IRS Confirms Deductibility of Medicare Insurance; Amended Returns May Be in Order

In computing adjusted gross income, self-employed individuals, sole proprietors, partners, and 2-percent S shareholders can deduct health insurance premiums, as well as premiums for a spouse, dependents, and any child of the taxpayer who at the end of the tax year has not turned 27. There has been some confusion in the past, compounded by erroneous IRS form instructions, as to whether or not certain Medicare premiums were deductible under this rule. In CCA 201228037, the Office of Chief Counsel confirms that such premiums are deductible and recommends amended returns for those who were entitled to, but failed to, take the deduction.

PRACTICE TIP: While not specifically mentioned in CCA 201228037, Code Sec. 6511(a) provides that the statute of limitations for filing an amended return to obtain a refund is three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires the later.

General Rule for Deducting Health Insurance Payments in Computing AGI

Under Code Sec. 162(l), in computing adjusted gross income, a self-employed taxpayer can deduct amounts paid during the tax year for insurance that constitutes medical care for the taxpayer, a spouse, dependents, and any child of the taxpayer who at the end of the tax year has not turned 27. Sole proprietors, partners in a partnership, and 2-percent shareholders in an S corporation are also entitled to this deduction.

The deduction is not allowed to the extent the amount of the deduction exceeds the earned income derived by the taxpayer from the trade or business with respect to which the plan providing the medical care coverage is established. Also, no deduction is allowed for amounts during a month in which the taxpayer is eligible to participate in any subsidized health plan maintained by an employer of the taxpayer or of the spouse of the taxpayer.

Notice 2008-1 and Rev. Rul. 92-16

In Notice 2008-1 and Rev. Rul. 91-26, the IRS provided guidance on the Code Sec. 162(l) deduction for 2-percent S corporation shareholder-employees. A 2-percent shareholder-employee in an S corporation, who otherwise meets the requirements of Code Sec. 162 (l), is eligible for the deduction under Code Sec. 162 (l) if the plan providing the medical care coverage for the 2-percent shareholder-employee is established by the S corporation.

A plan providing medical care coverage for the 2-percent shareholder-employee in an S corporation is established by the S corporation if: (1) the S corporation makes the premium payments for the accident and health insurance policy covering the 2-percent shareholder-employee (and his or her spouse or dependents, if applicable) in the current tax year; or (2) the 2-percent shareholder makes the premium payments and furnishes proof of premium payment to the S corporation and then the S corporation reimburses the 2-percent shareholder employee for the premium payments in the current tax year.

If the accident and health insurance premiums are not paid or reimbursed by the S corporation and included in the 2-percent shareholder-employee's gross income, a plan providing medical care coverage for the 2-percent shareholder-employee is not established by the S corporation and the 2-percent shareholder-employee in an S corporation cannot take the deduction under Code Sec. 162 (l).

As the IRS discusses in Notice 2008-1, in order for the 2-pecent shareholder-employee to deduct the amount of the accident and health insurance premiums, the S corporation must report the accident and health insurance premiums paid or reimbursed as wages on the 2-percent shareholder-employee's Form W-2 in that same year. In addition, the 2-percent shareholder-employee must report the premium payments or reimbursements from the S corporation as gross income on his or her Form 1040, U.S. Individual Income Tax Return. Thus, for a 2-percent shareholder, and by extension, a partner in a partnership, the shareholder or partner may claim the deduction under Code Sec. 162(l) only if the requirements of Notice 2008-1 are satisfied. With respect to employee fringe benefits, Code Sec. 1372(a) provides that an S corporation is treated as a partnership, and any 2-percent shareholder of the S corporation is treated as a partner of the partnership.

Chief Counsel's Advice

In CCA 201228037, the Office of Chief Counsel was asked:

(1) whether all Medicare Parts, in addition to Medicare Part B, are insurance that constitute medical care coverage under Code Sec. 162(l);

(2) whether a self-employed individual must pay Medicare premiums directly in order for the premiums to be deductible under Code Sec. 162(l);

(3) whether Medicare premiums may be deducted under Code Sec. 162(l) for the coverage of a self-employed individual's spouse, dependent, or child under 27; and

(4) if a self-employed individual failed to deduct the Medicare premiums in calculating the deduction under Code Sec. 162(l) for prior years, can an amended return be filed?

According to the Chief Counsel's Office, Medicare is insurance that constitutes medical care under Code Sec. 162(l). Therefore, all Medicare premiums are similar to other health insurance premiums and can be used to compute the deduction under Code Sec. 162(l). This rule also extends to Medicare premiums for coverage of a self-employed individual's spouse, dependent, or child under the age of 27.

The Chief Counsel's Office noted that the instructions to Form 1040 for 2010 indicate that Medicare premiums can be used to compute the deduction under Code Sec. 162(l).

OBSERVATION: While the Chief Counsel's Offices states that the instructions to Form 1040 for 2009 and prior years omit mention of Medicare premiums, the 2009 Form 1040 instructions specifically stated, on page 31 (under the discussion of the self-employed health insurance deduction): Medicare premiums cannot be used to figure the deduction. Thus, there was confusion and inconsistent treatment by practitioners regarding this deduction.

In CCA 201228037, the Chief Counsel's Office concludes that:

(1) All Medicare Parts are insurance that constitutes medical care under Code Sec. 162(l).

(2) A partner in a partnership may pay the premiums directly and be reimbursed by the partnership, or the premiums may be paid by the partnership. In either case, the premiums must be reported to the partner as guaranteed payments, and the partner must report the guaranteed payments as gross income on his or her Form 1040. A 2-percent shareholder-employee in an S corporation may pay the premiums directly and be reimbursed by the S corporation or the premiums may be paid by the S corporation. In either case, the premiums must be reported to the 2-percent shareholder-employee as wages on Form W-2 and the 2-percent shareholder-employee must report this amount as gross income on his or her Form 1040. A sole proprietor must pay the Medicare premiums directly.

(3) If all applicable requirements are satisfied, Medicare premiums may be deducted under Code Sec. 162(l) for coverage of the self-employed individual's spouse, dependent or a child under the age of 27.

(4) Self-employed individuals who failed to deduct Medicare premiums for prior years may file an amended return to claim the deduction.

