SCOTUS Reports

Tag: 2023

  • Thomas v. Commissioner, 160 T.C. No. 4 (2023): Interpretation of ‘Newly Discovered Evidence’ Under I.R.C. § 6015(e)(7)(B)

    Thomas v. Commissioner, 160 T. C. No. 4 (U. S. Tax Ct. 2023)

    In Thomas v. Commissioner, the U. S. Tax Court ruled that blog posts discovered after an administrative proceeding could be considered ‘newly discovered evidence’ under I. R. C. § 6015(e)(7)(B), allowing their admission in court despite not being part of the initial record. This decision interprets the statute’s scope broadly, impacting how evidence is considered in innocent spouse relief cases and emphasizing the court’s de novo review authority.

    Parties

    Sydney Ann Chaney Thomas (Petitioner) v. Commissioner of Internal Revenue (Respondent). The case was filed in the United States Tax Court, with Megan L. Brackney representing the Petitioner and Julie V. Skeen and Sharon Ortega representing the Respondent.

    Facts

    Sydney Ann Chaney Thomas and her late husband, Tracy A. Thomas, filed joint federal income tax returns for the years 2012, 2013, and 2014. After Tracy’s death in 2016, Sydney sought relief from joint and several liability under I. R. C. § 6015(f). The IRS denied her request on September 8, 2020, leading Sydney to petition the U. S. Tax Court on November 9, 2020. During the trial on April 4, 2022, the Commissioner introduced Exhibit 13-R, consisting of Sydney’s blog posts from November 2, 2016, to January 5, 2022, which were not part of the administrative record but were relevant to her lifestyle, assets, and relationship with her husband.

    Procedural History

    The IRS denied Sydney Thomas’s request for innocent spouse relief on September 8, 2020. Following the denial, Sydney filed a petition in the U. S. Tax Court on November 9, 2020. The trial took place on April 4, 2022, in San Francisco, where the Commissioner introduced Sydney’s blog posts as evidence. Sydney objected to their admission, arguing they were not ‘newly discovered’ under I. R. C. § 6015(e)(7)(B). The court admitted the blog posts on April 26, 2022, and subsequently denied Sydney’s motion to strike them from the record.

    Issue(s)

    Whether blog posts discovered after the administrative proceeding constitute ‘newly discovered evidence’ within the meaning of I. R. C. § 6015(e)(7)(B), allowing their admission in the U. S. Tax Court’s de novo review of an innocent spouse relief claim?

    Rule(s) of Law

    I. R. C. § 6015(e)(7) provides that the Tax Court’s review of an innocent spouse relief determination shall be conducted de novo based on the administrative record established at the time of the determination and any additional newly discovered or previously unavailable evidence. The statute does not define ‘newly discovered evidence,’ necessitating interpretation based on its ordinary meaning.

    Holding

    The U. S. Tax Court held that the blog posts from Sydney Thomas’s personal blog were ‘newly discovered evidence’ within the meaning of I. R. C. § 6015(e)(7)(B) because they were recently obtained by the Commissioner after the administrative proceedings concluded. Consequently, the blog posts were properly admitted into evidence.

    Reasoning

    The court reasoned that ‘newly discovered’ should be interpreted according to its ordinary meaning, which is ‘recently obtained sight or knowledge of for the first time. ‘ The Commissioner discovered the blog posts after the administrative proceedings, which satisfied this definition. The court rejected the petitioner’s argument that the standard from Federal Rule of Civil Procedure 60(b)(2), which includes a ‘reasonable diligence’ requirement, should apply, noting that Congress did not include such a qualifier in I. R. C. § 6015(e)(7)(B). Furthermore, the court emphasized that the use of ‘any additional’ in the statute suggested a broad interpretation, supporting the admission of evidence unknown to a participant in the administrative proceeding if offered in court. The court also noted that the de novo standard of review under § 6015(e)(7) supports a broad construction of evidence admissibility to ensure a comprehensive review of the case’s merits.

