during the period of the

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2 opinion section by explaining what it wasn t deciding, a somewhat unusual step. But, then again, this was a The Court explained what wasn t at issue: during the period of the

3 The IRS s regulations interpreting IRC 104(a)(2) define damages as an amount received through prosecution scope of Perez s consent, Perez may have had a claim for damages. But the injury here, as painful as The Court also noted concerns that taking Ms. Perez s view of the law could lead to mischief and offered up mines, or on fishing boats. We don t doubt that some portion of the compensation paid all people reflects the risk that they will feel pain and suffering, but it s a risk of pain and suffering that Given the commentary on the mischief a decision in favor of the taxpayer would have lead to, the Court clearly wants to draw a bright line denying the use of the exclusion for physical injuries mischief paragraph specifically and consciously waived any claims for the specific injuries incurred. And, in the Court s view, that s taxable compensation

4 e wasn t on the road see the special abode rules of The tax home for 162(a)(2) is normally the taxpayer s principal place of employm a taxpayer who s constantly in motion is a tax turtle that is, someone with no fixed residence who carries his home with him. See, e.g., aff g aff g Clearly being deemed a tax turtle (normally referred to as an itinerant taxpayer by judges who failed to he duplicative nature of the taxpayer s living expenses In Mr. Jacobs case the Court found Mr. Jacobs failed to show any of these criteria would turn in his favor. Mr. Jacobs claimed that the house of his friend as a kibbutz replicating their situation back in Israel, making

5 measure a communal farm or settlement. Jacobs provided no documentation or testimony that assets of the kibbutz members were communal. And we also find that Jacobs provided no guest room Jacobs claimed he put in around $10,000 per year to the Cottage Grove kibbutz, though he had no see any. If Jacobs used Casper effectively exempt

6 cular deduction be allowed. ). When Congress enacted 280E in 1982, it did so to reverse the Tax Court s decision in axpayers, it would appear that 1986 s adoption of the uniform capitalization rules under IRC of 263A(a)(2) states [a]ny cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph. The memorandum holds that this language means that something that would not be deductible without 263A does not become taxable via the application of 263A. In support of this position the memorandum cites the Senate Report of the provision in TAMRA describing the retroactive technical correction that added this provision that provided: The bill also clarifies that a cost is subject to capitalization under this provision only to the extent it would otherwise be taken into account in computing taxable income for any taxable year. Thus, for example, the portion of a taxpayer's interest expense that is allocable to personal loans, and hence is disallowed under section 163(h), may not be included in a capital or inventory account and recovered through

7 depreciation or amortization deductions, as a cost of sales, or in any other manner. [S. Rep. No , at 104 (1988)] Section 263A is a timing provision. It does not change the character of any expense from nondeductible to deductible, or vice versa. For a taxpayer to be permitted to treat an expense as an inventoriable cost, that expense must not run afoul of the flush language at the end of 263A(a)(2) Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph. See 1.263A-1(c)(2)(i). Read together, 280E and the flush language at the end of 263A(a)(2) prevent a taxpayer trafficking in a Schedule I or Schedule II controlled substance from obtaining a tax benefit by capitalizing disallowed deductions. Congress did not repeal or amend 280E when it enacted 263A. Furthermore, nothing in the legislative history of 263A suggests that Congress intended to permit a taxpayer to circumvent 280E by treating a disallowed deduction as an inventoriable cost or as any other type of capitalized cost. Not all is bad news for the marijuana trafficker, though. The memo next goes on to look at issues that would A cash-method producer of a Schedule I or Schedule II controlled substance, such as marijuana, typically will deduct all production costs in the taxable year paid and, thus, will not have any adjusted basis in the product that it produces. When 280E is applied in the case of a producer trafficking in a Schedule I or Schedule II controlled substance, and all deductions from gross income are disallowed, the producer s taxable income for each taxable year will be significantly higher than what it would have been if the producer had used a permissible inventory method and recouped its production costs through COGS. Furthermore, the producer will not be able to take those disallowed production costs into account in any future taxable year. Thus, in this scenario, the overall cash method does not clearly reflect income because of the operation of 280E. Stated differently, even a producer trafficking in a Schedule I or Schedule II controlled substance is subject to tax on gains derived from dealings in property, not on gross receipts. Section 61(a)(3). This rule regarding gains derived from dealings in property applies equally to a reseller trafficking in a Schedule I or Schedule II controlled substance. In our view, Examination and Appeals have the authority under 446(b) to require a taxpayer to change from a method of accounting that does not clearly reflect income to a method that does clearly reflect income regardless of whether that change results in a positive or negative 481(a) adjustment.5 When a producer or reseller of a Schedule I or Schedule II controlled substance uses a method of accounting that causes a tax result contrary to the Sixteenth Amendment, to 61(a)(3), and to the legislative history of 280E, the proper exercise of the above-mentioned authority is warranted. Section 446(b). See also Rev. Proc See also IRM

