Tax Court In Brief | Genecure, LLC v. Commissioner | Capital Expenses, QTDP Recapture Tax, Fraud-Related Penalty Requirements

Published date30 May 2022
Subject MatterTax, Income Tax, Tax Authorities, Property Taxes
Law FirmFreeman Law
AuthorFreeman Law

The Tax Court in Brief - May 23rd - May 27th, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation: The Week of May 23rd, 2022, through May 27th, 2022

Genecure, LLC v. Comm'r, T.C. Memo 2022-52 | May 23, 2022 | Jones, J. | Dkt. No. 14916-15.


  • Albrecht v. Comm'r, T.C. Memo 2022-53 | May 25, 2022 | Greaves, J. | Dkt. No. 13314-20.

Short Summary: This is a TEFRA partnership-level case. Genecure is a biotech firm and is organized as a member-managed LLC. It is treated as a partnership for federal income tax purposes. See Treas. Reg. ' 301.7701-3(b)(1). Frank Tung was Genecure's tax matters partner. The opinion addresses a number of splintered issues that arose from Genecure's business transactions in tax years 2009-2012, including taxation of settlement proceeds received in contract dispute, deductibility of item-by-item categories of business expenses, recapture tax for an Affordable Care Act-Qualified Therapeutic Discovery Project (QTDP) grant received by Genecure, characterization of amounts received from an LLC owned by Frank Tung's wife (i.e., is it a loan, or not a loan), and possible capital contributions from the LLC owned by Frank Tung's wife. The IRS examined Genecure's tax returns for years 2009 through 2012. The examining agent prepared a Form 11661, Fraud Development Recommendation-Examination, and Frank Tung was given summary report transmittal Letter 1807 to attend a closing conference, which conference never occurred. Ultimately, the IRS issued Frank Tung, in his capacity as tax matters partner, a separate Notices of Final Partnership Administrative Adjustment (FPAA) for each of the years in issue, as well as a section 6663 civil fraud penalty for underpayment of tax for each year. In the Tax Court proceeding, Frank Tung sought to admit emails, letters, and other documentation from Genecure's day-to-day business, most of which the Tax Court refused to admit or consider.

Key Issues:

  • Whether Genecure carried its burden of proof to overcome the presumption of correctness of the IRS's determinations? Whether the IRS complied with the initial determination requirements to assess fraud-related penalties against Genecure?

Primary Holdings:

  • The Tax Court found primarily in favor of the IRS on all tax issues. Frank Tung's testimony was self-serving, evasive conflicted, and improbable with respect to his position on the issues. His purported evidence was not in admissible form, and he provided no exceptions to applicable exclusionary rules. Settlement proceeds received constituted gross income that was taxable, and most of the itemized business expenses were not deductible due to lack of substantiation or business purpose. Genecure was...

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