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President Signs Transportation Bill; Pension and Other Tax Provisions Included

On July 6, 2012, President Obama signed into law a transportation bill, Moving Ahead for Progress in the 21st Century (MAP-21) (Pub. L. 112-141). The new law funds the Highway Trust Fund and also extends reduced interest rates on student loans. It also includes several tax provisions.

Highway Excise Taxes

Six separate excise taxes are imposed to finance the Federal Highway Trust Fund program. Three of these taxes are imposed on highway motor fuels. The remaining three are a retail sales tax on heavy highway vehicles, a manufacturers' excise tax on heavy vehicle tires, and an annual use tax on heavy vehicles. A substantial majority of the revenues produced by the Highway Trust Fund excise taxes are derived from the taxes on motor fuels. The annual use tax on heavy vehicles was due to expire October 1, 2013. Except for 4.3 cents per gallon of the Highway Trust Fund fuels tax rates, the remaining taxes were scheduled to expire after June 30, 2012. The 4.3-cents-per-gallon portion of the fuels tax rates is permanent.

MAP-21 extends the taxes dedicated to the Highway Trust Fund at their present law rates through September 30, 2016, and for the heavy vehicle use tax, through September 30, 2017.

Pension Funding Stabilization

Defined benefit plans generally are subject to minimum funding rules that require the sponsoring employer generally to make a contribution for each plan year to fund plan benefits. Parallel rules apply under the Employee Retirement Income Security Act of 1974 (ERISA), which is generally in the jurisdiction of the Department of Labor. The minimum funding rules for single-employer plans specify the interest rates and other actuarial assumptions that must be used in determining the present value of benefits for purposes of a plan's target normal cost and funding target. Present value is determined using three interest rates (i.e., segment rates), each of which applies to benefit payments expected to be made from the plan during a certain period.

In addition to being used to determine a plan's funding target and target normal cost, the segment rates are used also for other purposes, either directly because the segment rates themselves are specifically cross-referenced or indirectly because funding target, target normal cost, or some other concept in which funding target or target normal cost is an element, is cross-referenced elsewhere.

Effective for plan years beginning after 2011, MAP-21 revises the rules for determining the segment rates under the single-employer plan funding rules by adjusting a segment rate if the rate determined under the regular rules is outside a specified range of the average of the segment rates for the preceding 25-year period (average segment rates). An employer may elect, for any plan year beginning before January 1, 2013, not to have the provision apply either (1) for all purposes for which the provision would otherwise apply, or (2) solely for purposes of determining the plan's adjusted funding target attainment percentage (used in applying the benefit restrictions) for that year. A plan is not treated as failing to meet the requirements of the anti-cutback rules solely by reason of an election under the special rule.

Transfer of Excess Pension Assets

Defined benefit plan assets generally may not revert to an employer prior to termination of the plan and satisfaction of all plan liabilities. Upon plan termination, the accrued benefits of all plan participants are required to be 100-percent vested. A reversion before plan termination may constitute a prohibited transaction and may result in plan disqualification. Any assets that revert to the employer upon plan termination are includible in the gross income of the employer and subject to an excise tax. The excise tax rate is 20 percent if the employer maintains a replacement plan or makes certain benefit increases in connection with the termination; if not, the excise tax rate is 50 percent.

A pension plan may provide medical benefits to retired employees through a separate account that is part of a defined benefit plan (i.e., retiree medical accounts). Medical benefits provided through a retiree medical account are generally not includible in the retired employee's gross income. A qualified transfer of excess assets of a defined benefit plan, including a multiemployer plan, to a retiree medical account within the plan may be made to fund retiree health benefits. A qualified transfer does not result in plan disqualification, is not a prohibited transaction, and is not treated as a reversion. Thus, transferred assets are not includible in the gross income of the employer and are not subject to the excise tax on reversions. No more than one qualified transfer may be made in any tax year. Transferred assets (and any income thereon) must be used to pay qualified current retiree health liabilities for the tax year of the transfer. Transferred amounts generally must benefit pension plan participants, other than key employees, who are entitled upon retirement to receive retiree medical benefits through the separate account. Retiree health benefits of key employees may not be paid out of transferred assets. A termination provision provided that no qualified transfer would be allowed to be made after December 31, 2013.

Under MAP-21, qualified transfers, qualified future transfers, and collectively bargained transfers to retiree medical accounts may be made through December 31, 2021. No transfers are permitted after that date. Also, qualified transfers, qualified future transfers, and collectively bargained transfers may be made to fund the purchase of retiree group-term life insurance. The assets transferred for the purchase of group-term life insurance must be maintained in a separate account within the plan (retiree life insurance account), which must be separate both from the assets in the retiree medical account and from the other assets in the defined benefit plan. Further, the general rule that the cost of group-term life insurance coverage provided under a defined benefit plan is includable in gross income of the participant does not apply to group-term life insurance provided through a retiree life insurance account. Instead, the general rule for determining the amount of employer-provided group-term life insurance that is includible in gross income applies. However, group-term life insurance coverage may be provided through a retiree life insurance account only to the extent it is not includible in gross income. Thus, generally, only group-term life insurance not in excess of $50,000 may be purchased with such transferred assets.

Exception from Early Distribution Tax for Annuities under Phased Retirement Program

Under Code Sec. 72(t), a penalty is imposed on distributions made from qualified retirement plans before an employee reaches age 59The tax is equal to 10 percent of the amount of the distribution that is includible in gross income. The 10-percent tax is in addition to the taxes that would otherwise be due on distribution. Certain exceptions to the early distribution tax apply, including an exception for distributions after separation from service with the employer after attaining age 55, or in the form of substantially equal periodic payments from the qualified retirement plan commencing after separation from service at any age. However, there was no exception for annuity payments that begin before separating from service with the employer.

MAP-21 includes a new Federal Phased Retirement Program under which a federal agency may allow a full-time retirement eligible employee to elect to enter phased retirement status in accordance with regulations issued by the Office of Personnel Management (OPM). During that status, generally, the employee's work schedule is a percentage of a full time work schedule, and the employee receives a phased retirement annuity. At full-time retirement, the phased retiree is entitled to a composite retirement annuity that also includes the portion of the employee's retirement annuity attributable to the reduced work schedule. MAP-21 includes an exception to the early distribution tax for payments under a phased retirement annuity and a composite retirement annuity received by an employee participating in this new Federal Phased Retirement Program. The provision is effective on the effective date of implementing regulations issued by OPM implementing the Federal Phased Retirement Program.