8 ( ). Consequently, if a producer or reseller of a Schedule I or Schedule II controlled substance is deducting from gross income the types of costs that would be inventoriable if that taxpayer were properly using an inventory method under 471, it is an appropriate exercise of authority for Examination or Appeals to require that taxpayer to use an inventory method, to use the applicable inventory-costing regime (as discussed under Issue (1) of this memo), and to change from the overall cash method to an overall accrual method. However, if that taxpayer is not required to use an inventory method (for example, small taxpayers properly using the modified cash method under Rev. Proc or Rev. Proc or farmers), it is not an appropriate exercise of authority for Examination or Appeals to require that taxpayer to use an inventory method. Instead, Examination or Appeals should permit that taxpayer to continue recovering, as a return of capital deductible from gross income, the same types of costs that are properly recoverable by a taxpayer both trafficking in a Schedule I or Schedule II controlled substance and using an inventory method under 471. Thus, for example, a producer of a Schedule I or Schedule II controlled substance should be permitted to deduct wages, rents, and repair expenses attributable to its production activities, but should not be permitted to deduct wages, rents, or repair expenses attributable to its general business activities or its marketing activities. In order to qualify for real estate professional status for the taxpayer s rental properties, the taxpayer must Real property trade or business. For purposes of this paragraph, the term real property trade or business means any real property development, redev at the issue of what is a brokerage trade or

9 fee or commission."1 Webster's defines a "broker" as "a person who helps other people to buy and During the period in question he was promoted to a management position at his employer s facility on

10 with Joel s mother following the divorce, and his mother took the daughter to stay at Joel s home from time to oel remained registered to vote in Louisiana, his driver s license was issued by Louisiana and he had his qualified to claim the foreign earned income exclusion. It s not enough for Joel to have worked in a foreign Joel s tax home was in the foreign country o o There is a special qualification on the tax home test while normally we look to where someone s principal IRC 911(d)(3) provides, in addition to meeting the general tax home test for 162 purposes, that [a] The Tax Court, citing its opinion in noted that an abode does not mean an individual s principal place of business. Rather, the Court continued opinion, The Tax Court had previously found a taxpayer under similar circumstances failed the abode test in the case Petitioner s ties to Louisiana during 2007

11 daughter lived in this house or in his parents house, also in West Monroe. During his off The taxpayer argued that because he split his time between two residences, he did not abide in eit However the Court found that it did not have to find a specific home in which it is found that he abided in, but rev g with his family to Japan when he began employment. When he was transferred to JAL s only U.S. base in them. The Tax Court concluded that Joel s fact pattern was clearly more in line with o o A percentage of the taxpayer s household income, set at 2.0% for 2015 and 2.5% after that

12 coverage offered through exchanges that would provide coverage for the taxpayer and the family (those the minority partners compensatable damages, though, were less than the $5,000 minimum award under the In arriving at that conclusion the District Court denied the minority shareholders request for attorneys fees, an found that the minority shareholders had played p of this case and therefore decided that it would not be appropriate to award any legal fees.

13 The Court of Appeals found that there was no basis to overturn the District Court s decision to discount the Even if we were to ignore the deference reviewing courts extend to fact finders on questions of credibility, Waldman s challenge would fail. Waldman s expert s initial assessment was unpersuasive not because of a credibility deficit but because Waldman had directed [his expert] toward a particular conclusion while withholding accurate information of the fair market value of [the company]... in order to steer his witness to the conclusion that the corrected W-2s were properly issued. When presented with the relevant information, Waldman s expert reached the same conclusion as the opposing expert as to the nature of the transaction and the resulting reporting obligations. The district court was correct to credit the essentially unanimous opinion of the experts. careful deception of his expert, Waldman s conduct provided sufficient evidence to support the district court s conclusion that his fraudulent filing was willful. In district court noted Waldman s direct testimony that he knew it was incorrect to file the s. Similarly, Waldman s expertise made it clear that his decision to file 1099s in 2012 was a willful fraud. Enders s attor a $75,000 payment by Waldman s insurer to Pitcher and The appellate panel also refused to overrule the District Court s decision regarding attorney s fees. The panel advisers may find clients who want to turn in the opposition in the client is pushing the envelope in terms of what must be reported (or ev he/she is sure the client is lying to the IRS and not reporting something that should be reported.

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