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Tax Updates - Archived (December 2022 - January 2023)
June 2023
Accounting
IRS Releases June 2023 Applicable Federal Rates: In Rev. Rul. 2023-10, the IRS issued the applicable federal rates for June 2023 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Credits
IRS Updates Previous Guidance on Energy Community Bonus Credit Amounts: In Notice 2023-45, which updates Notice 2023-39, the IRS described certain rules that the IRS intends to include in forthcoming proposed regulations for determining what constitutes an energy community for the production and investment tax credits under Code Secs. 45 and 48; the IRS also added a clarification pertaining to the brownfield site safe harbor in Notice 2023-39 that, for projects with a nameplate capacity of not greater than 5 megawatts in alternating current, it is required that a Phase I Assessment identify the presence or potential presence on the site of a hazardous substance or a pollutant or contaminant. The notice also describes a prior modification to Notice 2023-39 that was made via an online update pertaining to the special rule for beginning of construction, clarifying that this guidance applies to taxpayers that begin construction on or after January 1, 2023.
IRS Provides Info Necessary for Determining Energy Community Bonus Credit Amounts: In Notice 2023-47, the IRS provided lists of information that taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category as described in Notice 2023-29 for purposes of qualifying for energy community bonus credit amounts or rates under Code Secs. 45, 45Y, 48, and Code Sec. 48E. These lists are provided in Appendix 1, Appendix 2, and Appendix 3 of Notice 2023-47.
Additional Guidance Issued on Low-Income Communities Bonus Credit Program: In REG-110412-23, the IRS issued proposed rules concerning the low-income communities bonus energy investment credit program established by the Inflation Reduction Act of 2022, which allows taxpayers investing in certain solar and wind powered electricity generation facilities to apply for an allocation of environmental justice solar and wind capacity limitation to increase the amount of an energy investment credit for the tax year in which the facility is placed in service. The proposed regulations provide definitions and requirements that would be applicable for the program allocating the calendar year 2023 capacity limitation, which also would inform guidance applicable for future program years.
IRS Modifies Guidance for Advanced Energy Project Credit Allocation Program: In Notice 2023-44, the IRS provided additional guidance to clarify and modify Notice 2023-18, which established the program under Code Sec. 48C(e)(1) to allocate $10 billion of credits ($4 billion of which may be allocated only to projects located in Code Sec. 48C(e) Energy Communities Census Tracts) for qualified investments in eligible qualifying advanced energy projects. The additional guidance provides general guidance for the Code Sec. 48C(e) program and contains information regarding an online application portal for submitting concept papers and the timeline for submitting a Code Sec. 48C(e) application.
IRS Issues Reference Price for Section 45I Credit: In Notice 2023-41, the IRS announced the applicable reference price for qualified natural gas production from qualified marginal wells during tax years beginning in calendar year 2022 for the purpose of determining the marginal well production credit under Code Sec. 45I. The applicable reference price for tax years beginning in calendar year 2022 is $3.43 per 1,000 cubic feet.
Tax Court Denies IRS's Summary Judgment Motion in Research Credit Dispute: In Harper v. Comm'r, T.C. Memo. 2023-57, the Tax Court denied the IRS's motion for partial summary judgment arguing that the construction designs underlying a Code Sec. 41 research credit claimed by the taxpayer, a design builder and general contractor, did not satisfy the business component test of Code Sec. 41(d)(1) and (2). The IRS contended that the taxpayer's designs were never "new or improved," but the court rejected that argument after finding that the taxpayer engaged in a lengthy, multistep process of conceptual design and design development for each project, resulting in novel ideas and iterative improvements to them; thus, the designs could be construed as processes, techniques, or inventions that would constitute a business component of the taxpayer's operations.
Deductions
Partner's Loans to Partnerships Did Not Increase Outside Basis: In Bryan v. Comm'r, T.C. Memo. 2023-74, the Tax Court held that a taxpayer improperly deducted passthrough losses from tiered partnerships the taxpayer formed to produce movies after finding that loans made to the lower-tier partnerships from an upper-tier partnership did not increase the taxpayer's outside basis under Code Sec. 752 because neither the taxpayer nor the upper-tier partnership bore any economic risk of loss as to the liabilities. The court further found that the taxpayer failed to meet the Code Sec. 465 at-risk requirement with respect to a lower-tier partnership's movie-making activity to deduct the upper-tier partnership's losses.
2024 Inflation Adjustments Issued for HSAs and Excepted-Benefit HRAs: In Rev. Proc. 2023-23, the IRS issued the 2024 inflation adjusted amounts for health savings accounts (HSAs) as determined under Code Sec. 223 and the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements (HRAs) under Reg. Sec. 54.9831-1(c)(3)(viii). For calendar year 2024, (1) the annual limitation on deductions under Code Sec. 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $4,150; (2) the annual limitation on deductions under Code Sec. 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $8,300; (3) a "high deductible health plan" is defined under Code Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,600 for self-only coverage or $3,200 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,050 for self-only coverage or $16,100 for family coverage; and (4) the maximum amount that may be made newly available for the plan year for an excepted benefit HRAs is $2,100.
No Travel Expense Deduction for Taxpayer Indefinitely Employed at Distant Jobsite: In Ledbetter v. Comm'r, T.C. Summary 2023-19, the Tax Court held that a union sheet metal worker who commuted 184 miles roundtrip from his home to a jobsite was not entitled to deduct mileage expenses under the exception to the general rule barring deductions for commuting expenses that applies to transportation expenses incurred in going between the taxpayer's residence and a temporary work location outside the metropolitan area where the taxpayer normally lives and works. The court found that, although the employer described the job as a temporary assignment, the taxpayer's work location was not temporary considering that he was continuously employed at that location for 7 years with no period of layoff exceeding four months.
Fraudulent Allegation of Property Confiscation by Iranian Government Fails in Tax Court: In Soleimani v. Comm'r, T.C. Memo. 2023-60, the Tax Court upheld the denial of a loss deduction claimed by a taxpayer for three parcels of real property in Iran the taxpayer claimed had been confiscated by the Iranian government. The court found that the documents purporting to substantiate the taxpayer's ownership of the properties were forgeries and the purported expert witness whose report the taxpayers relied on to substantiate the loss was a fictitious person; however, the court did not apply a fraud penalty because the IRS waited until the end of the proceedings to ask that a fraud penalty be applied which, in the court's view, would have caused undue prejudice to the taxpayers.
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-48, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Issues Interim Guidance on Expansion of EPCRS Under SECURE 2.0 Act: In Notice 2023-43, the IRS provided interim guidance with respect to Section 305 of the SECURE 2.0 Act of 2022, which provides for the expansion of the Employee Plans Compliance Resolution System (EPCRS) currently set forth in Rev. Proc. 2021-30 and directs the IRS to revise Rev. Proc. 2021-30 by December 29, 2024. Among other issues addressed, the notice: (1) provides that a plan sponsor may self-correct an eligible inadvertent failure before Rev. Proc. 2021-30 is updated; (2) provides that a custodian of an individual retirement account may not correct an eligible inadvertent failure under EPCRS before Rev. Proc. 2021-30 is updated; and (3) provides interim interpretive guidance that applies with respect to corrections of eligible inadvertent failures.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-40, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Employment Taxes
Employer Using Tax Equalization Needs Employee's Consent To Get FICA Tax Refund: In CCA 202323005, the Office of Chief Counsel advised that under Reg. Sec. 31.6402(a)-2(a), a U.S. company that pays wages to a non-U.S. employee on international assignment in the United States under a tax equalization program may claim a refund of an overpayment of the employee's share of Federal Insurance Contribution Act (FICA) tax withholding in a subsequent year only if the employer has first repaid or reimbursed the employee for the employee's share of the FICA tax or secured the employee's consent to the allowance of the refund claim. The Chief Counsel's Office further advised that, under Rev. Proc. 2017-28, the employer must include the employee's consent together with the claim for the refund of such tax.
Doctor's Office Misclassified Medical Assistants as Nonemployees: In Cardiovascular Center, LLC v. Comm'r, T.C. Memo. 2023-64, the Tax Court held that a doctor who operated a solo medical practice failed to classify medical assistants as employees and therefore was liable for employment taxes and penalties. The court found that various factors, including the degree of control exercised by the doctor, the lack of investments made by the workers in the workplace, and the lack of opportunities for the workers to seek profit or loss from the doctor's practice, were indicative of an employment relationship; the court also found that the doctor was not eligible for Section 530 relief because he did not consistently file all required returns and did not have a reasonable basis for not treating the workers as employees.
Estates, Gifts, and Trusts
IRS Issues Final Regulations Updating Actuarial Tables: In T.D. 9974, the IRS issued final regulations relating to the use of actuarial tables in valuing annuities, interests for life or a term of years in property, and remainder or reversionary interests in property. The regulations will affect the valuation of inter vivos and testamentary transfers of interests dependent on one or more measuring lives, and are necessary because applicable law requires the actuarial tables to be updated to reflect the most recent mortality experience available.
Penalties
IRS Provides Penalty Relief for Missed Corporate AMT Payments in 2023: In Notice 2023-42, the IRS provided relief from the addition to tax under Code Sec. 6655 in connection with the application of the new corporate alternative minimum tax (CAMT), as added by the Inflation Reduction Act of 2022. The IRS stated that, in light of the challenges associated determining whether a corporation is liable for the CAMT and the amount of a corporation's CAMT liability under Code Sec. 55 for a tax year beginning in 2023, the corporation's required installments of estimated tax need not include amounts attributable to its CAMT liability to prevent the imposition of an addition to tax under Code Sec. 6655.
