Tax Updates - Archived (July 2023 - January 2024)

January 2024

Accounting

IRS Releases January 2024 Applicable Federal Rates: In Rev. Rul. 2024-2, the IRS issued the applicable federal rates for January 2024 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, 2023, for purposes of Code Sec. 7702(f)(11).

Bankruptcy

Bankruptcy Discharge Revoked Due to Taxpayers' Refusal to Turn Over Tax Refunds: In In re Wells, 2024 PTC 6 (Bankr. D. Utah 2024), a bankruptcy court revoked the discharge of Chapter 7 debtors who received $1,325 in pre-petition tax refunds but did not comply with the trustee's order to pay them into their estate and instead used the refunds to pay their rent. The court found that while the refunds were a trivial amount with negligible impact on the return to creditors, there is no de minimis exception to turn over tax refunds that are property of the bankruptcy estate and subject to a valid turnover order.

Credits

IRS Provides More Time for the Submission of Clean Vehicle Time-of-Sale Reports: In IR-2024-02, the IRS announced an extension of time for clean vehicle dealers and sellers to submit their time-of-sale reports to the IRS. Dealers and sellers have until January 19, 2024, to submit their time-of-sale reports for vehicles sold from January 1, 2024, to January 16, 2024; the IRS stated that the extension is intended to allow users time to get accustomed to the IRS Energy Credits Online portal.

IRS Announces Employee Retention Credit Voluntary Disclosure Program: In Announcement 2024-3, the IRS announced a voluntary disclosure program for employers (participants) to resolve erroneous claims for credit or refund involving the employee retention credit (ERC). Under the voluntary disclosure program, which runs through March 22, 2024, employers that are accepted into the program will need to repay only 80 percent of the ERC they received, do not need to repay any interest on the ERC claim paid by the IRS, and will not be charged interest or penalties on any credits they repay.

FAQs on Clean Vehicle Credits Updated to Reflect Foreign Entity of Concern Rules: In FS-2023-29 (December 26, 2023), the IRS updated frequently asked questions (FAQs) related to new, previously owned, and qualified commercial clean vehicles. The updated FAQs advise that a vehicle placed in service after December 31, 2023, with battery components manufactured or assembled by a foreign entity of concern is not eligible for any amount of new clean vehicle credit as provided in Code Sec. 30D(d)(7)(B); in addition, the updates provide details on the attestation that a qualified manufacturer is required to include in its written report to demonstrate compliance with the foreign entity of concern requirements of Code Sec. 30D.

Proposed Regulations Provide Guidance on Credit for Production of Clean Hydrogen: In REG-117631-23, the IRS issued proposed regulations relating to the credit or production of clean hydrogen under Code Sec. 45V, as established by the Inflation Reduction Act of 2022. The proposed regulations would rules for: determining lifecycle greenhouse gas emissions rates resulting from hydrogen production processes; petitioning for provisional emissions rates; verifying production and sale or use of clean hydrogen; modifying or retrofitting existing qualified clean hydrogen production facilities; using electricity from certain renewable or zero-emissions sources to produce qualified clean hydrogen; and electing under Code Sec. 48(a)(15) to treat part of a specified clean hydrogen production facility instead as property eligible for the energy credit.

Transitional Procedures Provided on Domestic Content Phaseout Exceptions: In Notice 2024-9, the IRS announced that it intends to propose regulations addressing the process by which the IRS will implement the statutorily-required exceptions to the phaseouts that apply to credits determined under Code Secs. 45, 45Y, 48, and Code Sec. 48 with respect to property placed in service by an applicable entity, as defined in Code Sec. 6417(d)(1)(A), making an elective payment election under Code Sec. 6417 with respect to such credits if the property does not satisfy the domestic content requirements under those Code sections. The notice provides transitional procedures for taxpayers to claim the phaseout exceptions with respect to qualified facilities, energy projects, or qualified investments in qualified facilities or energy storage technologies, but only if the construction of the property begins before January 1, 2025.

Comments Requested on Product IDs and Energy Efficient Home Improvement Credit: In Notice 2024-13, the IRS announced that it intends to propose regulations to implement the product identification number (PIN) requirement with respect to the energy efficient home improvement credit under Code Sec. 25C, as amended by the Inflation Reduction Act of 2022. The notice requests comments on the PIN requirement, describes a possible PIN assignment system and contains a specific request for comments on the proposed system.

Deductions

Proposed Regs Address Bad Debt Deductions for Regulated Financial Companies: In REG-121010-17, the IRS issued proposed regulations that update the standard for determining when a debt instrument held by a regulated financial company or a member of a regulated financial group will be conclusively presumed to be worthless for purposes of the bad debt deduction under Code Sec. 166. The proposed regulations will affect regulated financial companies and members of regulated financial groups that hold debt instruments.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-21, 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).

Final Regulations Specify Methodology for Constructing Corporate Bond Yield Curve: In T.D. 9986, the IRS issued final regulations specifying the methodology for constructing the corporate bond yield curve that is used to derive the interest rates used in calculating present value and making other calculations under a defined benefit plan, as well as for discounting unpaid losses and estimated salvage recoverable of insurance companies. The regulations affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans, as well as insurance companies.

2023 Cumulative List for Defined Contribution Qualified Pre-Approved Plans Released: In Notice 2024-3, the IRS issued guidance setting forth the 2023 cumulative list of changes in plan qualification requirements for defined contribution qualified pre-approved plans (2023 Cumulative List). The 2023 Cumulative List will assist providers applying for opinion letters for the fourth remedial amendment cycle for defined contribution qualified pre-approved plans (i.e., Cycle 4) under the IRS's pre-approved plan program.

