Reports of the United States Tax Court

Plan (ESOP)-Validity of Election To Defer Gain.—Where
decedent's original 1996 income tax return did not report sale by
decedent (who died after trial) of stock in closely held corporation
to ESOP and did not contain statement of election to defer gain
pursuant to sec. 1042; on Nov. 28, 2000, after Commissioner com-
menced examining original return, petitioner filed amended return
indicating certain sale proceeds had been reinvested in qualified
replacement property; on July 20, 2001, Commissioner mailed
notice of deficiency determining that decedent had realized long-
term gain on stock sold to ESOP that was required to be included

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INCOME-Continued

in taxable income for 1996 because no timely sec. 1042 election had
been made; on Oct. 17, 2001, decedent filed petition contesting defi-
ciency; on Oct. 29, 2001, Commissioner received second 1996 income
tax return signed by decedent on Oct. 27, with (1) attached state-
ment of election to defer gain, (2) company statement consenting to
application of secs. 4978 and 4979A, and (3) statement of purchase
of qualified replacement property, all predated to Mar. 4, 1997,
Court determined estate (as decedent's successor) could not defer
recognition of gain resulting from sale to ESOP because decedent
had failed to file timely election by due date of tax return as
required by sec. 1042. Estate of Clause v. Commissioner

INTEREST

See BAD DEBTS; UNITED STATES TAX COURT.

JOINT RETURNS

Relief From Joint Liability Under Sec. 6015-Evidence

Introduced at Trial-Administrative Procedure Act (APA)

and Scope of Court's Review.-Where, after Commissioner

denied petitioner's request under sec. 6015(f) for equitable relief

from joint liability for unpaid tax shown on 1995 income tax return,

petitioner filed timely petition under sec. 6015(e)(1) as to eligibility

for sec. 6015(f) relief; and Commissioner contended Court, in mak-

ing sec. 6015(f) determination, could not consider evidence intro-

duced at trial because APA, 5 U.S.C. secs. 551-559, 701-706 (2000),

limited Court's review to administrative record, Court determined

decision as to equitable relief under sec. 6015(f) is made in trial de

novo, Court is not limited to matter contained in administrative

record, APA "record rule" is inapplicable to sec. 6015(f) determina-

tions, and, taking into account factors promulgated by Commis-

sioner in Rev. Proc. 2000-15, 2000-1 C.B. 447, petitioner was enti-

tled to equitable relief because Commissioner's denial of relief

under sec. 6015(f) was abuse of discretion. Ewing v. Commis-

sioner

Request for Relief From Joint and Several Liability-

Acceptance of Offer in Compromise-Allegation of Mutual

Mistake or Misrepresentation.-Where for taxable years 1984-

86 petitioner requested on Sept. 3, 1999, relief from joint and sev-

eral liability, and, on Apr. 24, 2001, petitioner submitted for years

1986-87 and 1993-97 Form 656, Offer in Compromise; on May 7,

2001, Commissioner informed petitioner by letter that partial relief

from joint and several liability was being proposed for 1986 and

1987 as well as refunds; on July 25, 2001, Commissioner accepted

offer in compromise, and petitioner then completed payment plan,

compromising tax liabilities of approximately $186,000 for $6,000;

on Aug. 12, 2002, Commissioner sent notice of determination deny-

ing relief under former sec. 6013(e) and sec. 6015(b), (c), and (f);

and petitioner filed petition under sec. 6015(e)(1) for review, argu-

115

JOINT RETURNS-Continued

ing that offer in compromise should be set aside for mutual mistake
of material fact or misrepresentation (i.e., statement as to entitle-
ment to refund) to allow petitioner to seek relief for 1986 and 1987
under sec. 6013(e) and sec. 6015(b), (c), and (f), Court determined
offer in compromise was valid and barred petitioner from seeking
relief from joint and several liability, since there was no mutual
mistake or misrepresentation to cause offer in compromise to be set
aside. Dutton v. Commissioner

NET OPERATING LOSS

See also UNITED STATES TAX COURT.