    Disposition

    The U. S. Tax Court denied Sydney Thomas’s Motion to Strike the blog posts from the record, affirming their admissibility as ‘newly discovered evidence’ under I. R. C. § 6015(e)(7)(B).

    Significance/Impact

    This decision clarifies the scope of ‘newly discovered evidence’ under I. R. C. § 6015(e)(7)(B), allowing evidence discovered after administrative proceedings to be considered in the Tax Court’s de novo review of innocent spouse relief claims. The ruling may impact how both taxpayers and the IRS approach the collection and presentation of evidence in such cases, emphasizing the importance of thorough evidence gathering post-administrative proceedings. The decision also underscores the Tax Court’s broad authority to consider evidence in its de novo review, potentially affecting the strategic considerations of parties in innocent spouse litigation.

  • Michael Johnson et al. v. Commissioner of Internal Revenue, 160 T.C. No. 2 (2023): Energy Efficient Commercial Building Property Deduction under I.R.C. § 179D

    Michael Johnson et al. v. Commissioner of Internal Revenue, 160 T. C. No. 2 (U. S. Tax Court 2023)

    In a significant ruling, the U. S. Tax Court upheld the eligibility of Edwards Engineering, Inc. , for a $304,640 deduction under I. R. C. § 179D for energy-efficient upgrades at a Veterans Affairs hospital. The decision clarifies the criteria for claiming the Energy Efficient Commercial Building Property (EECBP) deduction, affirming that contractors can claim the deduction when designated by government entities, and that the deduction is limited to the cost of property placed in service during the tax year.

    Parties

    Michael Johnson and Cynthia Johnson, Brant Lieske and Laura Lieske, Scott Lieske, and Todd Lieske (Petitioners) v. Commissioner of Internal Revenue (Respondent). The Petitioners were shareholders in Edwards Engineering, Inc. , which sought the deduction at issue.

    Facts

    Edwards Engineering, Inc. , an S corporation, entered into a maintenance contract with the U. S. Department of Veterans Affairs (VA) for the Edward Hines, Jr. VA Hospital. In 2013, Edwards was tasked with updating control systems for air handling units (S4/S5 project) and emergency replacement of temperature control systems for several floors (emergency project) in Building 200 of the hospital. Edwards modified the sequence of operations, programmed new Johnson Controls systems, and ensured functionality through simulation tests. Alliantgroup conducted an Energy Efficient Commercial Building Tax Deduction Study, which included a certification of compliance and an allocation letter signed by the VA’s Chief of Maintenance and Operations, allocating the full I. R. C. § 179D deduction to Edwards. The Petitioners, as shareholders, claimed their proportionate shares of the deduction on their individual tax returns, which were subsequently disallowed by the IRS.

    Procedural History

    The Commissioner of Internal Revenue issued notices of deficiency to the Petitioners, disallowing the § 179D deductions claimed by Edwards for 2013. The Petitioners filed petitions with the U. S. Tax Court, contesting the deficiencies. The cases were consolidated for trial, briefing, and opinion. The court had jurisdiction to determine the correctness of the adjustments, as they involved both S corporation items and other adjustments in the shareholder-level deficiency proceedings.

    Issue(s)

    Whether the property installed by Edwards in Building 200 qualified as Energy Efficient Commercial Building Property (EECBP) under I. R. C. § 179D(c)(1)?

    Whether the VA’s Chief of Maintenance and Operations properly allocated the § 179D deduction to Edwards as the person primarily responsible for designing the EECBP?

    Whether the EECBP was placed in service during the 2013 tax year?

    What is the amount of the § 179D deduction to which Edwards is entitled for the 2013 tax year?

    Rule(s) of Law

    I. R. C. § 179D(a) allows a deduction equal to the cost of EECBP placed in service during the taxable year. I. R. C. § 179D(c)(1) defines EECBP as property that is depreciable, installed in a U. S. building within the scope of Standard 90. 1-2001, part of specified building systems, and certified as reducing energy costs by 50% or more compared to a reference building. I. R. C. § 179D(d)(4) allows government entities to allocate the deduction to the person primarily responsible for designing the property. I. R. S. Notice 2006-52 provides interim guidance on certification requirements, and I. R. S. Notice 2008-40 provides guidance on allocation for government-owned buildings.