Expansion of the Definition of a Tobacco Manufacturer

Tobacco products and cigarette papers and tubes manufactured in the United States or imported into the United States are subject to federal excise tax. In general, the excise tax on tobacco products and cigarette papers and tubes manufactured in the United States comes into existence when the products are manufactured and is determined and payable when the tobacco products or cigarette papers and tubes are removed from the bonded premises of the manufacturer.

MAP-21 amends the definition of a manufacturer of tobacco products to include any person who for commercial purposes makes available machines capable of making tobacco products for consumer use. A person who sells a machine directly to a consumer at retail for the consumer's personal home use is not a manufacturer of tobacco products under the provision if the machine is not used at a retail establishment and is designed to produce only personal use quantities. The provision is effective for articles removed after July 6.

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Multiple Factors Lead to Tax Court Rejecting Ordinary Loss Treatment on Real Estate Venture

Because the taxpayers were never licensed real estate brokers, did not have a preexisting contract to sell property they were developing, and did not have prior real estate dealings, they did not meet their burden of showing that their real estate activity was a trade or business rather than an investment; thus, their loss on the sale of the property was a capital loss rather than an ordinary loss. Bennett v. Comm'r, T.C. Memo. 2012-193 (7/12/12).

Darron Bennett purchased a parcel of property in Bel Air, California, known as the Bellagio property. Even though his family home was in Henderson, Nevada, Darron spent roughly 85 percent of his time during 1999 to 2001 at the Bellagio property. He put a trailer on the property to use as an office. Darron's wife, Jill, was responsible for the design side and overall look and feel of the Bellagio property. Jill worked with an interior decorator in order to design the interior of the house into something that would sell. The Bennetts refinanced the Bellagio property in 1999, for a total amount of $2,500,000. On the signature page of the loan documentation, the Bennetts checked a box signifying that they planned to occupy the property as their primary residence. The Bennetts again refinanced the Bellagio property in 2000, for a total amount of $3,250,000. This time, on the signature page of the loan documentation, the Bennetts checked a similar box signifying that they did not plan on occupying the property as their primary residence. The Bennetts received $1,059,000 from the refinance as cash to borrower.

The Bennetts sold the Bellagio property on December 3, 2001, for $4 million in order to stop the bleeding. The house was unfinished when it was sold and, after selling the Bellagio property, the Bennetts never invested in real estate again.

On their 2001 tax return, the Bennetts deducted $1,377,325 on Form 4797, Sales of Business Property, for the sale of the Bellagio property. The IRS said the loss was a personal nondeductible loss. The IRS argued that (1) the Bennetts purchased the property and constructed the house as their personal residence and therefore any loss incurred in the sale of the property was not deductible under Code Sec. 165(c); (2) if the property was converted to nonresidential property, the conversion value of the property was limited to the lesser of the adjusted basis or fair market value at the time of the conversion; and (3) under Code Sec. 1221, the property was not held primarily for sale to customers in the ordinary course of petitioners' trade or business and therefore any loss incurred on the sale of the property was a capital loss and not an ordinary loss.

The Bennetts testified in Tax Court that they never planned on living in the Bellagio property. However, the IRS argued that they purchased the property as their primary residence and that their intent was clearly shown in the many documents they signed stating that the Bellagio property was to be their primary residence. However, the Bennetts' architect/developer explained in Tax Court that he did not get the impression that the Bellagio project was going to be a residence for them and stated that a lot of developers that I work with always say it's their house because they get better financing from the bank as opposed to disclosing it's a business entity.

The Bennetts argued that the Bellagio property was not a capital asset because it fell within the first exception to property excepted from being a capital asset, i.e., it was held primarily for the sale to customers in the ordinary course of their trade or business. Thus, any loss incurred with respect to the property was ordinary.

The Tax Court held that the loss realized from the sale of the Bellagio property was a capital loss and not an ordinary loss. With respect to whether the Bellagio property was the Bennetts' primary residence, the Tax Court concluded that the Henderson, Nevada property, which the Bennetts purchased around the same time that they purchased the Bellagio property, was the property where they intended to live. Thus, the court concluded that, despite signing documents to the contrary, the Bennetts did not intend to occupy the Bellagio property as their personal residence. Because the court found that the Bennetts never intended to occupy the Bellagio property as their personal residence, the court concluded that the property was never converted from residential to nonresidential property.

The Tax Court then turned to whether the development activity relating to the Bellagio property was an investment activity or a trade or business. The court concluded that the Bennetts acquired the property to build a house that would sell and that this factor weighted in favor of finding that the Bellagio property was property held primarily for the sale to customers in the ordinary course of business. However, while noting that a couple of cases have held that very few sales can still qualify for a finding that a property was held primarily for the sale to customers in the ordinary course of business, the Tax Court did not find that the facts in this situation led to this conclusion. The Bennetts, the court noted, were never licensed real estate brokers, did not have a preexisting contract to sell the house, did not have prior real estate dealings, and did not meet their burden of showing that their Bellagio real estate activity was a trade or business rather than an investment.

For a discussion of what constitutes a trade or business activity, see Parker Tax ¶90,105.

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Late Filed Form 1040 Precludes Discharge of Federal Tax Liability in Bankruptcy

A Form 1040 filed by the debtors approximately 17 months after the IRS had determined and assessed their taxes as not a return; thus, the tax liability for that year is not dischargeable in bankruptcy. In re Wogoman, 2012 PTC 177 (B.A.P. 10th Cir. 7/3/12).

Debtors Mitchell and Holly Wogoman filed for bankruptcy under Chapter 7 in January 2011. The Wogomans did not file a 2001 tax return by the due date or by the extended due date of that return. In October 2003, the Wogomans' tax preparer sent them a letter pointing out they had not filed a return for 2001and needed to take action. The IRS began an audit in 2004 to determine the Wogomans' delinquent 2001 tax liability. In February 2005, the IRS assessed a deficiency for the Wogomans' 2001 taxes. The Wogomans did not pay the assessed liability, but filed a Form 1040 for 2001 in August 2006. In March 2007, the Wogomans entered into an installment agreement with the IRS to pay the remaining 2001 taxes and penalties, and subsequently made approximately 20 payments under the agreement. As part of the bankruptcy proceedings, the Wogomans sought to have their 2001 tax liability discharged.