Foreign

IRS Provides Guidance Related to Certain Inbound Nonrecognition Transactions: In Notice 2024-16, the IRS announced that it intends to issue proposed regulations addressing the treatment of basis under Code Sec. 961(c) in certain transactions in which a domestic corporation acquires stock of a controlled foreign corporation in a liquidation of asset reorganization. The notice describes the regulations that the IRS intends to issue and permits taxpayers to reply on the rules described in the notice.

Updated List of Tax Treaties That Meet Qualified Dividend Rules Issued: In Notice 2024-11, the IRS issued an updated list of tax treaties that meet the requirements of Code Sec. 1(h)(11)(C)(i)(II) for qualified dividends paid by foreign corporations. The list adds the treaty with Chile, which entered into force on December 19, 2023, and no longer includes the treaties with Russia and Hungary because both have ceased to meet the requirements of Code Sec. 1(h)(11) after the publication of Notice 2011-64.

IRS Announces Effective Date of Termination of U.S.-Hungary Tax Treaty: In Announcement 2024-5, the IRS stated that the United States provided a diplomatic notification, dated July 8, 2022, to the Government of the Republic of Hungary of its termination of the United States-Hungary Tax Treaty. In respect of tax withheld at source, the United States-Hungary Tax Treaty ceases to have effect with respect to amounts paid or credited on or after January 1, 2024; in respect of other taxes, the United States-Hungary Tax Treaty ceases to have effect with respect to taxable periods beginning on or after January 1, 2024.

Chief Counsel's Office Addresses Effect of Group Membership on Financial Transactions: In AM 2023-008, the Office of Chief Counsel advised that the IRS is permitted to consider group membership in determining the arm's length rate of interest chargeable for intragroup loans and making a Code Sec. 482 adjustment. The Chief Counsel's Office reasoned that under the Code Sec. 482 regulations, the arm's length rate of interest on an intragroup loan to a controlled borrower is generally the rate at which the borrower could realistically obtain alternative financing from an unrelated party; thus, if an unrelated lender would consider group membership in establishing financing terms available to the borrower, and such third-party financing is realistically available, then the IRS may adjust the interest rate in a controlled lending transaction to reflect group membership.

Insurance Companies

Microcaptive Arrangement Fails to Pass Muster in Tax Court: In Keating v. Comm'r, T.C. Memo. 2024-2, the Tax Court held that transactions conducted by an S corporation through a purported microcaptive insurance arrangement did not constitute insurance for federal income tax purposes and therefore, the S corporation's payments for premiums and fees were not deductible as ordinary and necessary business expenses under Code Sec. 162(a) or as losses under Code Sec. 165. The court found that the affiliated captive insurance company and other entities were not operated as insurance companies because insurance transactions were completed after the fact rather than prospectively and underwriting was disproportionately influenced by meeting target premiums near the $1.2 million limit for the years at issue under Code Sec. 831(b), regardless of the coverage being provided.

Loss Discount Factors for 2023 Released: In Rev. Proc. 2023-41, the IRS provided the loss discount factors for the 2023 accident year for purposes of Code Sec. 846. The procedure also prescribes the salvage discount factors for the 2023 accident year, which must be used to compute discounted estimated salvage recoverable under Code Sec. 832.

Procedure

Magistrate Judge Recommends Denial of IRS Summons Enforcement Petition: In U.S. v. Eaton, 2024 PTC 7 (N.D. Ohio 2024), a magistrate judge recommended that a district court deny the government's petition to enforce an IRS summons seeking confidential performance evaluations for some of a taxpayer's foreign employees, which the IRS contended was relevant to the determining the work done by the taxpayer's research and development personnel. The magistrate judge concluded that the government failed to show the relevance of the employee evaluations to its investigation and did not explain why the alternative means of obtaining the information offered by the taxpayer were inadequate.

Chief Counsel's Office Advises That Taxpayer's Records Can Be Shared Internally: In CCA 202402010, the Office of Chief Counsel advised in an email that a taxpayer's returns and return information could be shared internally under the confidentiality exception in Code Sec. 6103(h)(1) for disclosures that are necessary for tax administration purposes. The Chief Counsel's Office explained that IRS employees have access to tax information if they have a "need to know" the information for tax administration reasons, and courts have found that Code Sec. 6103(h)(1) authorizes IRS employees involved in one investigation to share third party taxpayer information with IRS employees in another, related investigation.

Refund Action Requires Full Payment of Liability as of Time Complaint is Filed: In Chaisson v. U.S., 2024 PTC 11 (5th Cir. 2024), the Fifth Circuit affirmed a district court's dismissal of a taxpayers' refund action for lack of jurisdiction on the grounds that the taxpayers had not made full payment of their tax liability before filing the lawsuit as required under Code Sec. 7422(a). The taxpayers argued that their IRS account had a credit as of the date of the missed filing deadline that resulted in the penalties they sought to recover; however, the court found that fact irrelevant because the district court's jurisdiction was determined as of the time the complaint was filed, and as of that time the taxpayers owed the IRS approximately $75,000.

