Calloway v. Commissioner of IRS

Petitioners, husband and wife, sought review of a judgment of the Tax Court sustaining the Commissioner's determination of a deficiency, an accuracy-related penalty, and a penalty for filing a delinquent tax return. Husband worked for IBM and acquired IBM stock by exercising his employee stock options. Husband subsequently participated in a program operated by Derivium, whereby it would "lend" a client ninety percent of the value of securities that the client pledged to it as collateral. The court concluded that a combination of factors pointed decidedly to the conclusion that husband disposed of his stock by signing a Master Agreement and addenda and retained no real interest in his collateral or the "loan" after Derivium had transferred the proceeds to him. The court also concluded that plaintiffs have not shown that they acted with reasonable cause and in good faith when they declared their income from the sale of IBM shares to Derivium. Consequently, the court affirmed the Tax Court's imposition of an accuracy-related penalty. Further, plaintiffs have not carried their burden of establishing reasonable cause for failing to timely file their return and therefore, the Commissioner's assessment of a late-filing penalty was appropriate. View "Calloway v. Commissioner of IRS" on Justia Law