Elderly Attorney Had Reasonable Cause for Late Returns and Payments: In Tracy v. Comm'r, T.C. Summary 2023-20, the Tax Court held that a 92-year old taxpayer who did not timely file returns or timely pay his employment tax liabilities while closing his solo law practice due to his declining health and advanced age was not liable for penalties under Code Sec. 6651(a) because his failures to timely file returns and pay taxes were due to reasonable cause and not willful neglect. The court found that the taxpayer reasonably relied on the systems he had in place during his 60 years of solo law practice to ensure tax compliance and that his inability to supervise his assistant as a result of his declining health caused his failures to file returns and pay taxes.
Fifth Circuit Holds Hospital Administrator for Trust Fund Recovery Penalties: In Cashaw v. Comm'r, 2023 PTC 147 (5th Cir. 2023), the Fifth Circuit affirmed a judgment of the Tax Court holding a taxpayer, who was appointed by a court as a temporary administrator of a hospital after the chief administrator was removed for Medicare fraud, was liable under Code Sec. 6672 for $173,630 of employment taxes withheld but not turned over to the IRS. The Fifth Circuit found that the taxpayer was a responsible person under the statute because she managed day-to-day operations, made decisions as to disbursement of funds and had check signing authority; the court also found that her failure to pay the trust fund taxes was willful because she signed checks to vendors and creditors while the hospital failed to pay the United States.
Procedure
No Recovery of Legal Fees for Taxpayers Who Failed to Notify IRS of Change of Address: In Yamada v. Comm'r, T.C. Memo. 2023-70, the Tax Court held that taxpayers, who challenged a notice of deficiency in the Tax Court and later settled with the IRS after they provided records showing that their income was exempt from U.S. tax because they had relocated to Japan and were not engaged in a U.S. business or income activity, were not entitled to an award of costs under Code Sec. 7430. The court found that, because the taxpayers failed to notify the IRS of their change of address when they relocated to Japan, the IRS was substantially justified in issuing the notice of deficiency based on a bank deposits analysis showing unreported deposits.
Proposed Regs Identify Malta Personal Retirement Schemes as Listed Transactions: In REG-106228-22, the IRS issued proposed regulations that would identify transactions that are the same as, or substantially similar to, certain Malta personal retirement scheme transactions as listed transactions, a type of reportable transaction. According to the IRS, Malta retirement schemes are tax-favored savings arrangements in Malta that allow individuals or their employers to contribute assets to a retirement trust with no requirement that the contributions be limited by reference to income earned from employment activities, and no limitation on contribution amounts or the types of assets that may be contributed.
Date Discrepancy Doesn't Prevent IRS Win on Penalty Supervisory Approval: In Salacoa Stone Quarry, LLC v. Comm'r, T.C. Memo. 2023-68, the Tax Court granted the IRS motion for summary judgment after finding that the IRS complied with Code Sec. 6751(b)(1) by securing timely supervisory approval of penalties assessed against a taxpayer in connection with a deduction for a charitable donation of a conservation easement. The court rejected the taxpayer's argument that discovery was required to resolve a discrepancy in the dates of supervisory approval in the digital signature block and on the penalty approval form; the court found that regardless of which date was the correct one, the supervisor approved the penalties in writing at time when she had discretion to grant or withhold approval.
Interest Rates Unchanged for Third Quarter of 2023: In Rev. Rul. 2023-11, the IRS issued the rates for interest on tax underpayments and overpayments for the quarter beginning July 1, 2023, which are unchanged from the rates for the second quarter of 2023. Thus the rates for interest determined under Code Sec. 6621 for the calendar quarter beginning July 1, 2023, will be 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent.
IRS Abused Its Discretion by Rejecting Taxpayers' Compromise Offer: In Whitaker v. Comm'r, T.C. Memo. 2023-59, the Tax Court remanded a taxpayers' case back to the IRS Independent Office of Appeals (Appeals) after finding that Appeals abused its discretion when it rejected the taxpayers' offer to settle their $33,000 tax bill for $1,629. The court found that the settlement officer clearly erred in concluding that the taxpayers could access the equity in their home in order to pay their taxes and failed to take into account the taxpayers' loss of wage income due to the pandemic.
Claims Court Holds That Return Signature Requirement Is Non-Jurisdictional: In Cooper v. U.S., 2023 PTC 121 (Fed Cl. 2023), the Court of Federal Claims denied the government's motion to dismiss a taxpayer's refund action for lack of jurisdiction based on the taxpayer's failure to sign his Form 843, Claim for Refund and Request for Abatement. The government argued that the decision of the Federal Circuit in Brown v. U.S., 2022 PTC 2 (Fed. Cir. 2022) holding that the "duly filed" requirement Code Sec. 7422(a) is a non-jurisdictional claims processing rule, was not binding because that decision contradicts earlier Federal Circuit panel decisions and a panel of the Federal Circuit cannot overrule another panel; the Court of Federal Claims found that argument was more appropriately addressed by the Federal Circuit and unless it is told otherwise, it will follow Brown as controlling.
IRS Reports to Congress on Feasibility of Free Electronic Tax Return Filing System: The IRS submitted a report to Congress, as required by the Inflation Reduction Act of 2022, evaluating a "direct file" (i.e., a free, voluntary, IRS-run electronic filing) option for taxpayers and is taking steps to begin a pilot project for the 2024 filing season following a directive from the Treasury Department. The report finds that many taxpayers are interested in using a free IRS-provided tool to prepare and file taxes, and that the agency is technically capable of delivering a direct file program; it also concludes that effective execution of a direct file program would require sustained budget investment and careful management of the potential program's operational complexity.
Tax Court Orders IRS to Supplement Discovery Responses in Whistleblower Case: In Barenblatt v. Comm'r, 160 T.C. No. 14 (2023), the Tax Court held, in a case of first impression involving a whistleblower's appeal of a denial of an award, in which the whistleblower argued that the administrative record excluded certain relevant documents and filed motions to compel the IRS to provide additional discovery responses, the IRS's designation of the administrative record enjoys a presumption of correctness and discovery aimed at completing the record is allowed only on a significant showing that there is material in the IRS's possession indicative of bad faith or of an incomplete record. The court further held that the whistleblower did not make a significant showing of bad faith or an incomplete record in connection with his requests for document production but did make a limited showing of an incomplete record with respect to one of his interrogatory requests and therefore compelled the IRS to supplement its responses in that regard.
Tax Accounting
IRS Updates List of Automatic Tax Accounting Method Changes: In Rev. Proc. 2023-24, the IRS provided a list of automatic changes to which the automatic change procedure in Rev. Proc. 2015-13, as subsequently modified, apply. The definitions in Section 3 of Rev. Proc. 2015-13 apply to Rev. Proc. 2023-24.
Tax-Exempt Bonds
Forthcoming Regs Will Address Arbitrage Treatment of Certain Guarantee Funds: In Notice 2023-39, the IRS states that it intends to issue proposed regulations regarding an exception to the arbitrage investment restrictions under Code Sec. 148 applicable to tax-exempt bonds. Specifically, the forthcoming proposed regulations will amend Reg. Sec. 1.148-11(d)(1)(i)(F) regarding whether certain perpetual trust funds created and controlled by states that are pledged as credit enhancement to guarantee tax-exempt bonds will be treated as replacement proceeds of the guaranteed bonds for purposes of the arbitrage investment restrictions on tax-exempt bonds under Code Sec. 148.
Tax-Exempt Organizations
College Sports Name, Image and Likeness Collectives Are Likely Not Tax-Exempt: In AM 2023-004, the Office of Chief Counsel advised that name, image and likeness (NIL) collectives, which are nonprofit organizations established by boosters and fans of a university's athletic programs to develop, fund and facilitate NIL deals for student-athletes, will, in many cases, be operating for a substantial nonexempt purpose - serving the private interests of student-athletes. According to the Chief Counsel's Office, the benefit to private interests will in most cases be more than incidental both qualitatively and quantitatively, because the compensation paid by the collective for the use of student-athletes' NIL is not a byproduct but is rather a fundamental part of a nonprofit NIL collective's activities.
Accountable Care Organization Did Not Qualify for Nonprofit Status: In Memorial Hermann Accountable Care Organization v. Comm'r, T.C. Memo. 2023-62, the Tax Court upheld the IRS's denial of tax-exempt status under Code Sec. 501(c)(4) to an accountable care organization that participated in a number of shared savings programs involving the coordination of healthcare for both Medicare and non-Medicare patients.. The court found that while the organization's stated goal of providing affordable healthcare to patients was an admirable one, the organization's non-Medicare Shared Savings Program activities primarily benefited its commercial payor and healthcare provider participants, rather than the public, and therefore constituted a substantial nonexempt purpose.
May 2023
Accounting
IRS Releases May 2023 Applicable Federal Rates: In Rev. Rul. 2023-9, the IRS issued the applicable federal rates for May 2023 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Deductions
Court Rejects IRS's Motion for Ruling That Notes Were Short-Term Debt: In Colony Brands, Inc. v. U.S., 2023 PTC 115 (W.D. Wis. 2023), a case involving a taxpayer seeking a refund for the IRS's wrongful denial of an interest expense deduction on certain promissory notes, a district court rejected the government's motion for summary judgment seeking to establish that the notes were "short-term debt" because they were payable on demand. According to the court, the fact that the notes were payable on the demand was relevant to whether the taxpayer paid a reasonable interest rate on the notes, but the government failed to show that "short-term debt" is a meaningful designation under state or federal law or that a pre-trial ruling on the issues would clarify issues for trial.
Employment Taxes
Court Lacks Jurisdiction Over United Airlines Pilots' FICA Tax Refund Claims: In DiCicco v. U.S., 2023 PTC 100 (Fed. Cl. 2023), the Court of Federal Claims held that it did not have jurisdiction over the claims of nine United Airlines pilots for refunds of the FICA taxes they paid based on the estimated value of their nonqualified deferred compensation benefits. The pilots sought refunds after United Airlines, which filed for bankruptcy, failed to pay all of the pilots' benefits, and notified the pilots that it would not seek a refund of the FICA taxes it paid on their behalf, but the court found that it lacked jurisdiction because the pilots failed to file timely refund claims with the IRS.