Taxpayer's Action for Disclosure of IRS Documents Was Precluded by FOIA: In Powell v. Yellen, et al., 2023 PTC 353 (D.C. Cir. 2023), the D.C. Circuit affirmed a district court and dismissed a taxpayer's complaint seeking certain IRS tax records under Code Sec. 6103(e), which requires the IRS to disclose tax records upon written request to certain persons having material interest in the records. The D.C. Circuit found that the taxpayer failed to state a claim because the Freedom of Information Act (FOIA) offers an adequate vehicle to challenge the IRS's failure to disclose tax records, and Code Sec. 6103 and the Administrative Procedure Act do not provide a cause of action that is independent of FOIA.

December 2023

Accounting

IRS Releases December 2023 Applicable Federal Rates: In Rev. Rul. 2023-21, the IRS the issued the applicable federal rates for December 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

S Corporation's Net Operating Losses Were Not Part of Bankruptcy Estate: In In re Interstate Commodities, Inc., 2023 PTC 310 (N.D. Ny. 2023), a bankruptcy court held, in part, that net operating losses generated by a debtor S corporation which resulted in tax refunds to the S corporation's shareholders were not property of the bankruptcy estate. The court reasoned that the funds comprising the refunds originated from the IRS and were issued to the shareholders pursuant to Code Sec. 1366(a)(1) and at no point did the debtor have an ownership interest in the funds.

Employment Taxes

IRS Issues 2024 Railroad Retirement Act Tax Rates: In 88 Fed. Reg. 83204 (Nov. 28, 2023), the IRS issued the tier 2 tax rates under the Railroad Retirement Tax Act that apply to compensation paid in calendar year 2024. The tier 2 tax rate for 2024 under Code Sec. 3201(b) is 4.9 percent of compensation; (2) the tier 2 tax rate for 2024 under Code Sec. 3221(b) is 13.1 percent of compensation; and the tier 2 tax rate for 2024 under Code Sec. 3211(b) is 13.1 percent of compensation.

International

United States-Mexico Dual Resident Was Not Liable for FBAR Penalties: In Aroeste v. U.S., 2023 PTC 309 (S.D. Cal. 2023), a district court held that an individual who was a lawful permanent resident of the United States was not liable for penalties for failing to file a Report of Foreign Bank and Financial Accounts (FBAR) to disclose his interest in his bank accounts in Mexico because he was treated as a resident of Mexico under the United States-Mexico tax treaty for the years at issue. The government argued that the taxpayer was not entitled to treaty benefits because he did not timely file a Form 8833, Treaty-Based Return Disclosure Under Section 6114 or 7701(b), but the court found that a taxpayer who gives untimely notice of a treaty position may be liable for a penalty under Code Sec. 6712 but does not waive the benefits of the treaty.

Partnerships

Tax Court Petition Was Barred by Commencement of Partnership Audit Proceeding: In Harman Road Property, LLC v. Comm'r, T.C. Memo. 2023-143, the Tax Court held that a partnership's Tax Court petition was barred by Code Sec. 6228(a)(2)(B) because the IRS had already commenced a partnership-level proceeding for the same tax year. The court rejected the partnership's argument that due to a technical termination of the partnership, the partnership's administrative adjustment request (AAR) which formed the foundation of its petition and the notice of beginning of administrative proceeding (NBAP) issued by the IRS to the partnership related to two different tax years; the court found that the AAR and the NBAP both related to the same taxable period, not two separate periods.

Procedure

Tenth Circuit Allows Summonses in Case Against Monetized Installment Sale Promoters: In Bishop v. U.S., 2023 PTC 323 (10th Cir. 2023), the Tenth Circuit held that a district court did not err when it upheld the validity of the IRS's summonses for the bank records of promoters of monetized installment sales in order to determine if the promoters were liable for penalties under Code Sec. 6700. The court found that the IRS's investigation was implemented in good faith and rejected the promoters' argument that the summonses violated their First Amendment rights.

Taxpayers' Challenge to Validity of Regs as a Defense to Penalties Was Time Barred: In Townley v. U.S., 2023 PTC 304 (M.D. Ga. 2023), a district court held that taxpayers against whom the government asserted penalties under Code Sec. 6676 could not amend their complaint to challenge the validity of the regulations in Reg. Sec. 1.170A-13 and Reg. Sec. 1.170A-14 under the Administrative Procedure Act (APA) because the taxpayers' APA claims were not brought within six years of the promulgation of the regulations as required under 28 U.S.C. Section 2401(a). The court also found that the limited exception to the six-year rule for an as-applied challenge did not apply because the taxpayers' specific allegations amounted to classic facial challenges to the validity of the regulations.

Tax Accounting

Litigation Settlement Payment Resulted in Imputed Interest Under Sec. 483: In Charles D. Berwind Trust for David Berwind v. Comm'r, T.C. Memo. 2023-146, the Tax Court held that a settlement payment received by a trust to resolve a lawsuit challenging a squeeze-out merger designed to extinguish the trust's common stock interest in a pharmaceuticals company resulted in imputed interest under Code Sec. 483(a). The court found that (1) there was a sale or exchange of the trust's shares in December 1999, (2) the plan of merger was a contract for the sale or exchange of property, (3) the payment for the shares was under the plan of merger, and (4) the payment to the trust for its shares was made in December 2002, when the funds were released from escrow; therefore, the payment was subject to Code Sec. 483 as of the December 1999 sale or exchange.

November 2023

Accounting

Parker's 2023 Tax Planning Guide for Individuals: Client Letters Included. For an In-Depth Look at Tax Planning for INDIVIDUALS, Click Here.