Under Bankruptcy Code Section 523(a)(1)(B)(i), a debtor is not discharged from any debt for a tax with respect to which a return was not filed. Before the bankruptcy court, the IRS argued that, if at the time taxes are assessed no return has been filed, then the debt recorded by the assessment is a debt with respect to which no return has been filed, and Bankruptcy Code Section 523(a)(1)(B)(i) excepts that tax debt from discharge. The Wogomans argued that the express statutory language of Section 523(a)(1)(B)(i) does not require that a return be filed before assessment in order to be effective for dischargeability purposes. The bankruptcy court held that the Wogomans' 2001 tax debt was nondischargeable because it came into existence before they filed their 2001 Form 1040 in 2006. The Wogomans appealed the bankruptcy court's interpretation of Section 523(a)(1)(B)(i) to the Tenth Circuit Bankruptcy Appellate Court.

The B.A.P. noted that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) added language relevant to this exception in a hanging paragraph that follows Section 523(a)(19). The hanging paragraph, which purports to define the term return, provides:

For purposes of this subsection, the term return means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to section 6020(a) of the Internal Revenue Code of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law."

Code Sec. 6020(a) refers to a return prepared by the IRS with the assistance of the taxpayer, and when signed by the taxpayer, may be treated as a return filed by the taxpayer. On the other hand, Code Sec. 6020(b) refers to a return prepared by the IRS without the assistance of the taxpayer and executed by the IRS. The question presented to the B.A.P. was whether the Wogomans' 2001 tax liability was a tax for which no return was filed within the meaning of Section 523(a)(1)(B)(i). Because the 2001 Form 1040 filed by the Wogomans in August 2006 was not filed under Code Sec. 6020(a) or (b), the B.A.P. stated, the second sentence of the hanging paragraph was not relevant in this case. However, the first sentence of the hanging paragraph, which purportedly defines the term return, does apply, the court said. That first sentence, the court observed, arguably changes the analysis conducted by courts pre-BAPCPA when addressing the tax dischargeability exception on facts similar to the Wogomans'.

On appeal, the Wogomans argued that the express language of Section 523(a)(1)(B)(i) does not distinguish between returns filed pre-assessment and those filed post-assessment and the court should not read into Section 523(a)(1)(B) the requirement that a debtor must have filed a return before an assessment by the IRS in order for taxes to be dischargeable.

The B.A.P. held that the Wogomans' 2001 tax liability was excepted from discharge. The court noted that, following the bankruptcy court's decision in this case, the Fifth Circuit issued its opinion in In re McCoy, 666 F.3d 924 (5th Cir. 2012). In McCoy, the Fifth Circuit interpreted the first sentence of the hanging paragraph added by BAPCPA to mean that a late-filed tax return, even if filed before assessment of the taxes by the taxing authority, is not a return for purposes of Section 523(a)(1)(B)(i), unless it falls within the safe harbor created for returns filed under Code Sec. 6020(a) or similar state or local law provision. As a result, the B.A.P. said there were at least three alternative prescriptions for determining whether the Wogomans' tax liability was dischargeable. After noting that the Wogomans filed their 2001 Form 1040 some 17 months after the IRS had assessed the taxes, and provided no justifiable reason for the delay, the court concluded that regardless of which alternative was applied to the facts, it was compelled to affirm the bankruptcy court's order excepting the Wogomans' 2001 tax liability from discharge.

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Failure to File Protective Claim Costs Estate More than $200,000; Equitable Tolling Denied for Subsequent Event Affecting Estate's Tax Liability

An appeal by the administrator of an estate for equitable tolling of the statute of limitations so that a late refund request could be processed was denied. Davis v. U.S., 2012 PTC 172 (5th Cir. 6/28/12).

W.E. Davis is the administrator of the estate of decedent Anthony Walker Smith. In February 2003, Davis filed an income tax return for the estate reporting a tax liability of approximately $492,000. Included in that liability were taxes owed as the result of the decedent's ownership of a fee simple interest in property described as Wyatt Farm. The estate completed payment on the tax liability, plus interest and penalties, on April 17, 2003.

Before filing this estate income tax return, however, the decedent's father, Raymond Smith, filed suit in a Mississippi court against the estate, seeking reformation of the deed conveying Smith's interest in Wyatt Farm. Raymond Smith argued that the deed contained a scrivener's error that omitted an intended reservation of a life estate on the property for Raymond Smith. In November 2003, the Mississippi court found a mutual mistake existed and reformed the deed to reserve a life estate for Raymond Smith. The estate appealed the decision to the Mississippi Court of Appeals, which affirmed the lower court decision in August 2005. In March 2006, the Mississippi Supreme Court denied certiorari. Thereafter, on or about November 4, 2008, the estate filed an administrative claim for a refund from the IRS, asserting that the estate overpaid federal taxes by $215,000. The basis for the refund claim was that the value of the decedent's interest in Wyatt Farm had been overstated due to the estate's mistaken understanding that the decedent owned Wyatt Farm in fee simple, unencumbered by a life estate. The overstatement resulted in an overpayment of federal taxes. The IRS disallowed the estate's refund claim on the ground that it was not timely filed. The IRS cited Code Sec. 6511, which requires that a claim for refund be filed within three years from the filing of a tax return, or two years from the payment of the tax, whichever is later. As the estate's refund claim for the estate tax had been filed more than three years after the filing of the tax return for that tax, and more than two-years after payment of the tax, the IRS found the refund claim untimely.

The estate filed suit in district court. The district court granted the government's motion to dismiss the suit. The estate then appealed to the Fifth Circuit. Davis argued that the district court erred in dismissing the instant suit for lack of subject matter jurisdiction. Davis conceded that the refund claim was untimely under Code Sec. 6511, and that an untimely claim divests the court of jurisdiction. Nevertheless, Davis argued that the district court had the authority to equitably toll the statute's time-limits, and that he deserved such tolling on the ground that the estate could not have known that the property would be encumbered by a life estate until the Mississippi Supreme Court denied certiorari in March 2006. Davis argued that the three-year time-limit in Code Sec. 6511 should only have begun to run at that point, rendering his November 4, 2008, refund request timely.