Income
Inheritor of Savings Bond Had to Include Accumulated Interest in Income: In Hitchman v. Comm'r, T.C. Summary 2023-18, the Tax Court held that a taxpayer who inherited a savings bond from his father, then had the bond reissued in his name and redeemed it, had to include the accumulated interest on the bond in his gross income. The court rejected the taxpayer's argument that his interest income was limited to the interest that accrued from the time he had it reissued in his name; the court found that because the taxpayer's father did not report any interest income on the bond while he owned it, the interest therefore accumulated, and when the taxpayer redeemed the bond the accumulated interest was includible in his income as income in respect of a decedent under Code Sec. 691(a).
Insurance Companies
IRS Issues Proposed Regulations on Life Insurance Contract Transactions: IN REG-108054-21, the IRS issued proposed regulations providing guidance on the application of the transfer for valuable consideration rules and associated information reporting requirements for reportable policy sales of interests in life insurance contracts to exchanges of life insurance contracts qualifying for nonrecognition of gain or loss under Code Sec. 1035, as well as to certain acquisitions of interests in life insurance contracts in transactions that qualify as corporate reorganizations. The proposed regulations affect parties involved in these life insurance contract transactions, including with respect to payments of reportable death benefits.
International
IRS Issues Proposed Regulations on Repatriations of Intangible Property: In REG-124064-19, the IRS issued proposed regulations that, in certain cases, would terminate the continued application of certain tax provisions arising under Code Sec. 367(d) from a previous transfer of intangible property to a foreign corporation when the intangible property is repatriated to certain United States persons. The proposed regulations would affect certain United States persons that previously transferred intangible property to a foreign corporation.
Penalties
Concealment of Foreign Bank Account Results in Imposition of Willful FBAR Penalty: In U.S. v. Kelly, 2023 PTC 113 (E.D. Mich. 2023), a district court held that taxpayer was liable for a penalty under 31 U.S.C. Section 5321(a)(5) for willfully failing to file Reports of Foreign Bank and Financial Accounts (FBARs) based on the taxpayer's pattern of concealment of his foreign bank account coupled with his actual knowledge of the FBAR reporting requirement. The court found that the taxpayer's participation in the IRS's offshore voluntary disclosure program (OVDP) did not negate his willfulness because the taxpayer was not accepted into OVDP until 10 months after the FBAR deadline passed and was removed from the OVDP program for failure to comply with the program's requirements.
District Court Declines to Stay Its Order Setting Aside Tax Shelter Notice: In Mann Construction, Inc. v. U.S., 2023 PTC 111 (E.D. Mich. 2023), a district court denied the government's motion to stay the effect of the court's January 2023 order setting aside Notice 2007-83, which the court issued after the Sixth Circuit decided in Mann Construction, Inc. v. U.S., 2022 PTC 63 (6th Cir. 2022), that the IRS violated the notice-and-comment requirements of the Administrative Procedure Act in issuing Notice 2007-83 and remanded the case. The district court rejected the government's request for a stay after finding that the government's appeal was unlikely to be successful and that the government would not be irreparably harmed absent a stay.
Procedure
Tax Court Needs More Facts to Decide if Virgin Islands Cover-Over Requests Are Returns: In Estate of Tanner v. Comm'r, T.C. Memo. 2023-54, the Tax Court denied a taxpayer's motion for summary judgment arguing that the statute of limitations on assessments under Code Sec. 6501(a) was triggered when the Virgin Islands Bureau of Internal Revenue (VIBIR) sent "cover-over" requests to the IRS, requesting that the U.S. taxes paid by the taxpayer (who claimed to be a U.S. Virgin Islands (USVI) resident) be paid over to the USVI Treasury. The taxpayer contended that the cover-over requests, which included portions of his USVI tax returns, constituted returns under the four-part test set forth in Beard v. Comm'r, 82 T.C. 766 (1984), but the Tax Court found that more facts were needed to determine whether the taxpayer intended the VIBIR's transmission of the cover-over requests be the filing of his returns that triggered the statute of limitations.
IRS Resumes In-Person Hearings on Proposed Regulations: In Announcement 2023-16, the IRS announced that it will no longer conduct public hearings on notices of proposed rulemaking solely by telephone for proposed regulations published in the Federal Register after May 11, 2023, following the end of the national emergency concerning the COVID-19 pandemic. A telephonic option will remain available for those who prefer to attend or testify at a public hearing by telephone.
IRS Invites Comments on 2023-2024 Priority Guidance Plan: In Notice 2023-36, the IRS is encouraging the public to submit recommendations for items to be included on their 2023-2024 Priority Guidance Plan, which is used each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The 2023-2024 Priority Guidance Plan will identify guidance projects that the Treasury Department and the IRS intend to actively work on as priorities during the period of July 1, 2023, through June 30, 2024.
April 2023
Accounting
IRS Releases April 2023 Applicable Federal Rates: In Rev. Rul. 2023-6, the IRS issued the applicable federal rates for April 2023 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
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Bankruptcy
Bankruptcy Court Has No Jurisdiction to Review IRS Denial of Innocent Spouse Relief: In In re Geary, 2023 PTC 95 (Bankr. W.D. Pa. 2023), a bankruptcy court held that it lacked jurisdiction to review the IRS's denial of a debtor's request for innocent spouse relief. The court found that its authority under 11 U.S.C. Section 505(a) to determine the amount or legality of any tax is not a type of "other remedy by law" envisioned by Congress in enacting Code Sec. 6015(e)(1)(A), which most courts agree gives the Tax Court exclusive jurisdiction to hear appeals of adverse innocent spouse decisions, except where a refund suit is commenced in a federal district court.
IRS Did Not Violate Discharge Injunction Due to Equitable Tolling of Lookback Period: In In re Rader, 2023 PTC 96 (Bankr. M.D. Tenn. 2023), a bankruptcy court held that the IRS did not violate the discharge injunction under 11 U.S.C. Section 524(a)(2) by attempting to collect taxes that the debtor claimed were discharged in his Chapter 13 case. The court found that the two-year lookback period in 11 U.S.C. Section 523(a)(1)(B)(ii) was equitably tolled while the debtor was in an earlier unsuccessful bankruptcy proceeding and therefore, the taxes related to the debtor's tax returns for years 2002-2010 were non-dischargeable because the returns were filed late and within the tolled two-year lookback period.
Credits
Dept. of Energy Provides Updated List of Vehicles That Qualify for EV Credit: The Department of Energy provided an updated list at fueleconomy.gov/feg/tax2023.shtml of new vehicles placed in service on or after April 18, 2023, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit under Code Sec. 30D. The updated list was provided as a result of the critical minerals and battery components requirements went into effect for vehicles placed in service after April 17, 2023, under the proposed regulations issued in REG-120080-22.
IRS Issues Nationwide Average Purchase Price for Residences: In Rev. Proc. 2023-22, the IRS provides issuers of qualified mortgage bonds, as defined in Code Sec. 143(a), and issuers of mortgage credit certificates, as defined in Code Sec. 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. Generally, issuers must use the nationwide average purchase price limitation contained in the procedure for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on April 30, 2023, and ends on the date when the nationwide average purchase price limitation is rendered obsolete by a new revenue procedure.
Taxpayers Improperly Claimed Credit Automatically Generated by Tax Return Software: In Evan v. Comm'r, T.C. Summary 2023-15, the Tax Court held that taxpayers were liable for a deficiency and penalty as a result of improperly claiming a credit for prior year minimum tax under Code Sec. 53. The taxpayers relied on tax preparation software which automatically generated a Form 8801, Credit for Prior Year Minimum Tax- Individuals, Estates, and Trusts; however, the court determined that the taxpayers paid no alternative minimum tax for the year at issue and therefore, there was not prior year minimum tax credit carryforward from which they could claim a credit for the year at issue.
IRS Issues Guidance on Energy Community Bonus Credit: In Notice 2023-29, the IRS stated that it intends to issue proposed regulations addressing the application of the rules for the energy community bonus credit under Code Secs. 45, 45Y, 48, and Code Sec. 48E. The notice describes certain rules that the IRS intends to include in the regulations for determining what constitutes an energy community as defined in Code Sec. 45(b)(11)(B) and for determining whether a qualified facility, an energy project, or an energy storage technology is located in an energy community; the IRS also noted that until the issuance of the proposed regulations, taxpayers may rely on the rules provided in the notice.
Deductions
Settlement Payment Was Not Deductible in 2012 Where Check Was Delivered in 2013: In Gage v. Comm'r, T.C. Memo. 2023-47, the Tax Court held that a payment made by cash method taxpayers to settle a lawsuit with the Department of Housing and Urban Development (HUD) was not deductible as a business loss in 2012 because the taxpayers' lawyer did not deliver the check to HUD until 2013. The taxpayers argued that under state law the payment was made when they gave the check to their attorney but the court rejected that argument and held that, because the litigation was between the taxpayer and an agency of the federal government, federal law controlled and under federal tax law, a payment by check is made when the check is delivered.
Taxpayers Survive Summary Judgment in Conservation Easement Case: In North Donald LA Property, LLC v. Comm'r, T.C. Memo. 2023-50, the Tax Court denied the IRS's motion for summary judgment on the issue of whether a conservation easement deed violated the protected in perpetuity requirement under Code Sec. 170(h)(5)(B) because the donor retained the right to extract clay from the property. The court found that the easement deed explicitly barred the extraction of minerals and found that a genuine issue of material fact existed as to whether the former owners of the land over which the easement was granted reserved to themselves the right to mine subsurface clay.