Parker's 2023 Tax Planning Guide for Businesses: Client Letters Included. For an In-Depth Look at Tax Planning for BUSINESSES, Click Here.

IRS Releases November 2023 Applicable Federal Rates: In Rev. Rul. 2023-20, the IRS issued the applicable federal rates for November 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 Disallows IRS's Untimely Claim for Trust Fund Recovery Penalties: In In re Hassell, 2023 PTC 276 (Bankr. S.D. Tex. 2023), a bankruptcy court disallowed the IRS's claim for $144,892 in trust fund recovery penalties (TFRPs) against a Chapter 11 debtor due to the untimeliness of the IRS's amended proof of claim. The court rejected the IRS's argument that the claim for the TFRPs in the amended claim related back to its claim for agricultural payroll withholding taxes in its original claim because the amended claim did not arise out of the same conduct, transaction, or occurrence as the original claim.

Credits

Sustainable Aviation Fuel Credit Payments Generally Do Not Include Interest: In CCA 202346014, the Office of Chief Counsel advised that under Code Sec. 6427(e)(1), payments of the sustainable aviation fuel credit under Code Sec. 6427(k) are generally interest free unless the exception in Code Sec. 6427(i)(3)(B) applies. Under that exception, for a claim for any period (1) for which $200 or more is payable and (2) which is not less than one week, interest will be paid if the government does not make the payment within 45 days.

IRS Opens Online Tool for Dealers to Register for Clean Vehicle Credits: In IR-2023-202, the IRS announced that sellers of clean vehicles can now register for time-of-sale reporting and dealer advance payments for the clean vehicle credit using the new IRS Energy Credits Online tool. The IRS noted that the tool is available to any business of any size but said that it may be especially helpful to small businesses that currently sell clean vehicles; the IRS added that, beginning in 2024, clean vehicle sellers and licensed dealers must use the tool for their customers to successfully claim or transfer the new or previously owned clean vehicle credit for vehicles placed in service January 1, 2024, or later.

OSHA Communications Regarding COVID-19 Do Not Constitute Suspension Order: In AM 2023-007, the Office of Chief Counsel advised that communications from the Occupational Safety and Health Administration (OSHA) generally are not considered orders from a governmental authority for purposes of eligibility for the employee retention credit under Section 2301 of the CARES Act and Code Sec. 3134. The Chief Counsel's Office noted that OSHA provided guidance and nonbinding recommendations for employers on its website, but said that OSHA did not adopt and enforce any widely applicable standards that limited commerce, travel, or group meetings due to COVID-19.

Deductions

Taxpayers Substantially Complied With Conservation Easement Substantiation Rule: In Carter v. Comm'r, T.C. Memo. 2023-133, the Tax Court held that the taxpayers, donors of a conservation easement to a land trust, substantially complied with the requirement in Reg. Sec. 1.170A-14(g)(5)(i)(D) that a written statement attesting to the accuracy of the documentation provided by the donee must be signed by the donor and done before the date of the gift. The court found that a unilateral representations to the land trust in the easement deed were sufficient to enable it to fulfill its obligation to prevent the donors from exercising their reserved rights in the land in a manner that would undermine the easement's conservations purposes.

Deductions Disallowed Due to Failure to Conduct Activity in a Businesslike Manner: In Kraske v. Comm'r, T.C. Memo. 2023-128, the Tax Court sustained the IRS's determination that a taxpayer was not entitled to deductions under Code Sec. 183(b) for his reported Schedule C expenses because he did not conduct his activity that he reported as a business activity in a businesslike manner and did not engage in that activity with the requisite profit objective. The court found that the taxpayer did not maintain complete and accurate records or a separate bank account for the activity, the taxpayer reported substantial losses but zero gross receipts, the losses from the activity generated substantial tax benefits for the taxpayer, and a significant portion of the taxpayer's expenditures for the activity were personal in nature.

Court Rejects Refund Claim Based Solely on QuickBooks Profit and Loss Statements: In Kouza v. U.S., 203 PTC 280 (E.D. Mich. 2023), a district court granted summary judgment for the government in an action for a refund brought by taxpayers for losses claimed for three flow-through businesses, documented solely by profit and loss statements produced by the businesses' tax preparer and generated by QuickBooks. The court found that the taxpayers cited no authority concluding that documents like QuickBooks summaries are proper substantiation and reasoned that an accountant's reliance on computer summaries to prepare tax returns is not commensurate with the type of documentary evidence needed for substantiation.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-76, 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 Sets Forth Rules Regarding Pre-Approved Plans: In Rev. Proc. 2023-37, the IRS issued a procedure that sets forth the rules regarding Qualified Pre-approved Plans and Section 403(b) Pre-approved Plans. The procedure combines, conforms, clarifies, and updates rules for Qualified Pre-approved Plans and Section 403(b) Pre-approved Plans previously set forth in prior revenue procedures.

Estates, Gifts, and Trusts

Trusts Were Liable as Transferees as Result of Stock Sale: In Dillon Trust Company LLC, et al v. U.S., 2023 PTC 283 (Fed. Cl. 2023), the Court of Federal Claims held that three trusts were liable for taxes, penalties and interest as transferees under Code Sec. 6901 as a result of a sale of the stock two C corporations to a holding company coupled with a series of Son-of-BOSS transactions that generated losses to offset the gains, which the IRS determined were abusive tax shelters. The court found that the trusts were transferees by virtue of their receipt of the proceeds of the stock sale and that they were liable under New York law because the holding company was rendered insolvent immediately after the stock sale and thus unable to pay its tax liabilities.

