by Structured Settlement Watchdog
A "Constitutional Flaw"
In a split decision in Burt Kroner v Commissioner , No 23983-14, T.C Memo 2020-73 (June 1, 2020), the United States Tax Court ruled in favor of the IRS as to the tax deficiency against Burt Kroner because (1) the transfers of funds to Kroner during the years at issue did not constitute gifts that Kroner properly excluded from income under IRC Section 102 however, (2)
While Kroner is liable for the tax deficiency (and the gargantuan amount of interest piling up over 13-15 years), Kroner is not liable for accuracy-related penalties under section 6662 because the IRS appeal was not timely. Alex M. Parker of Law 360 estimates that the tax liability on the " gifts" is over $9 million (plus interest).
In a notice of deficiency dated July 10, 2014, the IRS determined Burt Kroner had income tax deficiencies for taxable years 2005, 2006, and 2007 of $1,635,206, $5,765,384, and $1,821,277, respectively, and accuracy-related penalties under section 66621 of $327,041, $1,153,077, and $364,255, respectively. The IRS filed an amended answer to increase the deficiency and accuracy-related penalty for 2006 to $5,821,198 and $1,164,239.60, respectively. After concessions, the issues for decision were: (1) whether transfers of funds to petitioner during the years at issue constitute gifts that petitioner properly excluded from gross income under section 102 and (2) whether petitioner is liable for accuracy-related penalties under section 6662(a)
What is IRC 102?