Spouses Can't Combine Time Spent on Rentals to Qualify as Real Estate Professionals: In Teague v. Comm'r, T.C. Summary 2023-16, the Tax Court held that a married couple who owned rental cabins in Maine could not deduct the losses from the rentals in excess of the amount allowable under Code Sec. 469(i) for 2017 because they failed to show that either spouse qualified as a real estate professional under Code Sec. 469(c)(7). The court rejected the taxpayers' argument that they qualified as real estate professionals based on the total time they both spent working on the cabins because Code Sec. 469(c)(7)(B) provides that, in the case of a joint return, the requirements for qualification as a real estate professional are satisfied only if either spouse separately meets the requirements.
Casualty Loss Deduction for Damage to Taxpayer's Boat Sinks Like a Rock in Tax Court: In Richey v. Comm'r, T.C. Memo. 2023-43, the Tax Court held that the IRS properly denied a $740,000 casualty loss deduction for damage to a vacation home and boat which the taxpayers claimed was caused by a 2017 winter storm. The court found that the taxpayers failed to prove that the damage was caused by the storm, did not adequately substantiate their losses or of their basis in the boat, and did not file insurance claims for property that was protected by insurance.
No Rental Loss Deductions for Taxpayers Who Were Not Real Estate Professionals: In Drocella v. Comm'r, T.C. Memo. 2023-12, the Tax Court held that a married couple could not deduct losses with respect to their rental real estate because the losses were disallowed under the passive activity loss rules in Code Sec. 469. The court noted that under Code Sec. 469(c)(2), rental activity is passive unless the taxpayer qualifies as a real estate professional under Code Sec. 469(c)(7)(B), and the court concluded that neither taxpayer met the requirements for being a real estate professional.
Tax Court Disallows Business Bad Debt Deduction for Debts That Were Not Bona Fide: In Keeton v. Comm'r, T.C. Memo. 2023-35, the Tax Court held that cash advances made by a partnership to a C corporation were not bona fide debt and therefore, the taxpayers who jointly controlled both entities were not entitled to take passthrough loss deductions corresponding to their allocable share of the partnership's claimed business bad debt. The court determined that the advances constituted capital contributions and that even if some of the advances were debt, that debt was later extinguished when all loans from shareholders of the corporation were converted to paid-in capital.
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-33, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-25, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Estates, Gifts, and Trusts
Value of Gross Estate Was Not Reduced by Claims Against Decedent: In Estate of MacElhenny v. Comm'r, T.C. Memo. 2023-33, the Tax Court held that an estate could not deduct the value of two consent judgments against the decedent which arose in a commercial lending arrangement because the debts were satisfied before the decedent died and therefore were not the decedent's personal obligations at the time of his death as required by Code Sec. 2053. The court also held that the decedent's children received taxable gifts by purchasing property from the estate at a discount.
Excise Taxes
Specially-Designed Peanut Drying Trailers Were Not Subject to 12 Percent Excise Tax: In Rockwater, Inc. v. U.S., 2023 PTC 88 (M.D. Ga. 2023), a district court held that the designer and seller of peanut drying semitrailers was not liable for the 12 percent federal excise tax on heavy trucks and trailers sold at retail under Code Sec. 4051(a) because the trailers were specially designed for the primary function of transporting peanuts for drying purposes in a manner other than over a public highway. The court further found that the taxpayer had a good faith basis for contesting the tax and delaying payment and was therefore not liable for penalties and interest.
Exclusions from Income
Exclusion for Disability Payments Did Not Apply Because Company Paid Premiums: In Hailstone v. Comm'r, T.C. Summary 2023-17, the Tax Court held that a taxpayer's disability payments were not excludable from income under Code Sec. 105(c) because the company, rather than the taxpayer, was required to pay all of the premiums. The court found no merit in the taxpayer's arguments that the disability insurance policy allowed the company to choose an option to permit an employee to pay part of the premiums, because it was clear that the company did not choose that option and did not allow employees to pay any amount of the premiums.
Early Filers Who Reported State Tax Refunds as Taxable Can File Amended Returns: In IR-2023-77, the IRS said that taxpayers who filed their federal income taxes early this year and reported certain state 2022 tax refunds as taxable income should consider filing an amended return. The IRS reminded taxpayers of the guidance it issued in IR-2023-23 on February 10, 2023, in which it clarified that certain state payments made by 21 states in 2022 related to general welfare and disaster relief do not need to be reported as income; thus, taxpayers who filed returns and included these payments in their taxable income should consider filing amended returns, which may be filed electronically.
IRS Advises That Relief Payments for Hawaii Oil Spill Are Excludable from Income: In Announcement 2023-7, the IRS provided guidance on relief payments made to certain civilians affected by the release of petroleum from the Red Hill Bulk Fuel Storage Facility on Oahu, Hawaii by the Department of Defense in 2022. According to the IRS, the payments, which were made to affected federal civilian employees and other civilians who are not employed by the federal government for reimbursement of lodging, meals and personal property damage expenses, are excludable from gross income for federal income tax purposes.
Innocent Spouse Relief
Taxpayer Kept in the Dark About Family Finances is Entitled to Innocent Spouse Relief: In DiGiorgio v. Comm'r, T.C. Memo. 2023-44, the Tax Court held that a taxpayer who failed to report substantial income from his business making mortgage loans and selling mortgage-backed securities while living a lavish lifestyle was liable for deficiencies and penalties, including the civil fraud penalty under Code Sec. 6663. However, the court held that the taxpayer's wife was entitled to innocent spouse relief under Code Sec. 6015(f) after finding that she could not be expected to know that the tax liability her husband stated on their return was erroneous and it would be inequitable to deny her relief.
Insurance Companies
IRS Issues Asset/Liability Percentages and Domestic Investment Yields: In Rev. Proc. 2023-21, the IRS issued the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Code Sec. 842(b) for tax years beginning after Dec. 31, 2021. Rev. Proc. 2022-36 contains the information for the domestic asset/liability percentages and domestic investment yields for tax years beginning after Dec. 31, 2020.
International
Court Orders Taxpayer to Repatriate Foreign Assets to Pay FBAR Penalties: In U.S. v. Schwarzbaum, 2023 PTC 78 (S.D. Fla. 2023), a district court ordered a taxpayer to repatriate funds held overseas into a U.S. bank account in order to satisfy the amounts due under the court's judgment holding the taxpayer liable for penalties for willfully failing to file Reports of Foreign Bank and Financial Accounts (FBARs). The court rejected the taxpayer's argument that the court lacked jurisdiction to issue the order and that foreign assets cannot be repatriated into the United States unless the assets repatriated are intended to satisfy an outstanding tax liability or for disgorgement of ill-gotten gains from fraudulent or deceptive conduct, and the assets were originally in the United States.
District Court Invalidates Foreign Tax Credit Regulation: In FedEx Corp. v. U.S., 2023 PTC 76 (W.D. Tenn. 2023), a district court held that a U.S. corporation was wrongly denied foreign tax credits and was entitled to a refund of more than $89 million for foreign taxes it paid on earnings from profitable foreign subsidiaries that were offset by losses from other foreign subsidiaries (i.e., offset earnings) under Code Secs. 959, 960, and Code Sec. 965. The court found that Reg. Sec. 1.965-5(c), which disallows a foreign tax credit on offset earnings, is invalid because it contradicts the plain language of the Code provisions.
IRS Extends Transition Period for the Single-Country Exception under Section 903: In Notice 2023-31, the IRS announced that it intends to provide a longer transition period for the documentation requirement in Prop. Reg. Sec. 1.903-1(c)(2)(iv)(D) (the documentation requirement) when the exception to the source-based attribution requirement in Prop. Reg. Sec. 1.903-1(c)(2)(iii)(B) (the single-country exception) is finalized. The IRS stated that the documentation requirement will be extended to provide that the required agreement must be executed no later than 180 days after the date final regulations adopting the single-country exception are filed with the Federal Register.
U.S. Citizen Properly Deferred Income from Canadian Retirement Plans: In Dengin v. Comm'r, T.C. Memo. 2023-31, the Tax Court held that a U.S. citizen who lived in Canada and was the owner and beneficiary of three Canadian retirement plans, properly elected to defer income with respect to two of the three plans. The court found that under Rev. Proc. 2014-55, the taxpayer automatically made the election by filing U.S. federal income tax returns for the years in which he was a beneficiary of the plans, even though he did not file the returns until he was under audit by the IRS.
IRS Provides 2023 Adjustments to the Limitation on Housing Expenses under Section 911: In Notice 2023-26, the IRS provides adjustments to the limitation on housing expenses for purposes of Code Sec. 911 for specific locations for 2023. These adjustments are based on geographic differences in housing costs relative to housing costs in the United States.
Penalties
Third Circuit Sends Taxpayer's Appeal of TFRP Assessment Back to Tax Court: In Ahmed v. Comm'r, 2023 PTC 79 (3d Cir. 2023), the Third Circuit vacated the Tax Court's ruling that it lacked jurisdiction over a taxpayer's appeal of a collection due process hearing in a case in which the taxpayer sent $625,000 to the IRS as a deposit in order to stop the running of interest on his disputed trust fund recovery penalties (TFRPs), but which the IRS applied as a direct payment to his tax bill. The Third Circuit remanded the case after finding that it was unclear whether the IRS sent a Letter 1153, Notice of Trust Fund Recovery Penalty, to the taxpayer at his last known address as required under Code Sec. 6672(b) and therefore, the IRS may not have met the requirements to assess the TFRPs administratively.