Excise Taxes

Proposed Regs Address Excise Taxes on Taxable Distributions from Donor Advised Funds: In REG-142338-07, the IRS issued proposed regulations regarding excise taxes under Code Sec. 4966 on taxable distributions made by a sponsoring organization from a donor advised fund (DAF), and on the agreement of certain fund managers to the making of such distributions. The proposed regulations generally apply to certain organizations, including community foundations and other charitable organizations, that maintain one or more DAFs, and to other persons involved with the DAFs, including donors, donor-advisors, related persons, and certain fund managers.

Foreign

Tax Court Rejects Challenges to Closing Agreement Waiving Foreign Income Exclusion: In Henaire v. Comm'r, T.C. Memo. 2023-131, the Tax Court held that a taxpayer was not entitled to exclude from her gross income any wages she received for her work at the Joint Defense Facility Pine Gap (JDFPG) in Australia under Code Sec. 911 because she waived the right to elect the exclusion in a valid closing agreement. The court rejected the taxpayer's arguments that the closing agreement was unenforceable after finding that the IRS employee who signed the agreement had authority to sign closing agreements and the IRS did not violate Code Sec. 6103 by disclosing confidential taxpayer information in the execution of the closing agreement.

U.S.-France Tax Treaty Does Not Provide a Credit Against the Net Investment Income Tax: In Christensen v. U.S., 2023 PTC 288 (Fed. Cl. 2023), the Court of Federal Claims held that the tax treaty between the United States and France does not provide a foreign tax credit against the net investment income tax imposed by Code Sec. 1411. The court found that the treaty subjects its allowance of foreign tax credits to the provisions and limitations of the Internal Revenue Code relating to foreign tax credits, including the restrictions of Code Secs. 27 and 901(a) that foreign tax credits apply only against the taxes imposed by Chapter 1 of the Code.

Healthcare

Proposed Regs Address Independent Dispute Resolution Process Under No Surprises Act: In REG-122319-22, the IRS and the Departments of Labor and Health and Human Services issued proposed regulations related to certain provisions of the No Surprises Act regarding the federal independent dispute resolution process, which was established as part of the Consolidated Appropriations Act, 2021. The proposed rules set forth new requirements relating to the disclosure of information that group health plans and health insurance issuers must include along with the initial payment or notice of denial of payment for certain items and services subject to the surprise billing protections in the No Surprises Act.

International

Proposed Regs Address Gain or Loss With Respect to Qualified Business Units: In REG-132422-17, the IRS issued proposed regulations relating to the determination of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit under Code Sec. 987. The proposed regulations include an election to treat all items of a qualified business unit as marked items (subject to a loss suspension rule), an election to recognize all foreign currency gain or loss with respect to a qualified business unit on an annual basis, and a new transition rule.

Procedure

Interests Rates Remain the Same for the First Quarter of 2024: In Rev. Rul. 2023-22, the IRS issued the rates for interest on tax overpayments and underpayments for the first quarter of 2024. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning January 1, 2024, are unchanged from the quarter that began October 1 and will be 8 percent for overpayments (7 percent in the case of a corporation), 8 percent for underpayments, 10 percent for large corporate underpayments, and 5.5 percent on the portion of a corporate overpayment exceeding $10,000.

Criminal Conviction Doesn't Preclude IRS From Seeking Injunction Against Tax Preparer: In U.S. v. Fortune, 2023 PTC 302 (D. Md. 2023), a district court rejected a former tax return preparer's argument that her criminal conviction for filing false tax returns precluded the IRS's civil complaint against her seeking a permanent injunction to bar her from preparing or filing any federal income tax return. The court found that the doctrine of res judicata did not apply because the criminal and civil actions did not constitute the same cause of action; the court also noted that Code Secs. 7402 and 7407(a) expressly authorize the government to bring a "civil action," including for injunctive relief.

Eleventh Circuit Dismisses Whistleblower's Claim Against IRS for Not Instituting Action: In Stone v. Comm'r, 2023 PTC 303 (11th Cir. 2023), the Eleventh Circuit affirmed a district court and held that a whistleblower who provided information to the IRS Whistleblower Office (WBO), which an IRS auditing employee determined had merit and recommended that a sample of the identified taxpayers be audited, did not have a cause of action against the IRS for ultimately determining not to take action on the whistleblower claims. The court found that the IRS's decision not to follow through on the whistleblower's information was an unreviewable decision committed to agency discretion by law under the Administrative Procedure Act.

Due Dates Within Postponement Period are Postponed to End of the Postponement Period: In CCA 202346028, the Office of Chief Counsel advised that under Code Sec. 7508A, the due dates for certain acts that fall within the postponement period are postponed until the end of the postponement period. Under Notice 2023-71, the postponement period is from October 7, 2023, to October 7, 2024; therefore, if the statute of limitation on assessment would normally expire on December 31, 2023, the statute of limitation on assessment is postponed until October 7, 2024.

Due Date for Electronic Filing of Form 1099-R is March 31: In CCA 202346011, the Office of Chief Counsel advised that the March 31 deadline for electronically filed information returns provided in Code Sec. 6071(b) applies to Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The Chief Counsel's Office noted that while Code Sec. 6047, which provides the information reporting requirements for Form 1099-R, does not itself provide rules concerning the filing date, Reg. Sec. 1.6047-1(6) contains a deadline for e-filing of March 31, which is in agreement with Code Sec. 6071(b) and does not provide any alternate deadline besides noting the possibility of obtaining an extension.

