This article covers recent developments in individual taxation – Part 3. The items are arranged in Code section order.

Sec. 1016: Adjustments to Basis

A U.S. District Court found that the taxpayers (a foreign national couple) provided sufficient evidence to support their claim that their improved property’s tax basis was higher than its purchase price. [40] The court accepted the couple’s accountant’s entries on an IRS Adjusted Basis Worksheet that their lawyer testified was prepared in reliance on contemporaneous documentation, in addition to building permits, settlement statements, and photographs of property improvements.

Sec. 1031: Exchange of Property Held for Productive Use or Investment

The Tax Court found that a couple’s real property was not used in a trade or business or as an investment at the time of a Sec. 1031 like-kind exchange. [41] The couple could not provide sufficient evidence for their intent to turn their property into a bed and breakfast. The Court also found that the taxpayers’ use of the property as their personal residence four days after the sale closed showed a clear presumption of non-business intent.

In another case, [42] the Tax Court found that an individual taxpayer’s sale of his house qualified as a like-kind exchange in which the house sold had been rented to an unrelated party, and the house purchased was rented to the Read More

This article covers recent developments in individual taxation – Part 2. The items are arranged in Code section order.

Sec. 170: Charitable, Etc., Contributions and Gifts

A landfill operator tried to claim a charitable deduction for dirt it sold at a bargain price to the city of Tucson, Ariz., for use in closing another operator’s noxious-smelling landfill. [25] Although the settlement agreement between the taxpayer and Tucson qualified as a contemporaneous written acknowledgment under Sec. 170(f)(8)(A), it failed to contain a good-faith estimate of the values of the goods and services received by the taxpayer. The court also accepted the IRS’s challenge to the taxpayer’s valuation of the provided dirt.

In Estate of Harvey Evenchik, [26] the Tax Court continued to make clear its lack of patience with sloppy, poorly prepared appraisals of donated property. In this case, the taxpayer donated approximately 72% of his shares in a corporation that owned two apartment buildings to a nonprofit housing corporation. However, the attached appraisal valued the apartment buildings themselves, not the capital stock donated. It also failed to account for the fact that only a partial interest was donated. The court noted that “the appraisals had gaping holes of required information” as well. Read More