The Fifth Circuit sided with the IRS and affirmed the district court. Davis's argument, the court held, was foreclosed by Supreme Court precedent. In U.S. v. Brockamp, 519 U.S. 347 (1997), the court noted, the Supreme Court held that courts could not toll, for nonstatutory equitable reasons, the statutory time (and related amount) limitations for filing tax refund claims set forth in Code Sec. 6511. Nor, the court noted, has the Brockamp decision or similar decisions been reversed by Congress's amendment to Code Sec. 6511 suspending Code Sec. 6511's time-limits for times when an individual is financially disabled.

The Fifth Circuit noted that, before filing the estate's tax return, Smith's father had filed suit alleging the decedent's interest in the property was encumbered by a life estate. Moreover, the court added, before the running of Code Sec. 6511's time-limits, the Mississippi court ruled in favor of Smith's father and encumbered the decedent's interest with a life estate and the Mississippi Court of Appeals upheld that decision. According to the Fifth Circuit, although the Mississippi Supreme Court had not yet denied certiorari, Davis could have filed a protective claim with the IRS to preserve the estate's interest in the refund.

For a discussion of the rules relating to the statute of limitations for filing refund claims, see Parker Tax ¶261,180.

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S Corporation Workers Were Employees, Not Independent Contractors; Penalties Assessed

Because the nature of an employment arrangement indicated that the sole owner of an S corporation had the right to exercise control over two workers, even if that right was not often exercised, the workers were considered employees and federal employment taxes should have been withheld and paid to the IRS. Twin Rivers Farm, Inc. v. Comm'r, T.C. Memo. 2012-184 (7/2/12).

Twin Rivers Farm, Inc. was formed in October 2005 and operated as an S corporation. From January 1, 2006, to December 31, 2008, the years at issue, Twin River's primary activity was the raising, inventorying, training, marketing, and showing of horses for anticipated sales, and/or anticipated prospective use for lessons and/or leasing of horses. Twin River's sole owner and sole corporate officer was Diana Militana.

During 2006 and continuing through 2007 and 2008, Diana paid two farm workers, Adam Lopez Morales and Nallhelyo Ruiz, to work on the property. The workers lived in trailers on Diana's property and did not pay rent. Diana purchased workers' compensation and employer's liability insurance. The workers' job duties included: cleaning stalls, the barn area, the barn offices, the rest room, and the tack room; grooming horses; watering the horses; and moving the horses between pastures. The harnesses, brushes and combs, shovels, pitchforks, wheelbarrow, manure spreader, and brooms used to care for the horses and barn were all owned by Diana. During the years at issue, Mr. Morales was also primarily responsible for cutting grass in the pastures and otherwise performing grounds-keeping-related activities. Mr. Morales used weed whackers, a Bush Hog mower, a tractor, and other equipment provided to him by Diana to cut the grass in the pasture.

On occasion the workers also repaired fences on the property. The materials to maintain the fences were provided by either Diana directly, or Mr. Morales would pick them up at the store, sign for the materials, and have the bill sent to Diana. Diana paid each worker weekly by checks, signed by her in her capacity as president of Twin Rivers. Mr. Morales was paid $300 a week, and Mr. Ruiz was paid $150 a week.

Employers of agricultural workers must report employment taxes on Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. With respect to the years at issue, Twin Rivers did not file with the IRS any Forms 943, or Forms 941, Employer's Quarterly Federal Tax Return. For the years at issue, the corporation did not make deposits of employment tax with the IRS, nor did she file Forms 1099 with respect to the workers. The IRS determined that the two workers were employees and that employment taxes should have been withheld and submitted to the IRS. The IRS also assessed, under Code Sec. 6651, a penalty for failing to timely file employment tax returns. The IRS also assessed a penalty under Code Sec. 6656 for failure to make employment tax deposits. Twin Rivers argued that it did not exercise control over the workers and thus was not liable for employment taxes.

The Tax Court agreed with the IRS and held that the two workers were employees of Twin Rivers, subject to employment taxes. The court noted that, under Code Sec. 3121(d)(2), the term employee includes any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee. Relevant factors include: (1) the degree of control exercised by the principal; (2) which party invests in the work facilities used by the worker; (3) the opportunity of the individual for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; and (7) the relationship the parties believed they were creating. The court noted that the degree of control that the principal (i.e., Diana) exercises over the worker is generally the crucial test in making the determination.

According to the court, the nature of the employment arrangement indicated that Diana had the right to exercise control, even if that right was not often exercised. The workers were allowed to use her farm equipment (including a tractor) and supplies to maintain the appearance of the property. The court said it was difficult to imagine that the workers' use of Diana's valuable equipment could not have been controlled by her in the event of misuse by the workers. Throughout the years at issue, the court observed, Diana was at the farm most of the time and, therefore, had the opportunity to supervise the work being done on the farm. The court said it was unlikely that if the workers were careless in their use of the equipment, Diana would not have exercised control over their activities. In addition, the court noted, the workers were responsible for performing services that could affect Twin River's primary assets, its horses. That Diana would turn the responsibility of caring for the horses over to the workers without retaining the right to control their work, the court stated, was implausible. The court concluded that, although there was no evidence of a contractual arrangement between Twin Rivers and the workers creating an explicit permanent employment relationship, the relationship in practice was certainly ongoing. Because the workers were long-term employees who actually lived on the farm, it could not be said that the relationship was transitory or temporary. The court examined all the various factors and found support for the existence of an employer-employee relationship in each factor.

The Tax Court also upheld the assessment of penalties under both Code Sec. 6651 and Code Sec. 6656.

For a discussion of workers that are classified as employees, see Parker Tax ¶210,110.

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Unauthorized Collection by IRS Costs Taxpayer Her Home; Court Awards Statutory Maximum of $100,000

An IRS levy on the taxpayer's wages after she signed an installment agreement and had made payments on time resulted in the taxpayer being awarded damages of $100,000. Rhodes-Lyons v. U.S., 2012 PTC 173 (D. Nev. 6/26/12).