IRS Appeals Abused Its Discretion by Abruptly Closing Taxpayer's Case: In Long v. Comm'r, T.C. Memo. 2023-130, the Tax Court held that the IRS Independent Office of Appeals (Appeals) abused its discretion when, after sustaining the IRS's rejection of a taxpayer's offer in compromise, it invited the taxpayer to propose an installment agreement, did not give him a deadline, and closed the case after not receiving a response in two days. The court found that both the taxpayer and Appeals routinely took about one week to respond to substantive communications from the other party and thus Appeals' decision to close the case was an arbitrary action with no sound basis in law or fact.

IRS Indefinitely Extends Acceptance of Digital Signatures: In IR-2023-199, the IRA announced that it has extended certain temporary flexibilities put in place during the COVID-19 pandemic. The IRS stated that the acceptance of digital signatures is extended indefinitely until more robust technical solutions are deployed, and encrypted email when working directly with IRS personnel has been extended until October 31, 2025.

October 2023

AFRs

IRS Releases October 2023 Applicable Federal Rates: In Rev. Rul. 2023-18, the IRS issued the applicable federal rates for October 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

Issuance of Form 1099-C Was Not Evidence of Discharge of Debt in Bankruptcy: In In re Lambert, 2023 PTC 260 (N.D. Ga. 2023), a bankruptcy court rejected a debtor's objection to a creditor's claim on the basis that the creditor issued to the debtor a Form 1099-C, Cancellation of Debt, and thus the debt had been cancelled. The court found that the filing of a Form 1099-C is a reporting requirement that does not itself operate as or establish a discharge of indebtedness owed by the debtor and whether the creditor had a right to payment had to be determined under state law.

Credits

IRS Provides Procedure for Withdrawing Employee Retention Credit Claims: In FS-2023-24, the IRS provided a withdrawal process for taxpayers who filed a claim requesting a refund for an employee retention credit (ERC) and want to withdraw the claim in order to avoid getting a refund for which they are ineligible. A request for a withdrawal means that the taxpayer is asking the IRS not to process their entire adjusted employment tax return for the tax period that included the ERC claim; thus, the IRS will treat a withdrawn claim as if it were never filed and will not impose penalties or interest.

IRS Publishes Unused Housing Credit Carryovers Allocated to Qualified States: In Rev. Proc. 2023-32, the IRS published the amounts of unused housing credit carryovers allocated to qualified states under Code Sec. 42(h)(3)(D) for calendar year 2023. The procedure is effective for allocations of housing credit dollar amounts attributable to the National Pool component of a qualified state's housing credit ceiling for calendar year 2023.

IRS Orders Immediate Stop to New Employee Retention Credit Processing: In IR-2023-169, the IRS announced a moratorium on processing of new employee retention credit (ERC) claims at least through the end of 2023 in order to add more safeguards to prevent future abuse and protect businesses from predatory tactics. The IRS also provided a checklist on its website to help taxpayers check their eligibility for the ERC, claim the ERC if they are eligible and resolve and improper ERC claim.

IRS Provides Preview of Proposed Changes to Form 6765: In IR-2023-173, the IRS released a preview of proposed changes to certain sections of Form 6765, Credit for Increasing Research Activities, which is used to figure and claim the credit for increasing research activities under Code Sec. 41(a). The IRS provided a preview to solicit feedback from practitioners in advance of the formal draft release and is considering making the changes effective beginning with tax year 2024.

Criminal

Court Increases Sentencing Tax Loss in Case Involving Failure to Pay Over Payroll Taxes: In U.S. v. Fecondo, 2023 PTC 271 (E.D. Pa. 2023), a district court increased the tax loss resulting from a taxpayer's willful failure to pay over the employee portion of payroll taxes owed by a company of which she was the president from $599,159 to a $5,077,853 by including the taxpayer's nonpayment of payroll taxes in periods before the investigative period and continuing after the indictment. The court found that such uncharged, relevant conduct was part of the same course of conduct or scheme as the charged offenses and thus increased the tax loss for purposes of sentencing.

Employee Benefits

IRS Issues Mortality Table for Use in Determining Minimum Present Value for 2024: In Notice 2023-73, the IRS provided a mortality table for use in determining minimum present value under Code Sec. 417(e)(3) and Section 205(g)(3) of the Employee Retirement Income Security Act of 1974 (ERISA) for distributions with annuity starting dates that occur during stability periods beginning in the 2024 calendar year. The mortality rates in the table are derived from the mortality tables specified under Code Sec. 430(h)(3)(A) for 2024 in accordance with the procedures set forth in Rev. Rul. 2007-67.

Final Regs Update Mortality Tables for Defined Benefit Plans: In T.D. 9983, the IRS issued final regulations prescribing mortality tables to be used for most defined benefit pension plans. The tables specify the probability of survival year-by-year for an individual based on age, gender, and other factors, and are used (together with other actuarial assumptions) to calculate the present value of a stream of expected future benefit payments for purposes of determining the minimum funding requirements for the plan.

Proposed Regs Update Plan-Specific Substitute Mortality Tables for Defined Benefit Plans: In REG-103525-23, the IRS issued proposed regulations that would update the requirements that a plan sponsor of a single-employer defined benefit plan must meet to obtain IRS approval to use mortality tables specific to the plan in calculating present value for minimum funding purposes (as a substitute for the generally applicable mortality tables). The regulations would affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans.