District Court Allows Taxpayer's Challenge to Notice 2007-83 To Go Forward: In Govig and Associates, Inc. v. U.S., 2023 PTC 64 (D. Ariz. 2023), a district court held that it has jurisdiction over a taxpayer's lawsuit challenging the validity under the Administrative Procedure Act (APA) of Notice 2007-83, in which the IRS identified certain trust arrangements using cash value life insurance policies as listed transactions. However, the court rejected the taxpayer's argument that the Sixth Circuit's decision in Mann Construction, Inc. v. U.S., 2022 PTC 63 (6th Cir. 2022), that Notice 2007-83 was invalid under the APA applied on a nationwide basis and thus declined to treat the notice as a legal nullity.
Procedure
State Agency Cannot Refuse to Comply with IRS Summons Seeking Info on Microcaptives: In U.S.A. v. State of Delaware Dept. of Insurance, 2023 PTC 99 (3d Cir. 2023), the Third Circuit held that the Delaware Department of Insurance was not authorized under Delaware law to refuse to comply with an IRS summons issued in connection with an investigation into whether two companies were liable for penalties under Code Sec. 6700 for promoting abusive tax shelters. The court found that while the Delaware statute does protect state insurance laws from intrusive federal action when certain requirements are met, the conduct at issue - in this case, the refusal to produced summonsed documents - must constitute the "business of insurance," and the court concluded that this requirement was not met.
Eleventh Circuit Holds That Tax Court Lacked Jurisdiction to Redetermine Interest: In Hill, III v. Comm'r, 2023 PTC 80 (11th Cir. 2023), the Eleventh Circuit affirmed a decision of the Tax Court that it lacked jurisdiction to reopen a case to determine if a taxpayer was owed additional interest resulting from an overpayment the taxpayer said that he made to the IRS, even though the taxpayer labeled the amount at issue as a "deposit." The Eleventh Circuit concluded that there was no Tax Court finding that the taxpayer made an overpayment of tax and thus, the Tax Court did not have jurisdiction over his post-judgment motion to redetermine interest.
Tax Court Holds That Virgin Islands Tax Return Did Not Trigger Statute of Limitations: In Tice v. Comm'r, 160 T.C. No. 8 (2023), the Tax Court held a U.S. citizen who was not a bona fide resident of the U.S. Virgin Islands did not trigger the three-year statute of limitations on assessments under Code Sec. 6501(a) by filing tax returns only with the Virgin Islands Bureau of Internal Revenue (VIBIR). According to the court, as a U.S. citizen "other than a bona fide resident of the Virgin Islands" under Code Sec. 932(a), the taxpayer was required to file returns with both the United States and the Virgin Islands, and as a result of his failure to do so, the IRS could issue a notice of deficiency at any time under Code Sec. 6501(c)(3).
IRS Clarifies Relevant Date for Taxable Substances Under Section 4672: In Rev. Proc. 2023-20, the IRS modified Rev. Proc. 2022-26 to clarify that the date on which a taxable substance is added to the list of taxable substances for purposes of refund claims under Code Sec. 4662(e) is the first day of the calendar quarter in which the petition is filed (for an interested person) or the day on which the petition is deemed filed (for an importer or exporter). Code Sec. 4672(a)(2) allows an importer or exporter of any chemical substance to request a determination whether such substance should be listed as a taxable substance on the list or be removed from the list, and Rev. Proc. 2022-26 provides the procedures for importers, exporters, and interested persons to request a determination that a substance be added to or removed from the list.
Relief Extended for Certain Failure to Deposit Penalties for Superfund Chemical Taxes: In Notice 2023-28, the IRS extended the relief provided in Section 3(a) of Notice 2022-15 through the end of 2023, and the relief provided by Section 3(b) of Notice 2022-15 through June 30, 2024. In Notice 2022-15, the IRS provided temporary rules for the third and fourth calendar quarters of 2022, and the first calendar quarter of 2023, regarding the failure to deposit penalty imposed by Code Sec. 6656 as that penalty relates to the excise taxes imposed by Code Sec. 4661 and Code Sec. 4671 (i.e., Superfund chemical taxes).
Proposed Regulations Issued on Superfund Chemical Taxes: In REG-105954-22, the IRS issued proposed regulations under Code Secs. 4661, 4662, 4671, and Code Sec. 4672 relating to the excise taxes imposed on certain chemicals and certain imported substances (i.e., Superfund chemical taxes). The proposed regulations affect manufacturers, producers, and importers that sell or use taxable chemicals and importers that sell or use taxable substances.
Tax Accounting
Safe Harbor Provided for Determining if Natural Gas Expenses Must Be Capitalized: In Rev. Proc. 2023-15, the IRS provided a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized. Under the procedure, a taxpayer must first classify its natural gas transmission and distribution property as either linear property or non-linear property; the procedure then provides methods of accounting for each type of property, specifically, a safe harbor method used for the taxpayer's linear transmission and distribution property and an optional safe harbor method that the taxpayer may choose to use for its non-linear transmission and distribution property.
IRS Revises Form 3115, Application for Change in Accounting Method: In Announcement 2023-12, the IRS stated that it has revised Form 3115, Application for Change in Accounting Method, and its instructions, and the Form 3115 (Rev. December 2022) is the current Form 3115 and replaces the December 2018 version of the Form 3115. The IRS stated that it encourages all taxpayers to use the December 2022 Form 3115, but also stated that it will accept either the December 2022 form or the December 2018 form if filed by a taxpayer on or before April 18, 2023, unless the December 2022 Form 3115 is specifically required by published guidance.
Tax-Exempt Bonds
IRS Releases Population Figures for Use by Issuers of Tax-Exempt Private Activity Bonds: In Notice 2023-22, the IRS advised state and local housing credit agencies that allocate low-income housing tax credits under Code Sec. 42, and states and other issuers of tax-exempt private activity bonds under Code Sec. 141, of the population figures to use in calculating: (1) the 2023 calendar year population-based component of the state housing credit ceiling under Code Sec. 42(h)(3)(C)(ii); (2) the 2023 calendar year volume cap under Code Sec. 146; and (3) the 2023 volume limit under Code Sec. 142(k)(5).
Tax-Exempt Organizations
New Procedure Makes Electronic Filing the Exclusive Means of Submitting Form 8940: In Rev. Proc. 2023-12, the IRS modified Rev. Proc. 2023-5 to provide that the electronic submission process is the exclusive means for tax exempt organizations to submit a Form 8940, Request for Miscellaneous Determination, except for submissions eligible for the 90-day transition relief provided in the procedure. Additionally, the procedure modifies existing procedures so that Form 8940 will be used by government entities to request voluntary termination of tax exempt status under Code Sec. 501(c)(3).
IRS Properly Denied Tax Exempt Status to Organization Promoting Use of Hallucinogens: In Iowaska Church of Healing v. U.S., 2023 PTC 75 (D. D.C. 2023), a district court held that the IRS properly denied the application for Code Sec. 501(c)(3) tax-exempt status of an organization whose members' sincerely-held religious belief partly involves the consumption of ayahuasca, a tea brewed from South American plants that contains a drug illegal under federal law. The court agreed with the IRS that the organization's purpose was the illegal distribution and promotion of the use of a controlled substance, which is a non-exempt purpose.
Virtual Currency
Bitcoin Is Not Currency, Despite Legal Tender Status in Some Countries: In Notice 2023-34, the IRS modified Notice 2014-21, which provides that convertible virtual currency is treated as property for federal tax purposes, in order to remove a statement in the Background section that virtual currency does not have legal tender status in any jurisdiction, because certain foreign jurisdictions have enacted laws that treat Bitcoin as legal tender. However, the IRS noted that the revisions do not affect the answers to the frequently asked questions set forth in Notice 2014-21, including Q&A-2, which concludes that convertible virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal income tax purposes.
March 2023
Accounting
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IRS Releases March 2023 Applicable Federal Rates: In Rev. Rul. 2023-5, the IRS issued the applicable federal rates for March 2023 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Bankruptcy Court Modifies Automatic Stay to Allow IRS to Levy Debtors' Social Security: In In re Rios, 2023 PTC 46 (Bankr. E.D. Wis. 2023), a bankruptcy court modified an automatic stay under 11 U.S.C. Section 362(a) to allow the IRS to enforce its federal tax liens securing tax liabilities on the debtors' right to their social security benefits after finding that the debtors failed to propose adequate protection of the IRS's interest in that property. However, the court denied the IRS's request for relief from the automatic stay to implement its right of setoff; the court noted that counsel for the IRS stated that this would be the first time a court would address head on whether social security benefits can be properly set off against pre-petition tax debt, and the court declined the IRS's invitation to be the first court in the country to make such a ruling.
Solo 401(k) Plan May Qualify for Exemption in Chapter 7 Bankruptcy: In In re Jacobs, 2023 PTC 33 (Bankr. N.D. Okla. 2023), a bankruptcy court denied in part and granted in part a chapter 7 trustee's motion for summary judgment on the trustee's objection to the debtor's claim of exemption with regard to retirement funds held in his solo 401(k) plan. The court found that the funds in the solo 401(k) plan which the debtor transferred from a traditional IRA could be exempt under state law, depending on whether the solo 401(k) was operated in compliance with Code Sec. 401(a); however, the court granted summary judgment for the trustee with respect to funds which the debtor transferred from a Roth IRA, after finding that the transfer was a taxable distribution to the debtor and therefore came into the estate under 11 U.S.C. Section 541(a)(1).
Credits
IRS Provides Guidance on Credit for the Production of Electricity from Advanced Nuclear Power Facilities: In Notice 2023-24, the IRS provided guidance under Code Sec. 45J relating to the credit for the production of electricity from advanced nuclear power facilities. The notice includes (1) guidance for computing the Code Sec. 45J credit, (2) the amount of the unutilized national megawatt capacity limitation (NMCL), (3) procedures for taxpayers to apply for allocations of, and that the IRS will use to allocate, the unutilized NMCL solely with respect to facilities that the Department of Energy previously certified as advanced nuclear facilities, and (4) procedures for a qualified public entity to elect to transfer the Code Sec. 45J credit to an eligible project partner.
