The Tax Court, in Fiscalini v. Commissioner, T.C. Memo 2017-163,  sustained an addition to tax and a penalty, holding that the taxpayer  must recognize capital gain from the sale of his home to his parents, finding that his adjusted basis should include his parents’ basis in their interest they gifted to him but not other unsubstantiated costs and that the IRS, in determining the amount realized, failed to consider that the sale was partially a gift.

The Court’s summary of the issues and its findings are as follows:

Respondent determined a deficiency in, an addition under section 6651(a)(1) to, and an accuracy-related penalty under section 6662(a) on petitioner’s Federal income tax (tax) for his taxable year 2007 of $278,186, $69,845.25, and $55,637.20, respectively.

The issues remaining for decision for petitioner’s taxable year 2007 are:

(1) Is petitioner required to recognize certain long-term capital gain from the sale of his personal residence? We hold that he is.

(2) Is petitioner liable for the addition to tax under section 6651(a)(1)? We hold that he is.

(3) Is petitioner liable for the accuracy-related penalty under section 6662(a)? We hold that he is.

See full opinion at Fiscalini v. Commissioner.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.