Diane Rhodes-Lyons owed back taxes for the tax years 2003-2008 in the amount of $28,288. On September 4, 2009, Diane and IRS agents Desiree Harkema and Leslie Rogers agreed that Diane would pay $583 a month until her tax obligations were satisfied. This agreement was documented on a Form 9297 Summary of Taxpayer Contract. Diane made two successive payments, but before she could pay her third payment she was served with a notice of levy on wages, salary, and other income. The levy lasted 10 weeks, during which time Diane suffered a severe financial hardship, which allegedly resulted in her losing her residence, moving in with her daughter, closing her bank account, and losing furniture with an approximate value of $7,500. The excess levied monies were eventually returned to Diane.

On February 7, 2012, Diane filed a complaint against the IRS agents for unauthorized collection of taxes under Code Sec. 7433. She requested $120,000 for direct economic damages and $100,000 for non-pecuniary damages. She also requested that tax assessments for the tax years 2003-2008 be set aside.

The government argued that (1) the United States is the only proper defendant in an action for damages under Code Sec. 7433 and, therefore, the claims against the IRS agents should be dismissed; (2) Diane failed to exhaust her administrative remedies and was thus barred from filing the lawsuit; (3) Diane's damages are statutorily limited to her actual pecuniary damages; and (4) the district court lacked jurisdiction to set aside Diane's tax assessments for the tax years 2003-2008.

A district court held that Diane was entitled to the maximum amount under Code Sec. 7433 of $100,000. The court noted that where a suit is against IRS employees in their official capacity, it is essentially a suit against the United States. With respect to the government's claim that Diane failed to exhaust her administrative remedies, the court noted that Diane filed an administrative claim with the IRS and it was denied. Further, the court observed, the denial of the administrative claim stated that Diane was not entitled to additional administrative appeals of the decision, but that she could file a civil action in federal district court for damages under Reg. Sec. 301.7432-1. Therefore, the district court found that Diane exhausted her administrative remedies. Additionally, the court found that Diane's complaint alleged sufficient economic damages to survive the government's motion to dismiss. With respect to the amount Diane was entitled to recover, the court noted that recovery for the unauthorized collection of taxes is limited to the lesser of $100,000 or the sum of the actual, direct economic damages sustained by the Diane as a proximate result of the reckless, intentional, or negligent actions of the officer or employee, and the costs of the action. Further, injuries such as inconvenience, emotional distress and loss of reputation are compensable only to the extent they result in actual pecuniary damages. With respect to Diane's request for $120,000 for direct economic damages and $100,000 for nonpecuniary damages, the court held that her direct economic damages were statutorily limited to $100,000. Further, her nonpecuniary damages were compensable only to the extent they were tied to actual pecuniary loss - an amount already represented in her claim for direct economic damages. Thus, Diane's damages claim was limited to the statutory maximum of $100,000. The court also concluded that it lacked jurisdiction to set aside Diane's tax assessments for the tax years 2003-2008.

For a discussion of claims the taxpayer may file against the IRS for the unauthorized collection of taxes, see Parker Tax ¶260,550.

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District Court Affirms Bankruptcy Court; IRS Claim Not Entitled to Priority Status

A district court rejected the IRS's attempt to apply separate 90-day increments to the look-back period for each of two tolling events (i.e., two intervening bankruptcies), thus denying the IRS's claim to priority status. U.S. v. Montgomery, 2012 PTC 174 (D. Kan. 6/26/12)

James and Sapora Montgomery (the debtors) filed for bankruptcy on four separate occasions in the past 11 years. In 2000, the debtors filed a Chapter 13 petition in a Missouri bankruptcy court and that case was dismissed in 2002 after they defaulted on their plan payments. They filed a second Chapter 13 petition in a Kansas bankruptcy court, and that case was dismissed in 2004 because they failed to make required plan payments. The debtors filed a third Chapter 13 petition, again in a Kansas bankruptcy court. After that case was converted to Chapter 7, the court entered a discharge order in 2007. The debtors filed a fourth Chapter 13 petition, in a Kansas bankruptcy court, on March 24, 2010. In this most recent bankruptcy, the debtors objected to an IRS claim with respect to a 2001 income tax liability on the ground that the IRS was not entitled to priority under 11 U.S.C. Section 507(a)(8). That provision states:

An otherwise applicable time period specified in this paragraph [i.e., the three-year look-back period] shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.

The bankruptcy court agreed and held that the IRS's claim for 2001 income taxes was not entitled to priority status. Starting with the textual language of the suspension paragraph and relying on the Supreme Court's decision in U.S. v. Ron Pair Enters, Inc., 489 U.S. 235 (1989), the bankruptcy court concluded that the punctuation of the phrase plus 90 days, which is separated from the preceding clause by a comma, indicated that the plus 90 days should be added to the three-year look-back period after subtracting the period during which the bankruptcy stay (or stays) was (or were) in effect or collection was precluded by a confirmed plan. The bankruptcy court stated that, under any calculation method, more than the permitted look-back period had expired before the fourth bankruptcy was filed. The IRS appealed, arguing that the bankruptcy court erred by brushing aside relevant case law and mistakenly emphasizing fresh start principles.

The resolution of the question before the district court turned on the application of interpretation of plus 90 days. This section affords eighth priority to IRS claims for tax liabilities if the return was due within three years before the bankruptcy petition was filed. This three-year look-back period can be tolled or suspended under certain conditions. For example, the period is suspended when a stay of proceedings is in effect in a prior bankruptcy case. When such a tolling event occurs, an additional 90-day increment is added to the look-back period. In the Montgomerys' case, there was no dispute that the look-back period was suspended during the pendency of their second and third bankruptcies. The dispute centered on whether Section 507(a)(8) entitled the IRS to a single 90-day add-on to that period, or to two 90-day add-ons. Applying separate 90-day increments to the look-back period for each tolling event-the two intervening bankruptcies-would result in the IRS's claim being entitled to priority in this case. Adding only a single 90-day increment would result in the IRS's claim not being entitled to priority status. The IRS argued that the phrase plus 90 days applied to each and every tolling event identified in the provision (a debtor's request for a hearing, an appeal of collection activities, the existence of a stay, or when collection is precluded by a confirmed plan).