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-72, 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) of the Internal Revenue Code. 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 SIFL Rates for Second Half of 2023: In Rev. Rul. 2023-19, the IRS issued the standard industry fare level (SIFL) cents-per-mile rates and terminal charge in effect for the second half of 2023 for purposes of Reg. Sec. 1.61-21(g). The SIFL rates may be used in valuing noncommercial flights provided as an employee fringe benefit on employer-provided aircraft.

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-66, 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

Backup Withholding Is Required Despite Receipt of CP2100 or CP2100A Notice: In PMTA 2023-03, the Office of Chief Counsel advised that under Code Sec. 3406(a)(1)(A), the payor of a reportable payment must backup withhold during the period during which the payee's taxpayer identification number (TIN) has not been furnished in the manner required, regardless of whether the payor receives and complies with a CP2100 or CP2100A notice stating that the payee's TIN is incorrect. The Chief Counsel's Office stated that the CP2100 or CP2100A notice is not relevant to the backup withholding obligations under Code Sec. 3406(a)(1)(A) and that complying with the instructions in such a notice does not affect backup withholding liability that was preexisting before the notice was sent.

Entity Reporting

FinCEN Proposes Delay of Beneficial Ownership Reporting for Entities Formed in 2024: In RIN 1506-AB62, the Financial Crimes Enforcement Network (FinCEN) proposed to amend the beneficial ownership information (BOI) reporting rule to extend the filing deadline for certain BOI reports. Under the current rule, entities created or registered on or after the rule's effective date of January 1, 2024, must file initial BOI reports with FinCEN within 30 days of notice of their creation or registration; the proposed amendment would extend that filing deadline to 90 days for entities created or registered on or after January 1, 2024, and before January 1, 2025, to give those entities additional time to understand the new reporting obligation and collect the necessary information to complete the filing.

FinCEN Issues Guide to Assist Small Businesses with Beneficial Ownership Reporting: The Treasury Department's Financial Crimes Enforcement Network (FinCEN) published a Small Entity Compliance Guide to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule that becomes effective on January 1, 2024 under the Corporate Transparency Act. The Small Entity Compliance Guide describes the BOI reporting rule's provisions, answers questions, and provides interactive checklists, infographics, and other tools to assist businesses in complying with the BOI reporting Rule.

Excise Taxes

Truck Parts Seller Was Not Liable for Excise Tax on Imported Tires: In Texas Truck Parts & Tire Inc. v. U.S., 2023 PTC 257 (S.D. Tex. 2023), a district court held that a wholesaler and retailer of truck parts and tires that purchased tires wholesale from Chinese manufacturers was not liable for the excise tax under Code Sec. 4071 on the sale of taxable tires. The court found that the taxpayer was not the "importer" of the tires under Reg. Sec. 48.0-2(a)(4)(i) as the government argued because the importers of record listed on the import forms were the Chinese manufacturers and the taxpayer did not "bring" the tires into the United States under the plain meaning of the statute.

Court Rejects Fuel Distributor's Refund Claim On Economic Substance Grounds: In Chemoil Corp. v. U.S., 2023 PTC 256 (S.D.N.Y. 2023), a district court granted the government's motion for summary judgment on a fuel distributor's suit for a refund based on the IRS's disallowance of the taxpayer's claim for credits under Code Sec. 6426 against its excise tax liability for each gallon of alcohol used by the taxpayer to produce an alcohol fuel mixture. The court applied the economic substance doctrine and found that adding a small amount of gasoline to ethanol - an amount that was insufficient to have an effect on the specifications of the product - had no legitimate purpose aside from qualifying for the tax credit and the taxpayer was not motivated by anything other than tax benefits when it agreed to the transactions at issue.

IRS Issues Proposed Regulations on Designated Drug Excise Tax Reporting: In REG-115559-23, the IRS issued proposed regulations providing guidance on how taxpayers will report liability for the excise tax imposed on manufacturers, producers, or importers of certain drugs under Code Sec. 5000D. The proposed regulations also would except such tax from semimonthly deposit requirements.

Exclusions from Gross Income

IRS Reconsiders Advice Excluding Back Pay to Exonerated Service Members: In PMTA 2023-04, the Office of Chief Counsel reconsidered advice previously given in PMTA 2020-05, in which it advised that back pay made to military service members following the reversal of a court martial conviction may be excluded from income as a civil damage, restitution, or other monetary award related to the service member's wrongful incarceration under Code Sec. 139F. According to the Chief Counsel's Office, such pay may not be excluded from gross income under Code Sec. 139F because it is merely the restoration of pay and allowances to which the service member is entitled by statute.

Foreign

Constructive Distribution to Foreign Sub Resulted in Gain Under Sec. 367: In TBL Licensing LLC v. Comm'r, 2023 PTC 241 (1st Cir. 2023), the First Circuit affirmed a judgment of the Tax Court holding that the transfer of intangible property by a U.S. corporation to an affiliated foreign corporation in the context of a corporate reorganization involving a Code Sec. 361 exchange resulted in gain the U.S. corporation was required to recognize in the year of the transfer. The First Circuit agreed that the final step of the reorganization was a "disposition following such transfer" under Code Sec. 367(d)(2)(A)(ii)(II) requiring the company to pay the tax due in a lump sum rather than over time on an annual basis.