    Holding

    The court held that the installed property qualified as EECBP under I. R. C. § 179D(c)(1), the VA’s chief maintenance officer properly allocated the deduction to Edwards as the designer, the property was placed in service during the 2013 tax year, and Edwards was entitled to a § 179D deduction of $304,640.

    Reasoning

    The court reasoned that Edwards’s modification of the sequence of operations and programming of the new control systems constituted designing the EECBP, as per Notice 2008-40’s definition of a “designer. ” The court rejected the Commissioner’s argument that the projects were not part of a plan to achieve energy savings, relying on the plain text of Notice 2006-52, which did not require such intent. The energy modeling by Alliantgroup, using the Performance Rating Method, showed a 50. 01% reduction in energy costs, satisfying the certification requirement under § 179D(c)(1)(D). The court also found that the VA’s allocation letter, signed by an authorized representative, properly allocated the full deduction to Edwards. The property was deemed placed in service in 2013, as it was ready and available for its assigned function by the end of that year. The court determined the deduction amount based on the cost of EECBP placed in service in 2013, which was $304,640, the amount billed by Edwards to the VA.

    Disposition

    The court ruled that Edwards is entitled to a § 179D deduction of $304,640 for the 2013 tax year. Decisions were to be entered under Rule 155 of the Tax Court Rules of Practice and Procedure.

    Significance/Impact

    This decision provides crucial guidance on the application of the § 179D deduction for contractors working on government-owned buildings. It clarifies that the deduction can be allocated to the contractor as the designer, even when the project involves maintenance or replacement rather than new construction. The ruling also emphasizes the importance of proper certification and allocation procedures, as outlined in IRS Notices, in claiming the deduction. The case may influence future interpretations of what constitutes “designing” EECBP and the criteria for property being “placed in service. ” It also highlights the need for clear documentation and adherence to IRS guidelines to substantiate the deduction claim.

  • Blake M. Adams v. Commissioner of Internal Revenue, 160 T.C. No. 1 (2023): Judicial Review of Certification of Seriously Delinquent Tax Debt Under I.R.C. § 7345

    Blake M. Adams v. Commissioner of Internal Revenue, 160 T. C. No. 1 (2023)

    The U. S. Tax Court ruled that it lacks jurisdiction to review underlying tax liabilities certified as seriously delinquent under I. R. C. § 7345. The court upheld the Commissioner’s certification against Blake Adams, who owed over $1. 2 million in unpaid federal income taxes. The decision clarifies the court’s limited role to assessing the certification’s validity, not the underlying tax liabilities, and reinforces the statutory framework for tax debt enforcement.

    Parties

    Blake M. Adams, the petitioner, filed pro se against the Commissioner of Internal Revenue, the respondent, in the U. S. Tax Court, docket number 1527-21P.

    Facts

    Blake M. Adams had unpaid federal income tax liabilities exceeding $1. 2 million for the tax years 2007, 2009, 2010, 2011, 2012, 2013, 2014, and 2015. Adams failed to file federal income tax returns for these years, prompting the Commissioner to prepare substitutes for returns under I. R. C. § 6020(b). The Commissioner assessed the taxes, penalties, and interest based on these substitutes. Efforts to collect these debts were largely unsuccessful. Consequently, the Commissioner certified Adams as having a “seriously delinquent tax debt” to the Secretary of State under I. R. C. § 7345(b), triggering potential passport-related actions. Adams petitioned the Tax Court to challenge the certification’s validity.