A district court affirmed the bankruptcy court. According to the district court, reading the statute in the manner suggested by the IRS would render the initial plus 90 days phrase redundant. The district court concluded that a plain reading of the provision revealed that Congress intended the look-back period to be suspended for (1) any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; and that the look-back period also be suspended for (2) any time during which the stay of proceedings was in effect in a prior case under the Bankruptcy Code or during which collection was precluded by the existence of one or more confirmed plans under the Bankruptcy Code plus 90 days. The district court noted that only the second suspension scenario was implicated by the facts in this case. Looking at this language, the court was convinced that the phrase plus 90 days applied to this scenario as a whole, singularly, regardless of the number of prior cases or plans. It would be an unnatural reading of this language, the court stated, to presume that the phrase plus 90 days was meant to be multiplied where multiple prior bankruptcy cases exist.

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Sixth Circuit Affirms Tax Court's Rejection of Tax-Exempt Status for Agricultural Organization

Even though an organization applying for tax-exempt status may offer some incidental free services, the fact that most of its income comes from paying clients precludes Code Sec. 501(c)(3) status. Asmark Institute, Inc. v. Comm'r, 2012 PTC 176 (6th Cir. 7/3/12).

Asmark Institute is a Kentucky nonstock, nonprofit corporation incorporated in 2005 by three individuals: Allen Summers, his wife, Susan, and Johnnie Lawrence. According to its articles of incorporation, the corporation is a charitable organization whose purpose is to serve as a resource center for compliance materials and services for the agribusiness industry. Asmark Institute is the successor entity to Asmark, Inc. (AI), a Kentucky for-profit entity incorporated in 1990 and dissolved in 2006. AI was a consulting business, specializing in regulatory compliance for the agricultural industry. Specifically, AI provided compliance-related educational materials, training programs, and on-site inspection services to farms and farm retailers (i.e., retailers in the business of selling goods and services to farms and farmers). AI also developed computer programs that allowed [agricultural] businesses to file timely reports with government agencies.AI was owned by the same three individuals who serve as directors and officers for Asmark Institute. In 2005, AI paid salaries and wages of $112,200 to its directors and officers and $391,368 to its other employees, for a total salary expenditure of $503,568.

The Tax Court found that Asmark is not operated exclusively for tax exempt purposes, because its operations were commercial rather than charitable and because its activities consisted mainly of compliance services for a fee. The Tax Court examined each of Asmark's free services-that is, those services that Asmark claimed were not tied to any membership fee at any level-and found that Asmark's free services are relatively small in relation to all of its services. The Tax Court also concluded that many of Asmark's so-called free services were, in fact, tied in some manner to fee-based membership. In addition, the Tax Court questioned whether Asmark even performs charitable activities that confer a public benefit. The Tax Court expressed some doubt as to whether assisting in regulatory compliance qualifies as a charitable activity for Code Sec. 501(c)(3) purposes. Moreover, the Tax Court rejected Asmark's lobbying activities because the court was not convinced that the discrete examples cited by Asmark demonstrated a primary or even substantial charitable purpose. The Tax Court also noted that the government has never formally accepted Asmark's activities as its own or as those performed on the government's behalf.

On appeal before the Sixth Circuit, Asmark did not contest any of the facts as found by the Tax Court. Instead, Asmark argued that the Tax Court was wrongfully influenced by the fact that Asmark was preceded by a for-profit entity. Asmark also accused the Tax Court of drawing improper, unfavorable inferences from the fact that Asmark charged for some of its services, despite its explanation that some fee-based services were necessary to its economic survival and to support its charitable activities. Finally Asmark argued that the Tax Court undervalued its relationship with government agencies. Although Asmark acknowledged that it has no formal government affiliation, it maintained that work designed to facilitate compliance with government regulations benefited the public at large and was thus essentially charitable in nature.

The Sixth Circuit affirmed the Tax Court's decision, saying the IRS was entirely correct to highlight the fact that Asmark was the successor to a for-profit entity, because such a fact weighs heavily against exemption. Asmark's largely fee-based business plan and its competition within a for-profit market were also strong evidence of the predominance of its nonexempt commercial purposes, the Sixth Circuit said. While Asmark was correct that fee-based, nonexempt activities, even those rising somewhat beyond a de minimus level, do not preclude a finding of tax-exempt status, Asmark bears the burden of proving that its primary purpose is a truly exempt one, as opposed to a commercial venture organized for profit. Likewise, the court noted, the burden rests on Asmark to prove that the profits derived from its fee-based services do not inure to the benefit of private individuals or shareholders. The Sixth Circuit concluded that Asmark did not carry its burden in either case. Further, the court noted, even though Asmark may offer some incidental free services, the fact that most of its income comes from paying clients precludes Code Sec. 501(c)(3) status.

The court also found Asmark's Form 1023 application telling. Asmark listed its anticipated income as derived solely from its fee-based operations. By contrast, it listed no anticipated income derived from grants, donations, or fundraising operations. These answers indicated to the court that Asmark expected its commercial profits to be the main source of income sustaining its ongoing operations. The IRS properly took these unfavorable admissions into consideration. Finally, the court noted, Asmark failed to prove that its profits would not inure to the benefit of private individuals or shareholders.

For a discussion of organizations eligible for tax-exempt status, see Parker Tax ¶60,510.

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Taxpayers Inadvertently Extend Statute of Limitations by Filing Tax Court Petition

While the taxpayers intended only to disclaim any personal liability for a tax deficiency of a corporation it formerly owned and filed a Tax Court petition as a precautionary measure, that filing was considered to be in respect of the corporation's deficiency, resulted in a tolling of the statute, and thus allowed the IRS more time to assess the corporation's liability against the taxpayers as transferees. Shockley v. Comm'r, 2012 PTC 181 (11th Cir. 7/11/12).

Shockley Communications Corporation (SCC) was a closely held corporation that owned and operated numerous media stations. Terry Shockley, Sandra Shockley, and Shockley Holdings, LP were shareholders in SCC. Terry and Sandra Shockley also served as officers and directors of SCC. On May 31, 2001, Northern Communications Acquisition Corporation (NCAC) bought all the shares of SCC. That same day, Terry and Sandra Shockley resigned from their SCC positions due to that sale. Subsequently, SCC merged into Shockley Delaware Corporation. On February 24, 2002, SCC filed its Form 1120, U.S. Corporation Income Tax Return, for the short tax year ending May 31, 2001. The form showed a Washington, D.C. address for SCC.

