Page 132 - JoFA_Jan_Apr23

LINE
the lenses would produce electricity
at a commercial rate. The court also ITEMS
rejected Olsen’s claim that IAS was
profitable, thereby creating a profit For these full stories plus the latest tax news, visit
motive for PFO Solar, because IAS’s journalofaccountancy.com and thetaxadviser.com.
profits came from selling lenses to
taxpayers like Olsen. Therefore, even if National taxpayer advocate: IRS in better
IAS was profitable, PFO Solar would shape now than a year ago
earn only $150 per lens, assuming LTB Erin Collins’s annual report to Congress focuses on
generated revenue. The court further the Service’s processing backlog, improved but still
noted that even though a “commer- posing challenges.
cially usable volume of electricity” was
never produced, Olsen continued to Unemployment compensation exclusion corrections led to
buy more lenses even after the seller 12 million refunds
breached its promise to place the The IRS completed adjusting tax year 2020 returns with unemployment
lenses in service. compensation income that was made excludable during the 2021 filing
In addition, weighing against a season by the American Rescue Plan Act of 2021, P.L. 117-2.
finding of profit motive was the fact
Olsen had substantial income from Key tax and retirement provisions in the SECURE 2.0 Act
other sources and used the losses The act expanded automatic enrollment in retirement plans, increased the
from solar activity to offset them. beginning age for required minimum distributions, and much more.
The court also stated that although
Olsen had no personal or recreational Business standard mileage rate increases
motive for engaging in the solar for 2023
activity, this did not undermine the The rate is 65.5 cents per mile, up 3 cents from the
Tax Court’s conclusion that he had a second half of 2022, with no change to the 22 cents
tax-avoidance motive for the activity. per mile for medical purposes.
After looking at all the evidence, the
Tenth Circuit concluded that the Tax IRS delays Form 1099-K $600 reporting threshold
Court did not clearly err in applying The IRS postponed by a year implementation of the lower reporting
the nine regulatory factors. threshold for the form, Payment Card and Third Party Network
The Tenth Circuit then applied the Transactions, to apply to transactions during calendar 2023 and after.
Nickeson test. Under this test, the five
common characteristics of activities
suggesting the absence of a profit mo-
tive are: (1) the marketing materials purchase price for them without depreciation deductions or solar
focus on expected tax benefits; (2) the negotiating. Lastly, Olsen lacked energy credits for the tax years in
taxpayer buys the item for a grossly control over the activities surrounding question, the court held.
inflated price without negotiating; (3) the business, even admitting that he ■ Olsen, No. 21-9005 (10th Cir.
the taxpayer does not ask the seller did not “fully understand the project.” 11/4/22)
about potential profitability; (4) the Thus, the court concluded that the
taxpayer lacks control over activities; transaction was simply “the naked sale — John McKinley, CPA, CGMA, J.D.,
and (5) the taxpayer uses nonrecourse of tax benefits.” LL.M., is a professor of the practice in
debt. The Tenth Circuit focused Holding: The Tenth Circuit accounting and taxation within the SC
its Nickeson analysis on the lenses’ affirmed the Tax Court’s decision, Johnson College of Business at Cornell
marketing materials, the price Olsen stating that it did not err in applying University. Matthew Geiszler, Ph.D.,
paid for them, and his lack of control Regs. Sec. 1.183-2(b) to find that is a lecturer in accounting within the
over the business. Olsen lacked a profit motive and that College of Human Ecology at Cor-
The court noted that the seller’s the Nickeson test similarly showed a nell University.
brochures claimed that purchasing lack of profit motive. Since he lacked
the lens would “zero out your taxes” a profit motive in investing in the To comment on this column, contact
and that Olsen paid a grossly inflated lenses, Olsen could not claim any Paul Bonner, the JofA’s tax editor. ■

journalofaccountancy.com March 2023 | 41