    Procedural History

    Adams filed a petition in the U. S. Tax Court to challenge the certification under I. R. C. § 7345(e)(1). Both parties filed motions for summary judgment. The Commissioner argued that Adams had a seriously delinquent tax debt at the time of certification, while Adams contended that the certification was erroneous due to improper assessment and unconstitutional denial of his right to international travel. The Tax Court reviewed the case based on the administrative record and applicable law, ultimately granting the Commissioner’s motion for summary judgment and denying Adams’s motion.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction to review the underlying tax liabilities certified as seriously delinquent under I. R. C. § 7345?
    Whether the certification of Blake M. Adams as having a seriously delinquent tax debt was erroneous because the underlying liabilities were not properly assessed?
    Whether the Tax Court has jurisdiction to review the constitutionality of passport-related actions taken by the Secretary of State under the Fixing America’s Surface Transportation Act?

    Rule(s) of Law

    I. R. C. § 7345(b) defines a “seriously delinquent tax debt” as an unpaid, legally enforceable federal tax liability of an individual that has been assessed, exceeds $50,000 (adjusted for inflation), and for which a notice of lien has been filed or a levy made. I. R. C. § 7345(e)(1) grants the Tax Court jurisdiction to determine whether the certification was erroneous or whether the Commissioner failed to reverse the certification. The court does not have jurisdiction to review the underlying tax liabilities. The Fixing America’s Surface Transportation Act, Pub. L. No. 114-94, § 32101, authorizes the Secretary of State to take passport-related actions upon certification of a seriously delinquent tax debt.

    Holding

    The U. S. Tax Court lacks jurisdiction to review the underlying tax liabilities certified as seriously delinquent under I. R. C. § 7345. The certification of Blake M. Adams was not erroneous because the underlying liabilities were assessed, satisfying I. R. C. § 7345(b)(1)(A). The court also lacks jurisdiction to review the constitutionality of passport-related actions taken by the Secretary of State under the Fixing America’s Surface Transportation Act.

    Reasoning

    The Tax Court’s reasoning is based on statutory interpretation and the legislative framework of I. R. C. § 7345. The court emphasized that its jurisdiction under § 7345(e)(1) is limited to reviewing the certification’s validity, not the underlying tax liabilities. The court relied on the plain text of § 7345(b)(1)(A), which requires only that the tax liability “has been assessed,” not that it was “properly assessed. ” This interpretation was supported by the absence of “pursuant to” language in § 7345(b)(1)(A), unlike in § 7345(b)(1)(C), which specifies that liens and levies must be pursuant to certain Code sections. The court also considered the overall structure of the tax code, noting that Adams had multiple prior opportunities to challenge the assessments through deficiency notices and collection due process proceedings. Regarding the constitutional challenge, the court held that it lacks jurisdiction to review the Secretary of State’s actions under the FAST Act, as § 7345(e) does not authorize such review. The court’s decision reaffirmed its role in reviewing only the certification process, not the substantive tax liabilities or passport actions, and highlighted the statutory separation of responsibilities between the Commissioner and the Secretary of State.

    Disposition

    The Tax Court granted the Commissioner’s motion for summary judgment, denied Adams’s motion for summary judgment, and sustained the certification of Adams as having a seriously delinquent tax debt.

    Significance/Impact

    This case clarifies the Tax Court’s limited jurisdiction under I. R. C. § 7345, emphasizing that it cannot review the underlying tax liabilities certified as seriously delinquent. It reinforces the statutory framework for enforcing tax debts through certification to the Secretary of State and potential passport actions. The decision may impact taxpayers seeking to challenge such certifications by limiting their avenues for judicial review. It also underscores the separation of powers between the Commissioner, responsible for certification, and the Secretary of State, responsible for passport actions, under the FAST Act. Subsequent courts have generally followed this interpretation, affirming the Tax Court’s role in reviewing only the certification process.

  • Hypothetical Taxpayer v. Commissioner, T.C. Memo. 2023-XXX: Damages for Professional Reputation Injury Are Not Excludable as Personal Injury Under Section 104(a)(2)

    Hypothetical Taxpayer v. Commissioner, T.C. Memo. 2023-XXX

    Damages awarded specifically for injury to professional reputation are not excludable from gross income under Section 104(a)(2) of the Internal Revenue Code as compensation for personal injury, as the term ‘personal injury’ in this context should be interpreted to exclude damages solely for professional harm.