The IRS selected SCC's return for audit. In 2004, the IRS contacted Terry and Sandra Shockley, in their officer/shareholder capacity, to request an extension of time to assess SCC's tax. On September 17, 2004, their lawyer responded that Terry and Sandra Shockley were no longer officers or shareholders of SCC. The lawyer also provided the contact information of NCAC, stating that NCAC was the successor in interest to SCC and could grant the extension. On February 18, 2005, the IRS mailed one notice of deficiency relating to SCC's tax return for the year ending May 31, 2001, to Shockley Communications Corporation at the Washington, D.C. address reported on SCC's 2001 return (D.C. notice). The D.C. notice listed SCC's taxpayer identification number and identified a deficiency in tax of almost $42 million, a penalty of $8 million, and an addition to tax of $2 million, all for the tax year ending May 31, 2001. The D.C. notice identified the notice as a notice of deficiency. The D.C. notice was returned to the IRS as undeliverable.

Also on February 18, 2005, the IRS mailed a second, nearly identical notice of deficiency to SCC, with a Madison, Wisconsin address on the notice. The Madison address was the then-home address of the Shockleys. Only SCC's taxpayer identification number was listed on the notice. The Madison notice identified the same deficiencies as the D.C. notice and said it was a notice of deficiency. Like the D.C. notice, it provided that if the taxpayer wanted to contest the determination, the taxpayer had 90 days from the date of the letter to file a petition with the Tax Court.

On May 25, 2005, Terry and Sandra Shockley responded to the Madison notice by filing a Tax Court petition. The 2005 petition sought both a declaration that the Madison notice was invalid as to SCC and a redetermination of the deficiencies set forth in the notice. On April 26, 2007, the Tax Court dismissed the 2005 petition for lack of jurisdiction because Terry and Sandra Shockley lacked capacity to act on SCC's behalf. Consequently, the Tax Court declined to rule on the validity of the Madison notice as to SCC.

On August 31, 2008, the IRS mailed the Shockleys notices of transferee liability for SCC's deficiency. The Shockleys argued that the IRS could not assess their liability as transferees because (1) the IRS did not assess the original corporate tax deficiency against SCC (the taxpayer-transferor) until September 6, 2007, and the three-year statute of limitations for assessment of the transferor's original tax deficiency allegedly expired July 24, 2005; (2) the statute of limitations for transferee liability expires one year after the transferor statute of limitations expires, which was July 24, 2006; and (3) therefore the August 31, 2008, notices of transferee liability against the Shockleys were untimely.

The IRS countered that the notices of transferee liability were timely, because the 2005 petition constituted a proceeding in respect of SCC's deficiency that suspended the limitations period under Code Sec. 6503(a)(1). Specifically, the 2005 Tax Court petition filed by the Shockleys suspended the limitations period from May 18, 2005, until September 29, 2007, which was 66 days after the Tax Court's order became final. Under Code Sec. 6503(a)(1), the limitations period is suspended for 60 days after the Tax Court's decision becomes final. The additional six days in this case came from the time remaining on the limitations period after the SCC notice of deficiency was issued on February 18, 2005. Thus, under that time period, the August 31, 2008, the notices of transferee liability were timely.

Under Code Sec. 6213(a), a taxpayer may challenge a notice of deficiency by filing a petition in the Tax Court. If a proceeding regarding the taxpayer's deficiency is placed on the Tax Court docket, the IRS must wait to assess until the Tax Court decision becomes final, plus 60 days thereafter. In this case, a petition was filed in the Tax Court challenging one of the notices of deficiency.

The question before the Tax Court and the Eleventh Circuit was whether the 2005 Tax Court petition, which challenged the notice of deficiency as invalid, was a proceeding in respect of the deficiency so as to suspend the statute of limitations. The Tax Court held that it did not. The Tax Court concluded that the limitations period for assessment of transferee liability had expired and the D.C. notice to SCC was valid. The Tax Court also concluded that the Madison notice was invalid as to SCC because it was not sent to SCC's last known address. In reaching its conclusions that the 2005 petition did not toll the statute, the Tax Court reasoned that (1) the Shockleys did not purport to file the 2005 petition on SCC's behalf, and (2) the 2005 petition asserted that the Madison notice was invalid due to being addressed both to SCC and to Terry and Sandra Shockley as SCC's officers and shareholders. The Tax Court concluded that an invalid notice to SCC could not suspend the limitations period as to transferor SCC, and thus Terry and Sandra's 2005 petition filed in response to the invalid Madison notice did not toll the limitations period for assessment of transferor SCC's deficiency, making the IRS's 2007 assessment against SCC untimely.

The Eleventh Circuit reversed the Tax Court. The court began its analysis by noting that the Code does not explain the meaning of the term proceeding in respect of the deficiency used in Code Sec. 6503(a)(1). Resolution of the dispute thus required the court to interpret the statutory phrase: proceeding in respect of the deficiency. First, the court stated, the breadth of Code Sec. 6503(a)(1)'s plain language indicated the 2005 petition qualified as a proceeding in respect of the SCC deficiency because the proceeding need only be in respect of the deficiency, not seeking a redetermination of the deficiency. The phrase in respect of, the court noted is particularly comprehensive. Second, Code Sec. 6503(a)(1)'s language refers to a proceeding and casts the phrase in the passive voice. This construction, the court stated, emphasizes the proceeding, not who places it on the docket, as the crucial fact.

The court noted that, while the Shockleys intended only to disclaim any personal liability for SCC's deficiency and filed the 2005 petition as a precautionary measure, Code Sec. 6503(a)(1) requires only that the petition be in respect of SCC's deficiency. Here, the court observed, the 2005 petition was in response to a notice that described, line-by-line, SCC's corporate deficiency in the amount of $42 million plus penalties. The petition alleged that this determination was in error and was placed on the docket of the Tax Court. The Eleventh Circuit concluded that the 2005 proceeding was patently in respect of SCC's deficiency. Accordingly, the 2005 petition suspended the statute of limitations for assessment of transferor SCC's deficiency, pursuant to Code Sec. 6503(a)(1).

For a discussion of the statute of limitations and the suspension of the running of the statute of limitations, see Parker Tax ¶260,130.

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