpose of the meeting was to alleviate large gains arising from the B.C. Rogers note exchange, having been informed that the gain would amount to nearly $20,000,000.00. She told Williams that KPMG had been recommending to its clients facing the imminent prospect of large ordinary and capital gains a new strategy to be pursued through an investment advisor experienced in financial structure, hedge funds and more exotic forms of investment designed to provide tax benefits. Bruce named several investment advisors to be considered by Williams, including a hedge fund called Bricolage, LLC, in New York City, an entity owned and managed by one Andrew Beer.

Another convoluted KPMG deal that didn't work out as intended.  I think I'm going to stop studying these things as I might get confused by them.

CCA 201048043


Tentative title was "Say What ?" I really don't know what they are talking about here.  I suppose if I ran down the references I would have a clue, but I don't think I'll bother.  Hope it is nothing important.
UIL No. 6227.00-00
Release Date: 12/03/2010
ID: CCA_2010102109152937
Release Date: 12/3/2010 Office: —————
UILC: 6227.00-00

From: —————————- Sent: Thursday, October 21, 2010 9:15:31 AM To: —————————— Cc: —————- Subject: RE: TEFRA question ————-


Correct. If an NBAP has been issued, then any AAR issues would be resolved in the FPAA and no separate petition of the AARs could be filed. I.R.C. 6228(a)(2)(B). In addition, we cannot issue any affected item notices of deficiency until after the partnership proceeding is complete. GAF v. Commissioner.

EMMANUEL OWENS v. COMMISSIONER OF INTERNAL REVENUE, TC Memo 2010-265

Mr. Owens is a corrections officer in a state system.  The way the judge in this decision kept emphasizing that he had signed one return under pains and penalties or perjury and then an amended return with a significantly different position also under such pains and penalties, I was thinking the judge was hinting that he could end up in a federal facility in a capacity other than as corrections officer.  His original return had $22,921 in unsubstantiated schedule A job related deductions.  The amended return moved them to Schedule C.  They remained unsubstantiated and thus non-deductible.  Fairly typical tax court case, but I found it a little amusing.

Well, I'm back to studying the tax bill.  You won't be learning about it here unless there is something quirky that is not being heavily noticed.