Kenya Birth Certificate Rejected

No, this has nothing to do with Barack Obama, and where he was born.

In a recent Tax Court case, Wilfred Omoloh found himself embroiled in a dispute over how old he was. There are various age limitations and age-related provisions in the Internal Revenue Code. This is the first time I recall litigation over a taxpayer’s actual age regarding such provisions. Here, the question was whether the taxpayer was subject to a 10% early withdrawal tax under Code §72(t) for a distribution taken from a qualified retirement plan while the participant was under the age of 59 1/2.

Wilfred was born in the Republic of Kenya and became a U.S. citizen in 1997. In preliminary proceedings, he represented that he was born on October 1, 1951, which made him younger than 59 1/2 at the time of the distribution. He then corrected it to October 1, 1950, which would have made him older than 59 1/2.

The government argued his driver’s license and certificate of naturalization, other immigration documents, college transcript, and a court petition for a name change had an October 1, 1952 date of birth. However, Wilfred acquired and presented a newly issued Kenya birth certificate showing an October 1, 1950 date of birth.

The Court sided with the government and applied the 10% penalty, in large part because Kenya had issued the birth certificate based on information supplied by Wilfred.

Not a surprising result, but interesting as to being a litigated dispute over age.

Omoloh, TC Summary Opinion 2017-64

Applicable Federal Rates - September 2017

Failure to Disclose Adjusted Basis on Disclosure Form Costs Taxpayer $33M+ Charitable Deduction

Under Treas. Regs. §1.170A-13, taxpayers making substantial noncash charitable contributions are required to disclose information regarding the contribution on Form 8283.

In March 2002, a partnership paid $2.95 million to acquire a remainder interest in property. A year and a half later, it assigned the interest to a university and claimed a charitable deduction of $33,019,000. The Form 8283 that the taxpayer submitted with its income tax return to disclose the contribution required the donor to provide the “Donor’s cost or other adjusted basis,” but the partnership left that disclosure blank.

The IRS sought to disallow the deduction for the taxpayer’s failing to meet the reporting requirements. The taxpayer responded with a substantial compliance argument.

On review, the Tax Court held a taxpayer can raise substantial compliance, since the applicable regulations are directory and not mandatory. Reviewing other case law, the Tax Court noted that in determining whether there was substantial compliance the court considers whether the taxpayer provided sufficient information to permit the IRS to evaluate the reported contributions, with an eye to the purpose of the substantiation requirements. That purpose is to alert the IRS, in advance of audit, of potential overvaluations of contributed property and thereby deter taxpayers from claiming excessive deductions in the hope they would not be audited. The court went on to comment that given the significant disparity between the claimed fair market value of the contributed property and the price paid for the property just 17 months earlier, had the basis of the property been disclosed it would have alerted the IRS to a potential overvaluation of the contributed property. Since the missing information kept the IRS from being able to evaluate its reported contribution without an audit, the Tax Court determined that substantial compliance could not be used to save the taxpayer from having its deduction disallowed.

RERI HOLDINGS I, LLC, JEFF BLAU, TAX MATTERS PARTNER, v. COMMISSIONER, 149 T.C. No. 1 (July 3, 2017)