Ref: Barry v. Comm’r, TC Memo 2017-237

Summary: Taxpayer hired an attorney to reclaim alimony that he felt was overpaid.  He argued the legal fees were deductible under Sec 212(1) because the result would be taxable income.

Tax court: Not deductible: Under the “origin of claim” doctrine, the transaction started under family law and not under a profit seeking venture.  The Tax Court also referenced earlier decisions where it disallowed legal payments incurred for alimony adjustment and for alimony recovery in prior cases. Lastly, the Court argued that had Barry brought this claim in the year of the divorce, the legal fees would have been clearly nondeductible as part of the divorce proceedings (a personal expense).

Reference: IRS Notice 2017-54

The rate for meals and incidentals (M&IE) has been raised to $68 for high cost localities under the IRS high/low method.  Like all business meals, the net deduction is one half of that amount.

Example: Sole proprietor is on a six day business trip. M&IE under CONUS is $68 * 6 * 1/2 = $204 as the net deduction on the tax return.  M&IE is in lieu of actual expenses for meals, tips and other incidental travel charges.

Fiscalini v. Commissioner, TC Memo 2017-163

In summary, a taxpayer sold his residence to his parents for a sales price of $975,000.  He received no cash directly.  The parents paid off his mortgages with a total of $664,000.

The Tax Court determined that the mortgage relief was the effective sales price of $664,000. Minus basis and the $250,000 Section 121 exclusion for sale of a residence resulted in gain of $122,000.

The remaining equity of $311,000 ($975k – 664k) was deemed to be a gift from the taxpayer to his parents.

Ref: Rev Proc 2017-37

The IRS has announced maximum HSA funding limits for 2018.

For individuals with self-only coverage: $3,450 (up $50 from 2017)

For family coverage: $6,900 (up $150 from 2017)

Ref: Hargis, TC Memo 2016-232

The recent Hargis case serves as a reminder that losses from an S corporation can be used to reduce tax at the shareholder level only IF the shareholder has basis in that S corporation.  Furthermore,  guaranteeing corporate debt will NOT give rise to shareholder basis.

Simply stated, if the corporation is short of funds, the shareholder should either:

1. Directly deposit personal funds to the corporation as either Paid in Capital or a formal loan with written documentation OR
2. If borrowing is required: The shareholder should borrow funds personally and then deposit those funds into the S corporation.

The shareholder has no basis increase for loans to the corporation which he/she guarantees OR loans from other entities which he/she controls.

Reference: Malev v. Comm’r, No. 1282-16S

The Tax Court allowed Victoria Malev to deduct alternative medical procedures not provided by a licensed medical practitioner. The Court cited Tso V. Comm’r stating that nothing in Code Sec 213 or related regulations requires that medical-related treatments be furnished by an individual licensed to practice medicine in any particular discipline or that the services or treatments be provided in person rather than remotely, or that the treatment be successful or universally accepted as effective.  The Court was also positively affected by Malev’s belief as to the effectiveness of the treatments. Furthermore, the Court did consider collaborative statements by Malev’s doctor in support of “integrated medical treatment” crossing various disciplines.