Hamilton v. CIR, 955 F.3d 1169

In 2011 Mr. Hamilton’s >$150,000 in student loans were discharged after a disabling injury; he also received a non‑taxable partnership distribution of over $300,000 that year.
Mrs. Hamilton moved more than $320,000 (mostly the distribution) into a previously-unused savings account titled in their adult son’s name; the son gave Mrs. Hamilton the account login.
During 2011 Mrs. Hamilton withdrew about $120,000 from that account to pay joint household expenses; the son made no withdrawals and provided no consideration.
The Hamiltons filed a late joint 2011 return in 2014, omitted the savings‑account funds, and claimed Mr. Hamilton was insolvent to exclude the discharged debt under 26 U.S.C. §108.
The IRS issued a Notice of Deficiency; the Tax Court applied substance over form, treated the disputed funds as the Hamiltons’ assets, sustained the deficiency, and imposed §6651(a)(1) late‑filing penalties.
The Tenth Circuit affirmed: the Hamiltons retained effective control over the funds (so Mr. Hamilton was not insolvent), and the late‑filing penalties were upheld for lack of reasonable cause.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether funds placed in the son’s savings account are Mr. Hamilton’s assets for the §108 insolvency inquiry	Funds were the son’s (or Mrs. Hamilton’s separately); title vested ownership in son so funds are not Mr. Hamilton’s assets	Substance over form: the Hamiltons retained effective control and used the funds for joint expenses, so funds are available assets	Funds characterized as the Hamiltons’ assets; insolvency denied and deficiency sustained
Whether §6651(a)(1) late‑filing penalties should be excused for reasonable cause	Delay was caused by caring for Mr. Hamilton; not willful neglect	No evidence of reasonable cause; failure to file was willful neglect	Penalties upheld; Tax Court not clearly erroneous

United States v. Kirby Lumber Co., 284 U.S. 1 (1931) (discharge of indebtedness does not produce taxable income when taxpayer is insolvent)
Frank Lyon Co. v. United States, 435 U.S. 561 (1978) (authorizes application of substance‑over‑form where transferor retains control)
Sanford’s Estate v. Commissioner, 308 U.S. 39 (1939) (control over economic benefits, not formal title, defines a transfer)
Rogers v. United States, 281 F.3d 1108 (10th Cir. 2002) (endorses substance‑over‑form analysis in tax contexts)
United States v. Boyle, 469 U.S. 241 (1985) (explains reasonable‑cause standard for filing obligations)
Carlson v. Commissioner, 116 T.C. 87 (2001) (defines insolvency as liabilities exceeding fair market value of assets under §108)
Esgar Corp. v. Commissioner, 744 F.3d 648 (10th Cir. 2014) (standards for burden‑shifting under §7491)
In re Craddock, 149 F.3d 1249 (10th Cir. 1998) (reviews factual determinations on late‑filing penalties for clear error)