Corporations
IRS Issues Additional Guidance on New Corporate Alternative Minimum Tax: In Notice 2023-20, the IRS provided the additional interim guidance described in Notice 2023-7 that is intended to help avoid substantial unintended adverse consequences to the insurance industry from the application of the new corporate alternative minimum tax (CAMT), as added by the Inflation Reduction Act of 2022. Sections 3 through 5 of the notice provide additional interim guidance regarding issues intended to be addressed by the forthcoming proposed regulations and taxpayers may rely on the guidance provided in those sections until the issuance of the forthcoming proposed regulations.
Credits
S Corp Can't Take Research Credit for Compensation Paid to Company President: In Moore v. Comm'r, T.C. Memo. 2023-20, the Tax Court held that an S corporation that manufactured scoreboards and LED video displays was not entitled to a research credit under Code Sec. 41 for compensation paid to the company's president and chief operating officer (COO). The court found that (1) the company president and COO did not engage in direct supervision or direct support (as provided by Code Sec. 41(b)(2)(B)(ii)) of persons who performed qualified services and (2), even though he was extensively involved in new product development, the record did not show the portion of his work on new product development which met the requirements of "qualified research" under Code Sec. 41(b)(2)(B)(i).
Criminal
First Circuit Affirms Conviction Relating to International Fraudulent Return Conspiracy: In U.S. v. Akoto, 2023 PTC 41 (1st Cir. 2023), the First Circuit affirmed the conviction of an individual for conspiracy to commit wire fraud, substantive wire fraud, and aggravated identity theft based on evidence of his participation in an international scheme, involving individuals in the United Sates, Nigeria, and Ghana, that used stolen identities to file at least 310 fraudulent federal income tax returns seeking $1,326,633 in refunds, $551,601 of which the IRS paid out. The court rejected the individual's arguments on appeal, including that his attorney's failure to raise a statute of limitations defense amounted to ineffective assistance of counsel.
Employee Benefits
IRS Provides Indexing Adjustments for Employer Shared Responsibility Payments: In Rev. Proc. 2023-17, the IRS provided indexing adjustments for the applicable dollar amounts under Code Sec. 4980H(c)(1) and (b)(1), effective for tax years and plan years beginning after December 31, 2023. These indexed amounts are used to calculate the employer shared responsibility payments under Code Sec. 4980H(a) and (b)(1), respectively.
Employment Tax
IRS Issues Procedure on Maintaining Certification as a CPEO: In Rev. Proc. 2023-18, the IRS addresses the procedures for applying to be certified as a Certified Professional Employer Organization (CPEO), the requirements for a CPEO to remain certified, and the procedures relating to suspension and revocation of CPEO certification. The procedure modifies and supersedes both Rev. Proc. 2016-33 and Rev. Proc. 2017-14.
Estates, Gifts, and Trusts
Vanderbilt Heirs Prevail in Tax Court on Valuation of Shares in Family Business: In Estate of Cecil v. Comm'r., T.C. Memo. 2023-24, the Tax Court held, in a dispute between the IRS and the heirs of the Vanderbilt estate who gifted stock in the family business that owns and operates the Biltmore Estate to their children and grandchildren, that the heirs' valuation of the stock was a more accurate reflection of the fair market value than that of the IRS. The court assigned zero weight to the opinion of the valuation expert presented by the IRS, whose opinion used an asset valuation method, after finding that the company is an operating company whose existence is not in jeopardy, is not a holding company, and that the company's earnings were therefore the best measure of the stock's fair market value.
Estate Failed to Persuade Tax Court That Large Cash Payments Weren't Gifts: In Estate of Spizzirri v. Comm'r, T.C. Memo. 2023-25, the Tax Court held that payments made by a wealthy lawyer and investor during the last few years of his life to his daughters, stepdaughters, and multiple women with whom he was either socially or romantically connected, were taxable gifts after finding that the estate failed to establish that the payments were for care and companionship services. The court also held that the estate was not entitled to a deduction under Code Sec. 2053(c)(1)(A) for claims against the estate as a result of payments the estate made pursuant to an antenuptial agreement; the court concluded that the payments were essentially donative in character and were not made for adequate and full consideration.
Trust Language Prevents Trust's Deduction for Charitable Remainder Interest: In Estate of Block v. Comm'r, T.C. Memo. 2023-30, the Tax Court held that an estate could not deduct the present value of a charitable remainder interest in a trust that was intended to be treated as a charitable remainder annuity trust (CRAT) and that directed an annuity amount to be paid annually to the beneficiary during her life in an amount equal to the greater of (1) all net income or (2) $50,000. The court found that the trust violated the requirement in Code Sec. 664(d)(1) that a "sum certain" be paid to the income beneficiaries, even though the trust had been amended to remove the "all net income" language; the court found that the trust did not qualify as a CRAT at the time of the decedent's death and the charitable remainder was not a reformable interest under the default rules and the exception for judicial reformations did not apply.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-19, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Foreign
Requirements Waived for Certain Individuals Making Foreign Earned Income Exclusion: In Rev. Proc. 2023-19, the IRS provides a waiver under Code Sec. 911(d)(4) for the time requirements for individuals electing to exclude their foreign earned income who must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. The procedure adds Ethiopia, Iraq, Ukraine, Belarus, China, and Mali to the list of waiver countries for tax year 2022 for which the minimum time requirements are waived.
Insurance Companies
Seller of Annuities Contracts Failed to Qualify as Tax-Exempt Insurance Company: In Commonwealth Underwriting & Annuity Services, Inc. v. Comm'r, T.C. Memo. 2023-27, the Tax Court upheld the IRS's final adverse determination that a company that sold annuities contracts to individuals in consideration for purchase payments, was not an organization described in Code Sec. 501(c)(15) and therefore was not exempt from tax under Code Sec. 501(a). The court rejected the taxpayer's argument that the purchase payments were not gross income because they were segregated in a trust account and held that the payments constituted gross receipts which exceeded the $600,000 limit in Code Sec. 501(c)(15)(A).
International
Final Regulations Treat Consolidated Group as a Single U.S. Shareholder: In T.D. 9973, the IRS issued final regulations that treat members of a consolidated group as a single U.S. shareholder in certain cases for purposes of Code Sec. 951(a)(2)(B). The final regulations affect consolidated groups that own stock of foreign corporations.
Procedure
No Refund for Taxpayer Who Paid Taxes Assessed Against His Ex-Wife: In Roman v. U.S., 2023 PTC 49 (Fed. Cir. 2023), the Federal Circuit reversed a ruling by the Court of Federal Claims in favor of an individual who claimed a refund of taxes he paid but that were assessed against his ex-wife. The Federal Circuit found that the individual was not "the taxpayer" as required by Code Sec. 6511(a) and that the Court of Federal Claims lacked jurisdiction to hear his third-party refund claim.
Doctor Who Committed Healthcare Fraud Is Not Eligible for Tax Refund: In Gross v. U.S., 2023 PTC 50 (5th Cir. 2022), the Fifth Circuit affirmed a district court's rejection of a refund claim filed by a psychiatrist for taxes he paid on income he received from fraudulent Medicare reimbursements and which he agreed to repay as restitution pursuant to a plea agreement. The Fifth Circuit found that the taxpayer was not entitled to a refund under Code Sec. 1341 because he could not have believed that he had an unrestricted right to the funds; the court also found that he could not claim a refund under Code Sec. 162(a) because restitution does not qualify for deduction of ordinary and necessary expenses when paid pursuant to a criminal guilty plea.
Merger Survivor Can't Net Underpayments Against Merged Company's Overpayments: In Bank of America Corp. v. U.S., 2023 PTC 35 (W.D. N.C. 2023), a district court granted summary judgment for the government after finding that, when a corporation with preexisting overpayments of tax merged into a corporation with a preexisting underpayment, the surviving corporation could not net the overpayments against its underpayment. The court reasoned that under Code Sec. 6621(d), interest netting is available only when underpayments and overpayments are made "by the same taxpayer" and the two corporations were separate corporation before they merged.
Court of Federal Claims Dismisses Refund Action Due to Unsigned Forms 843: In Vensure HR, Inc. v. U.S., 2023 PTC 36 (Fed. Cl. 2023), the Court of Federal Claims dismissed a taxpayer's complaint seeking a refund of employment tax-related penalties after finding that the taxpayer failed to "duly file" its refund claims with the IRS as required by Code Sec. 7422(a) because its Forms 843, Claim for Refund and Request for Abatement, were signed not signed by the taxpayer and were signed the taxpayer's attorney but did not include power of attorney forms. However, the court dismissed the complaint for failure to state a claim rather than for lack of jurisdiction after finding that the Federal Circuit's decision in Brown v. U.S., 2022 PTC 2 (Fed. Cir. 2022), that the "duly filed" requirement in Code Sec. 7422(a) is not jurisdictional was controlling.
Retirement Plans
IRS Provides Relief from Reporting Required Minimum Distributions in 2023: In Notice 2023-23, the IRS provided guidance to financial institutions on reporting required minimum distributions (RMDs) for 2023 after the amendment to Code Sec. 401(a)(9) made by the Secure 2.0 Act (Pub. L. 117-328), which generally provides that IRA owners who will attain age 72 in 2023 will have a required beginning date of April 1, 2025, rather than April 1, 2024, and therefore, such IRA owners will have no RMD due from their IRAs for 2023. The IRS advised that, in recognition of the short amount of time that financial institutions have had to change their systems for furnishing RMD statements since the enactment of the Secure 2.0 Act, the IRS will not consider an RMD statement provided to an IRA owner who will attain age 72 in 2023 to have been provided incorrectly if the IRA owner is notified by the financial institution no later than April 28, 2023, that no RMD is actually required for 2023.