Individual Chapter 11 Bankruptcy Proceeding-Termi-

nation of Bankruptcy Estate-Carryover of Precom-

mencement NOLS.-Where in income tax returns for short tax-

able year 1995 and 1996-97, petitioner claimed NOLS that had

arisen before ch. 11 bankruptcy proceeding that commenced in

1995; on Sept. 1, 1997, petitioner was (1) discharged under 11

U.S.C. sec. 1141(d) from any debt incurred before confirmation of

plan vesting estate's assets in liquidating trust and (2) relieved of

status as "debtor-in-possession"; under sec. 1398(i), NOLs were tax

attributes that passed to petitioner on termination of bankruptcy

estate, which petitioner contended was Aug. 31, 1997, effective date

of confirmed plan; and Commissioner contended ch. 11 bankruptcy

did not terminate until entry of final order of bankruptcy court,

which in 2003 had not yet been issued, and NOLS could not be car-

ried to any years prior to termination of bankruptcy estate, Court

determined (1) petitioner debtor's ch. 11 bankruptcy estate termi-

nated for sec. 1398 purposes when plan of reorganization and dis-

charge of debtor were confirmed, not when final order of bank-

ruptcy court formally closed proceeding, since transference of tax

attributes from bankruptcy estate on plan confirmation date facili-

tated debtor's rehabilitation; and (2) under sec. 1398, NOLS

acquired at time of plan confirmation from bankruptcy estate could

be used in petitioner's separate tax reporting in year of commence-

ment of bankruptcy proceeding and later years, subject to sec. 172

limitations. Benton v. Commissioner

PARTNERSHIPS

STATES TAX COURT.

Illinois Limited Liability Company-Allocation of Recourse
Liability-Purchase of Airplane.-Where Commissioner issued
notice of final partnership administrative adjustment (FPAA) for
1998 and 1999 tax years to tax matters partner (TMP) of A, which
was organized in 1996 under Illinois Limited Liability Company Act
but treated as partnership for Federal tax purposes; A was owned
by S corporation X and individual F, who owned 100% of X's stock

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PARTNERSHIPS-Continued

and was also TMP; F owned 70% and F's daughters, 30% of S cor-

poration Y; F owned 63% of C corporation Z; A bought airplane for

use in A's charter business, and purchase loan was guaranteed by

F, Y, and Z, but not X; in FPAA, Commissioner determined 100%

of recourse liability shown on Schedule K-1 filed with A's partner-
ship returns was allocable to F; and TMP petitioned for readjust-
ment of adjustments in FPAA, contending part of liability was
allocable to X because of X's relationship to loan guarantor Y, Court
determined all liability was allocable to F because lender had no
recourse against X and under reg. 1.752-4(b)(2)(iii) X could not be
sec. 267 "related person" to F or to Y for purposes of allocation of
recourse liability. IPO II v. Commissioner

