{ Banner }

Tax Blog/Blawg

Tax Talk Blog for Tax Pros

Welcome to TaxBlawg, a blog resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.

Tax practitioners have previously lacked a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

Popular Topics

Chamberlain Hrdlicka Blawgs

Appellate Blog

Business and International Tax Blog

Employee Benefits Blog

Immigration Blog

Labor & Employment Blog

Maritime Blog

SALT Blog/Blawg

Tax Blog/Blawg

Before You Abandon That Underwater House, Read This!

The Tax Court recently issued a Summary Opinion, Malonzo v. Commissioner of Internal Revenue, T.C. Summ. Op. 2013-47, involving an individual who was underwater on her mortgage, and who abandoned the property, subsequent to which the mortgage loan was foreclosed.  She took no formal steps to transfer title or provide the lender with notice of her intention to abandon the residence, but just stopped making payments.  The residence was later resold by the lender who sent her a Form 1099-A, Acquisition or Abandonment of Secured Property, reflecting as income the outstanding balance of her mortgage less the amount for which the property was resold.

The IRS determined that she had received a long-term capital gain, based upon the difference between the balance of the mortgage and her adjusted basis in the property.  She, in turn, filed an amended return in which she reported an ordinary loss from the abandonment of the residence equal to roughly the difference between her adjusted basis and the depreciation recaptured from a period in which she rented the home.

The Tax Court concluded that the abandonment of this property and the subsequent foreclosure was a “sale or exchange” under the Internal Revenue Code,” so the gain or loss would be capital.  As such, the Court concluded she was not entitled to an ordinary loss (and fortunately not ordinary gain either!) because the property was subject to a mortgage which was satisfied.  As such, the IRS determination was sustained.

The best lesson to learn here is that before one takes the action taken by Ms. Malonzo, it is worth spending some time with a qualified tax adviser who can explain exactly what the ramifications will be.

  • George W. Connelly

    George Connelly is recognized as one of the leading federal tax litigators in the United States.  His practice focuses on IRS audit, collection and criminal matters including civil and criminal tax litigation matters, for clients ...