Proposed Regulations Provide Rules Relating to Use of Forfeitures in Qualified Plans: In REG-122286-18, the IRS issued proposed regulations that would provide rules relating to the use of forfeitures in qualified retirement plans, including a deadline for the use of forfeitures in defined contribution plans. The proposed regulations would clarify that forfeitures arising in any defined contribution plan (including in a money purchase pension plan) may be used for one or more of the following purposes, as specified in the plan: (1) to pay plan administrative expenses, (2) to reduce employer contributions under the plan, or (3) to increase benefits in other participants' accounts in accordance with plan terms; the proposed regulations would also generally require that plan administrators use forfeitures no later than 12 months after the close of the plan year in which the forfeitures are incurred.
Tax Return Preparers
Court Dismisses FOIA Lawsuit Regarding Third Party Access to Taxpayer Records: In Fogg v. IRS, 2023 PTC 37 (D. Minn. 2023), a district court dismissed a lawsuit after finding that the IRS appropriately withheld from a request under the Freedom of Information Act (FOIA) portions of the Internal Revenue Manual (IRM) relating to the authentication of third-party representatives who contact the IRS on behalf of a taxpayer requesting sensitive taxpayer information. The court found, after an in camera review of the withheld IRM sections, that the material fell under a FOIA exemption for material compiled for law enforcement purposes.
February 2023
Accounting
MOST POPULAR: Parker's 2022 Tax Planning Guides: Client Letters Included. For an In-Depth Look at Tax Planning for INDIVIDUALS, Click Here. For an In-Depth Look at Tax Planning for BUSINESSES, Click Here.
IRS Releases February 2023 Applicable Federal Rates: In Rev. Rul. 2023-3, the IRS issued the applicable federal rates for February 2023 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), Code Sec. 382(f), Code Sec. 642(c)(5). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Filing Bankruptcy Didn't Toll Statute of Limitations for Payroll Tax Penalties: In U.S. v. Colasuonno, 2023 PTC 28 (S.D.N.Y. 2023), a district court held that government's action to recover penalties assessed against an individual for failing to collect and pay over payroll taxes was not time barred because under Code Sec. 6503, the taxpayer's filing of a chapter 7 bankruptcy petition tolled the statute of limitations during the pendency of the bankruptcy. The court also held that the taxpayer's argument that the government violated the automatic stay by filing a notice of federal tax lien during the bankruptcy could only be challenged in the bankruptcy court in an action for damages.
Credits
IRS Establishes Program to Allocate Environmental Justice Capacity Limitations: In Notice 2023-17, the IRS established the program under Code Sec. 48(e) to allocate amounts of environmental justice solar and wind capacity limitation (Capacity Limitation) to qualified solar and wind facilities eligible for the energy investment credit determined under Code Sec. 48. In addition, the notice provides initial guidance regarding the overall program design, the application process, and additional criteria that will be considered in determining which applicants will receive an allocation of Capacity Limitation in calendar year 2023 under the Low-Income Communities Bonus Credit Program.
IRS Establishes Qualifying Advanced Energy Project Credit Allocation Program: In Notice 2023-18, the IRS established a program under Code Sec. 48C(e)(1) to allocate $10 billion of credits ($4 billion of which may be allocated only to projects located in certain energy communities) for qualified investments in eligible qualifying advanced energy projects (Code Sec. 48C(e) program). The notice also provides the general rules for determining the Code Sec. 48C credit, definitions of qualifying advanced energy projects, and the procedures for allocating the credits.
Criminal
Fifth Circuit Affirms Sentence and Restitution Award in Tax Fraud Case: In U.S. v. Cooksey, 2023 PTC 31 (5th Cir. 2023), the Fifth Circuit affirmed the sentence and restitution award entered by a district court after the owner and operator of a tax preparation company pled guilty to filing false tax returns. The Fifth Circuit rejected the taxpayer's argument that the district court should have determined the tax loss and restitution amount by taking into account amended returns she filed after being indicted; the court found that it was within the IRS's discretion to reject her amended return on the basis that it was filed in an attempt to reduce her base level offense.
Deductions
No Deduction Allowed for Payments to Ex-Spouse's Attorney: In Aragoni v. Comm'r, T.C. Summary 2023-3, the Tax Court held that, since a taxpayer's liability to pay $15,000 to his ex-spouse's attorney would survive her death, the payment of the fees was not an alimony payment within the meaning of Code Sec. 71(b)(1) and was not deductible. The court found that, even if it were to conclude that California state law was unclear in regard to post-death liability, a reasonable reading of the divorce instrument supported a finding that the liability would continue after the death of the taxpayer's ex-spouse as the order clearly stated that payments were to continue until paid in full.
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-12, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Health Care
Proposed Regs Address Coverage of Certain Preventive Services Under the ACA: In REG-124930-21, the IRS issued proposed regulations regarding coverage of certain preventive services under the Affordable Care Act. The proposed rules rescind the moral exemption rule for contraceptive services under the current regulations and establish a new individual contraceptive arrangement that individuals enrolled in plans or coverage sponsored, arranged, or provided by objecting entities may use to obtain contraceptive services at no cost directly from a provider or facility that furnishes contraceptive services.
Income
Disability Benefits Includable in Income; Lifetime Learning Credit Reduced: In Trice v. Comm'r, T.C. Memo. 2023-15, the Tax Court held that the disability benefits a taxpayer received had to be included in her income; however, the court found that the taxpayer raised a genuine dispute of material fact by showing that she did not receive them. The court further held that the taxpayer's lifetime learning credit had to be reduced to the extent her disability benefits caused her modified adjusted gross income to trigger reductions under Code Sec. 25A(d).
Innocent Spouse Relief
Tax Court Holds That Blog Posts Were Properly Admitted in Innocent Spouse Case: In a case of first impression, the Tax Court denied a taxpayer's motion to strike personal blog posts introduced into evidence by the IRS which were relevant to the ultimate disposition of the taxpayer's claim for relief from joint and several liability under Code Sec. 6015(f). The court found that the blog posts were "newly discovered" and "previously unavailable evidence" under Code Sec. 6015(e)(7)(B). Thomas v. Comm'r, 160 T.C. No. 4 (2023).
Interest Rates
IRS Announces Interest Rates Unchanged for Second Quarter of 2023: In Rev. Rul. 2023-4, the IRS announced that the rates for interest on tax underpayments and overpayments for the second quarter of 2023, will remain the same as the rates for the first quarter of 2023. Thus, the rates for interest determined under Code Sec. 6621 for the calendar quarter beginning April 1, 2023, will be 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent.
International
Difficulty with English Language Does Not Insulate Couple from FBAR Reporting: U.S. v. Malekzadeh, 2023 PTC 27 (D. Ore. 2023), a district court granted partial summary judgment to the government after holding that a couple, who immigrated from Iran and became U.S. citizens, willfully failed to disclose their Iranian and Canadian bank accounts to the IRS. Moreover, the court said that even if it were to accept that the couple, like many other immigrants, had difficulty understanding English, that fact would not insulate them from their obligations to file Foreign Bank Account Reports (FBARs) and the court refused to consider the couple's alleged English language limitations in determining whether there was a genuine dispute of material fact regarding the willfulness of the couple's failure to report their foreign bank accounts.
Chief Counsel Addresses Tax Treatment of Pharmaceutical Company Vouchers: In CCM 202304009, the Office of Chief Counsel advised that if a pharmaceutical company (PC) intends to use priority review vouchers (PRVs) to expedite a new drug application (NDA), the PRV costs are properly treated as amounts incurred to facilitate the creation of a franchise right from the Federal Drug Administration (FDA), and therefore, must be capitalized under Code Sec. 263(a) and the regulations thereunder. The Chief Counsel's Office also concluded that (1) if the PC can demonstrate that it acquired the PRV with the intent to hold the PRV for sale, then the acquisition costs are properly treated as amounts paid for the acquisition of a separate intangible asset in a purchase or similar transaction, and therefore, must be capitalized; (2) if the PC uses the PRV to expedite the processing of an NDA filed with the FDA, the PC may amortize the amounts paid for the PRV under Code Sec. 197 and the regulations thereunder over the 15-year period beginning in the month that the NDA is approved by the FDA; (3) if the PC utilizes the PRV for the NDA process, but is not awarded an NDA, the PC may recognize a loss under Code Sec. 165 in the tax year such loss is sustained; and (4) if the PC resells the PRV to a third-party PC, it may not amortize the PRV costs under either Code Sec. 167 or Code Sec. 197 but may recover its basis through the recognition of gain or loss, whichever is appropriate, at the time such PRV is sold.
Penalties
Taxpayer Can't Avoid Penalty Where He Relied on Preparer Without a PTIN: In Mulu v. Comm'r, T.C. Summary 2023-2, the Tax Court held that a taxpayer, who worked as a pharmacist, was liable for penalties for failing to substantiate deductions taken with respect to rental real estate. In addition, the court concluded that the taxpayer did not have reasonable cause and good faith for the resulting underpayment of tax because he relied on a tax return preparer who did not have a preparer tax identification number (PTIN) and who electronically submitted the taxpayer's return as though it had been self-prepared by the taxpayer.
Diabetes Doesn't Qualify for Disability Exception to Early Distribution Penalty Tax: In Lucas v. Comm'r, T.C. Memo. 2023-9, the Tax Court held that a taxpayer was liable for the 10 percent penalty tax under Code Sec. 72(t)(1) for a distribution he took from his retirement plan before he turned 59 1/2 years old. The court rejected the taxpayer's argument that his diabetes qualified him for the disability exception in Code Sec. 72(t)(2)(A) because the court found that his diabetes did not render him unable to engage in any substantial gainful activity within the meaning of Code Sec. 72(m)(7).