    Summary

    This hypothetical case brief analyzes a dissenting opinion concerning the tax treatment of damages awarded for injury to professional reputation. The dissenting judge argues that the majority erred in excluding damages for professional reputation injury under Section 104(a)(2), which excludes damages received on account of personal physical injuries or physical sickness. The dissent emphasizes that while personal and professional injuries can be intertwined, damages explicitly identified as compensation for harm to professional reputation should not be considered excludable ‘personal injury’ damages under the statute. The dissent draws a distinction between personal and professional harm, asserting that the plain language of the statute does not support excluding damages clearly attributed to professional reputation damage from taxable income.

    Facts

    In this hypothetical case, the taxpayer received a substantial damage award. A portion of this award was explicitly designated as compensation for personal injury, and these damages were presumably agreed upon by both parties as excludable from gross income under Section 104(a)(2). However, another significant portion of the award was specifically identified as damages for injury to the taxpayer’s professional reputation. The central dispute arises from the tax treatment of these damages designated for professional reputation harm, with the dissenting judge arguing they should not be excluded under Section 104(a)(2).

    Procedural History

    This case reached the Tax Court. The majority opinion of the Tax Court presumably held that damages for professional reputation injury were excludable under Section 104(a)(2). The dissenting opinion challenges this majority decision, arguing for a narrower interpretation of ‘personal injury’ within the context of the tax exclusion.

    Issue(s)

    1. Whether damages explicitly awarded to compensate for injury to professional reputation constitute damages received ‘on account of personal physical injuries or physical sickness’ and are therefore excludable from gross income under Section 104(a)(2) of the Internal Revenue Code.

    Holding

    1. No, according to the dissenting judge, damages specifically designated for injury to professional reputation should not be considered excludable ‘personal injury’ damages under Section 104(a)(2) because the statute’s intent and plain language do not extend the exclusion to damages solely for professional harm.

    Court’s Reasoning

    The dissenting judge argues that the majority’s decision improperly broadens the scope of ‘personal injury’ under Section 104(a)(2). The dissent emphasizes the importance of the word ‘personal’ in the statutory description, stating, “In my opinion, the Court has, by its decision today, eliminated the word ‘personal’ from the description of the injuries for which damages are excludable under section 104(a)(2).” The dissent acknowledges the complexity of distinguishing between personal and professional injuries in some cases, referencing *Roemer v. Commissioner*, 79 T.C. 398 (1982), revd. 716 F.2d 693 (9th Cir. 1983), where defamation affected both personal and professional aspects of the taxpayer’s life. However, the dissent distinguishes the present hypothetical case by pointing out that the damages were explicitly categorized. The judge states, “Here, the petitioner was awarded substantial damages for his personal injury… He also was awarded damages for injury stated to be to his professional reputation. Thus, there is no question over whether these damages are attributable to a personal injury. If the words of section 104(a)(2) have any meaning, they surely do not permit the exclusion of damages declared to be for injury to a professional reputation.” The core of the dissent’s reasoning is a textualist interpretation of Section 104(a)(2), arguing that the plain meaning of ‘personal injury’ does not encompass purely professional harm, especially when damages are explicitly delineated.

    Practical Implications

    This dissenting opinion highlights the critical distinction between personal and professional injuries in tax law, particularly concerning the exclusion of damages under Section 104(a)(2). It suggests that legal practitioners and the courts should carefully scrutinize the nature of damages awarded, especially in cases involving reputational harm. The dissent implies that future cases should adhere to a stricter interpretation of ‘personal injury’ within this tax context, preventing the exclusion from extending to damages explicitly intended to compensate for professional losses. This case underscores the importance of clear and specific allocation of damages in settlements and judgments to ensure proper tax treatment. It also raises questions about the boundaries of ‘personal injury’ in cases where reputational harm has both personal and professional ramifications, suggesting that courts may need to draw ‘hard lines’ in close cases to maintain the integrity of the statutory language and intent of Section 104(a)(2).