~IRS loses. Telephone hearing can be recorded. When Emery Simien faced a levy for back taxes, he requested a collection due process (CDP) hearing, and the IRS scheduled one to be held by phone. He then told the IRS that he intended to record the hearing—but the IRS responded that this wasn’t allowed. When Simien insisted, the IRS said that he had forfeited his right to the hearing. Simien went to court. Conflict: The Tax Code specifically allows taxpayers to record CDP hearings, but the IRS said that it does so only with “in-person” hearings. Court: A phone call can be considered made “in-person” and there is no logic as to why face-to-face hearings can be recorded but not phone hearings not. Simien gets his hearing. Emery J Simien, DC WD La., No 5 CV 1458

~IRS Concedes. Unexpected pregnancy & breakup gives tax break on home sale.  An unmarried couple bought a home & moved into it. Seven months later, the woman discovered that she was pregnant. The couple then broke up. They intend to sell the home because it is not big enough for 2 adults to live separately with a child, and neither can afford it alone. IRS Ruling: The primary cause of the home sale is an “unforeseen circumstance.” Thus, each owner qualified for tax-free gain on the sale. The maximum amount of such gain equals the length of time the owner owned the home and used it as a primary residence, divided by 2 years (24 months), multiplied by $250,000 (the maximum gain allowed if it had been owned the full 2 years). Letter Ruling 200652041

 ~IRS Loses. Sent notice to wrong address when it knew the right one. David Buffano filed a tax return from Wheaton, IL. He then moved to Milford, IL and reported the move to the post office. When he didn't file later years’ returns, an IRS office sent notices to his Milford address. When he didn’t reply, another IRS office sent a final levy notice to the Wheaton address. When Buffano didn’t receive it until after the deadline for answering, he argued that it was invalid since it was misaddressed. IRS: The notice was properly sent to the address on his last-filed tax return. Court: That is the proper address only if the IRS doesn’t have a later, better one in its files—which it did. The notice is invalid. David Buffano, TC Memo 2007-32

~IRS loses. Sideline expenses are deductible when they produce income. Julie Toth was an executive and skilled equestrian who began a horse boarding and training activity initially as a sideline. But, by the end of the first year, it was a for-profit business. IRS argument: The activity initially did not qualify as a business, so expenses incurred during that period could not be deducted as business expenses but had to be capitalized as “start-up costs” incurred before the business began. Court: The activity produced income from the start, and expenses incurred to generate income are deductible whether it’s a business or not. So the expenses are deductible. Julie A. Toth, 128 TC No 1

~IRS loses. Bound by its stipulations. Doyle Mathia went to Tax Court to dispute a tax bill on income from his 8.5% interest in a partnership. Both sides agreed to stipulated facts before trial. Among them that Mathia was not a “notice partner” who delt with the IRS, so he was bound by an agreement that the partnership’s managers reached earlier with the IRS. Later, the IRS tried to change this stipulation, saying that Mathia was a notice partner and, therefore, wasn’t bound by the agreement.  Court: The IRS had no excuse for stipulating wrong facts. Throwing out the stipulation would require a costly trial to find facts, to the taxpayer’s detriment. The IRS remains bound by what it agreed was true. Jean Mathia, TC Memo 2007-4