Procedure
Motion for Reconsideration Denied in Case Involving Deposits Rejected by IRS: In Dillon Trust Company LLC v. U.S., 2023 PTC 32 (Fed. Cl. 2023), the Court of Federal Claims denied a taxpayers' motion for reconsideration after the court granted summary judgment for the IRS after finding that the IRS properly collected interest after refusing to apply a deposit made by successor trusts to pay taxes owed by the original trusts. The court found no compelling reason to revise its holding that the IRS's collection of interest did not violate the law, nor did the court find that the IRS abused its discretion by refusing to use the successor trusts' deposits for payment of the original trusts' liabilities.
Chief Counsel's Office Says Taxpayer's Form 4868 Wasn't an Informal Refund Claim: In CCA 202306008, the Chief Counsel's Office advised that a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, did not qualify as an informal claim for a refund of an overpayment because it did not inform the IRS of the basis of the claim for a refund, which the Chief Counsel's Office noted is a critical component of a refund claim. The Chief Counsel's Office further advised that the situation before it was not analogous to the facts of Kaffenberger v. U.S., 314 F.3d 944 (8th Cir. 2003), because in that case, despite the lack of detail as to the basis of the refund claim the IRS had sufficient background information to understand the nature of the taxpayers' claim, while in the present case there was nothing to suggest the IRS knew the basis of any overpayment claimed by the taxpayer.
January 2023
Accounting
In-Depth: CAA 2023 Signed into Law On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023 (CAA 2023). CAA 2023 contains consolidated appropriations for the fiscal year ending September 30, 2023, and includes a major overhaul of retirement-related tax provisions. These retirement-related changes, dubbed SECURE Act 2.0, build on provisions enacted in the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). Pub. L. 117-328. Highlights of the tax provisions included in Division T of CAA 2023 include: Read more.
MOST POPULAR: Parker's Top Tax Developments of 2022: In August, President Biden signed the Inflation Reduction Act of 2022 (2022 IRA), a scaled-back version of the Build Back Better Act which had stalled out in the Senate in 2021. After failing to reach a bipartisan deal on a fully refundable child tax credit and other tax measures this fall, Congress is poised to pass a year-end omnibus spending bill that includes the SECURE 2.0 Act of 2022 (aimed at expanding enrollment in retirement plans and increasing retirement savings), as well as changes to the rules for charitable conservation easement contribution deductions. On the administrative front, the IRS finalized regulations fixing the "family glitch" in the premium tax credit, began issuing guidance under the 2022 IRA, and issued proposed regulations in other areas. In addition, several important court decisions were handed down in 2022, in cases dealing with the Tax Court's jurisdiction, micro-captive insurance arrangements, and the IRS's process for identifying listed transactions. See the list.
IRS Releases January 2023 Applicable Federal Rates: In Rev. Rul. 2023-1, the IRS issued the applicable federal rates for January 2023 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), Code Sec. 382(f), Code Sec. 642(c)(5). The ruling also contains the average of the applicable federal mid-term rates (based on annual compounding) for the 60-month period ending December 31, 2022, for purposes of Code Sec. 7702(f)(11).
MOST POPULAR: Parker's 2022 Tax Planning Guides: Client Letters Included. For an In-Depth Look at Tax Planning for INDIVIDUALS, Click Here. For an In-Depth Look at Tax Planning for BUSINESSES, Click Here.
Corporations
Proposed Regs Forthcoming on New Corporate Alternative Minimum Tax: In Notice 2023-7, the IRS announced its intention to issue proposed regulations addressing the application of the new corporate alternative minimum tax, as enacted by the Inflation Reduction Act of 2022. Sections 3 through 7 of the notice provide interim guidance regarding certain time-sensitive issues intended to be addressed by the forthcoming proposed regulations and taxpayers may rely on the guidance provided in those sections until the issuance of the forthcoming proposed regulations.
IRS Issues Rules and Procedures Relating to New Tax on Repurchases of Corporate Stock: In Notice 2023-2, the IRS announced its intention to issue proposed regulations addressing the application of the new excise tax on repurchases of corporate stock under Code Sec. 4501, as enacted by the Inflation Reduction Act of 2022. To provide taxpayers with interim guidance until publication of forthcoming proposed regulations, the notice describes certain rules and procedures that the IRS intends to include in those regulations and provides that taxpayers may rely on the rules described in Section 3 of the notice.
Credits
High Modified AGI Prevents Taxpayer from Qualifying for Premium Tax Credit: In Henry v. Comm'r, T.C. Memo. 2023-2, the Tax Court held that a taxpayer was required to repay the advanced premium tax credit (PTC) payments made on her behalf for health insurance coverage because her modified adjusted gross income exceeded the applicable amount and thus she no longer qualified for the PTC under Code Sec. 36B. While the taxpayer said she had terminated her health coverage during the year at issue, the court found that there was no record of her attempting to request termination or cancellation of her health coverage during that year.
IRS Announces Applicable Reference Standards for Sec. 179D Credit: In Announcement 2023-1, the IRS notifies taxpayers of the applicable reference standard required to be used to determine the amount of the energy efficient commercial building property deduction allowed under Code Sec. 179D, as amended the Inflation Reduction Act of 2022. The announcement identifies the existing reference standard, affirms a new reference standard, and clarifies when each of the two reference standards will apply to taxpayers.
Foreign
Regs Address Taxation of U.S. Real Property Interests Held by Foreign Pension Funds: In T.D. 9971, the IRS issued final regulations on the tax treatment of gains or losses of a qualified foreign pension fund attributable to certain interests in U.S. real property. The final regulations also include rules for certifying that a qualified foreign pension fund is not subject to withholding on certain dispositions of, and distributions with respect to, certain interests in United States real property.
IRS Issues Guidance on Sec. 1446 Withholding Regulations: In Notice 2023-8, the IRS issued additional guidance for brokers to comply with the provisions of the final regulations under Code Sec. 1446(f) (and certain provisions of the final regulations that apply to Code Sec. 1446(a)) that relate to withholding on the transfer of an interest in a publicly traded partnership (PTP interest). Additionally, the IRS said it intends to issue proposed regulations that would amend the final regulations to implement this additional guidance.
IRS Provides Relief Relating to FFI Temporary U.S. TIN Requirement: In Notice 2023-11, the IRS provides temporary relief procedures for certain foreign financial institutions (FFIs) required to report U.S. taxpayer identification numbers (U.S. TINs) for certain preexisting accounts as defined in an applicable Model 1 intergovernmental agreement (IGA). If an FFI in an eligible Model 1 IGA jurisdiction (as further defined in the notice) complies with the procedures described in the notice, then the U.S. Competent Authority will not determine there is significant non-compliance of the relevant IGA solely as a result of its failure to report U.S. TINs associated with its preexisting accounts.
Insurance Companies
Loss Payment Patterns and Discount Factors for 2022 Released: In Rev. Proc. 2023-10, the IRS prescribed the loss payment patterns and discount factors for the 2022 accident year. These factors will be used to compute discounted unpaid losses under Code Sec. 846.
Procedure
IRS Reprimanded for Paucity of Evidence on Taxpayer's Lack of Reasonable Cause: In Decrescenzo v. Comm'r, T.C. Memo. 2023-7, the Tax Court held that an accountant who failed to timely file numerous years of federal income tax returns and who offset net earnings from self-employment with a net operating loss (NOL) carryforward, was liable for penalties for late filings as well as for offsetting self-employment income with NOLs, which he had previously been warned was inappropriate. However, the court also reprimanded the IRS for failing to provide evidence sufficient to find that any of the taxpayer's other tax underpayments resulted from a lack of reasonable cause or good faith.
IRS Provides Temporary Guidance Relating to Changes to Secs. 6045 and 6045A: In Announcement 2023-2, the IRS provides transitional guidance under Code Sec. 6045 and Code Sec. 6045A with respect to the reporting of information on digital assets. The IRS noted that those provisions were modified by the 2021 Infrastructure Investment and Jobs Act and that until the IRS issues regulations under Code Sec. 6045 and Code Sec. 6045A (1) a broker may report gross proceeds and basis as required under existing law and regulations as of December 23, 2022, and (2) brokers will not be required to report or furnish additional information with respect to dispositions of digital assets under Code Sec. 6045, or issue additional statements under Code Sec. 6045A, or file any returns with the IRS on transfers of digital assets under Code Sec. 6045A(d) until those new final regulations under Code Sec. 6045 and Code Sec. 6045A are issued.
Portion of Taxpayer's Tax Liabilities Were Offset by Valid Credit Elects: In Schwartz v. Comm'r, T.C. Memo. 2022-125, the Tax Court held that a taxpayer's tax liabilities for 2006 and 2007 were offset by valid credit elects and, thus, the court did not sustain proposed levies by the IRS for those years. The court did sustain, however, levies for years 2010 - 2012 after observing that the IRS Appeals Officer in the case gave the taxpayer an opportunity to propose collection alternatives for those years but the taxpayer did not avail himself of that opportunity or raise any issues relevant to those liabilities.
Tax-Exempt Organizations
Revocation of Nonprofit's Tax-Exempt Status Precludes Court Challenge: In XC Foundation v. Comm'r, T.C. Memo. 2023-3, the Tax Court held that a California corporation, whose corporate powers, rights, and privileges had been suspended by the state of California, lacked the capacity to challenge the IRS's revocation of its tax exempt status in the Tax Court. As a result, the Tax Court dismissed for lack of jurisdiction the corporation's request for a declaratory judgment that the revocation of its tax-exempt status was erroneous.
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