RETURNS

Joint Liability-Petition Contesting Commissioner's Deter-

mination in Levy Action-Pending Sec. 6015 Relief Claim No

Bar to Tax Lien.-Where petitioner's Nov. 12, 2002, petition chal-

lenged Commissioner's final notice denying claims for relief from

joint and several liability for 1989-94 tax years; Commissioner's

Apr. 17, 2003, notice of determination concerning collection actions

for 1989-94 conceded impropriety of proposing to levy before deci-

sion in sec. 6015 case but determined filing of Federal tax lien was

appropriate; and petitioner's timely petition for lien or levy action

challenged Commissioner's determination on ground Commissioner

was barred from filing tax lien for 1989-94 before entry of final

decision on petitioner's sec. 6015 claim, Court determined Commis-

sioner was not barred by sec. 6015, 6320, or 6330 from filing Fed-

eral tax lien before final decision on pending claims for relief from

joint and several liability. Beery v. Commissioner

TAXES

Alternative Minimum Tax (AMT)-Cooperative Housing

Corporation-Tenant-Stockholder's Proportionate Share of

Real Estate Taxes.-Where in 2001 petitioners deducted under

sec. 216(a)(1) proportionate share of real estate taxes paid by

cooperative housing corporation (1) from adjusted gross income for

regular tax purposes and (2) in computing alternative minimum

taxable income (AMTI) for AMT purposes; and Commissioner dis-

allowed deduction in sec. 56 AMTI computation, Court determined

deduction under sec. 216(a)(1) of tenant-shareholder's share of cor-

poration's real estate taxes did not reduce AMTI, since reference in

sec. 56(b)(1)(A)(ii) to "taxes described in" sec. 164(a)(1) applied to

sec. 216(a)(1) tenant-stockholder's deduction. Ostrow v. Commis-

sioner

UNITED STATES TAX COURT

Acceptance of Offer in Compromise-Subsequent Efforts

To Reduce Amounts Stated in Offer by Net Operating Losses

295

184

378

UNITED STATES TAX COURT-Continued

(NOLS)-Motion for Summary Judgment.-Where for 1989,

1991, and 1992 taxable years, petitioners made qualified offer

within meaning of sec. 7430(g) to resolve income tax liabilities, and

Commissioner accepted qualified offer without negotiation; petition-

ers subsequently sought to reduce amounts stated in qualified offer

by amounts of NOLS sustained in 1988, 1990, 1993, and 1995 tax

years; and Commissioner refused to allow reductions, contending

acceptance of petitioners' qualified offer precluded petitioners from

reducing agreed amount, Court determined Commissioner's accept-

ance of petitioners' qualified offer fully resolved issue of tax liabil-

ities for 1989, 1991, and 1992 tax years, since purpose of qualified

offer provision of sec. 7430(c)(4)(E) was to encourage settlements,

and parties entered into contract to settle docketed cases that

petitioners could not later modify by adding terms to agreement by

applying NOLs from other years to reduce agreed-upon amounts,

and Court granted Commissioner's motion for summary judgment.

Johnston v. Commissioner .......

Award of Reasonable Litigation and Administrative

Costs-Costs Incurred in Prior Proceeding-Meaning of

"Incurred".-Where Court had dismissed for lack of jurisdiction

petitioners' earlier case involving similar issues for 1996 taxable

year (whether self-employment tax on S corporation's "pass

through" to petitioners of distributive share of income was "affected

item" requiring "partner-level determination" under sec. 6230(a)(2))

because deficiency notice was issued before close of partnership

issues; consistent with earlier case, Court entered order of dismissal

for lack of jurisdiction and denied petitioners' motion for entry of

decision; petitioners filed motion under sec. 7430 and Rule 231

seeking award of reasonable litigation and administrative costs

incurred in both instant case involving 1997-98 income taxes and

earlier case and also sought punitive damages against Commis-

sioner; and Commissioner disputed all costs in instant case beyond

$60 filing fee, Court determined (1) under plain language of sec.

7430, only litigation and administrative costs incurred in connection

with instant proceeding could be awarded in instant proceeding, not

costs in earlier case; (2) costs were not "incurred" by petitioners for

sec. 7430(a) purposes, since charges were for administrative person-

nel services and miscellaneous expenses of petitioners' accounting

partnership; and (3) punitive damages against IRS were not author-

ized by statute. Grigoraci v. Commissioner

Limitations on Credit or Refund-Interest as Part of
"Overpayment" Under Sec. 6512(b)-Commissioner's Motion
To Dismiss for Lack of Jurisdiction To Review Amount of
Interest.-Where in amendment to petition for redetermination of
deficiencies for 1979, 1981, and 1983 petitioner claimed overpay-
ments due to errors by Commissioner in calculating interest on
underpayments and overpayments arising out of previously settled

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Reports of the United States Tax Court, Volume 122