Healthcare

IRS Issues Adjusted Applicable Dollar Amount for Determining PCORTF Fee: In Notice 2023-70, the IRS announced that the adjusted applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee imposed by Code Sec. 4375 on the issuer of a specified health insurance policy and Code Sec. 4376 on the plan sponsor of an applicable self-insured health plan for policy and plan years that end on or after October 1, 2023, and before October 1, 2024, is $3.22, an increase from the prior year amount of $3.00. The fee is used to fund the Patient-Centered Outcomes Research Trust Fund (PCORTF) and is calculated using the average number of lives covered under the policy or plan and the applicable dollar amount for that policy year or plan year.

IRS Issues Proposed Regulations on Fees for Independent Resolution Process: In REG-115762-23, the IRS issued proposed rules related to the fees established by the No Surprises Act for the federal independent dispute resolution (IDR) process, as established by the Consolidated Appropriations Act, 2021. The proposed rules provide that the administrative fee amount for participating in the federal IDR process will be set through rulemaking, set forth the methodology used to calculate the fee, and propose the amount of the administrative fee for disputes initiated on or after the later of the effective date of the rules or January 1, 2024.

International

IRS Issues Guidance on Certain Triangular Reorganizations Involving Foreign Corps: In REG-117614-14, the IRS issued proposed regulations under Code Sec. 367(b) relating to the treatment of property used to acquire parent stock or securities in connection with certain triangular reorganizations involving one or more foreign corporations; the consequences to persons that receive parent stock or securities pursuant to such reorganizations; and the treatment of certain subsequent inbound nonrecognition transactions following such reorganizations. The proposed regulations affect corporations engaged in certain triangular reorganizations involving one or more foreign corporations, certain shareholders of foreign corporations acquired in such reorganizations, and foreign corporations that participate in certain inbound nonrecognition transactions.

Nonprofits

Final Regulations Provide Guidance on Prohibition of Gifts to Supporting Orgs: In T.D. 9981, the IRS issued final regulations providing guidance on the prohibition on certain gifts or contributions to Type I and Type III supporting organizations from persons who control a supported organization and on certain other requirements for Type III supporting organizations. The regulations reflect changes to the law made by the Pension Protection Act of 2006 and affect certain Type I and Type III supporting organizations and their supported organizations.

Passthrough Entities

IRS Establishes New Passthrough Entities Workgroup: In IR-2023-176, the IRS announced plans to establish a special work unit housed in the Large Business and International division to focus on large or complex passthrough entities. The IRS noted that the new work unit, which is expected to stand up" sometime next year, is part of a larger compliance effort centered on adding more attention on high-income and high-wealth individuals, partnerships and larger corporations.

Penalties

Court Grants Stay Pending Final Conservation Easement Listed Transaction Regs: In 35 N. Fourth Street, Ltd. v. U.S., 2023 PTC 255 (S.D. Ohio 2023), a district court stayed a case involving a taxpayer's challenge to the assessment of a listed transaction penalty under Code Sec. 6707A based on Notice 2017-10, which the taxpayer argued was invalid under the Administrative Procedure Act as a legislative rule. The court found that a stay was appropriate due to the IRS's issuance of proposed regulations (REG-106134-22) that contain substantially the same guidance as the notice and determined that finalization of the regulations may be so dispositive that a stay could lead to a more efficient resolution of the case.

Incremental Additions to Late-Filing Penalty Aren't Excused by Reasonable Cause: In Zaimes v. Comm'r, T.C. Memo. 2023-121, a case in which a taxpayer placed his tax return in a post office mailbox on the due date but the return was not received by the IRS, the Tax Court held that the 5 percent incremental addition to tax under Code Sec. 6651(a)(1) for each additional month after the due date that the return was not filed was not excused by the taxpayer's attempt to file the return. The court found that under Reg. Sec. 301.6651-1(a)(1) and Reg. Sec. 301.6651-1(c)(1), reasonable cause for a taxpayer's failure to file by the start of an additional month does not excuse the taxpayer from the 5 percent incremental addition to tax.

Procedure

IRS Issues Proposed Regs Modernizing Rules for Sales of Seized Property: In REG-127391-16, the IRS issued proposed amendments to modernize the regulations under Code Sec. 6335 regarding the sale of a taxpayer's property that the IRS seizes by levy. According to the IRS, the proposed amendments conform the prescribed manner and conditions of sales of seized property with modern practices and benefit taxpayers by making the sales process both more efficient and more likely to produce higher sales prices.

Eleventh Circuit Vacates Convictions for Filing Retaliatory Liens Against Former Officials: In U.S. v. Pate, 2023 PTC 264 (11th Cir. 2023), the Eleventh Circuit vacated four of an individual's 16 convictions under 18 U.S.C. Section 1521 for filing false retaliatory liens against federal officials, two of which were against property owned by former IRS Commissioner John Koskinen and two of which were against property owned by former Treasury Secretary Jacob Lew. The court found that because Koskinen and Lew were no longer government officers or employees at the time the liens were filed, the statute did not apply to those liens.

Tax Court Declines to Order Production of Documents from Grand Jury Investigation: In Berkun v. Comm'r, 2023-127, the Tax Court held that documents from a grand jury investigation of a taxpayer for tax fraud, which the IRS obtained in connection with a civil examination of the taxpayer, were protected from disclosure under Code Sec. 6103(a) and therefore denied the taxpayer's request to compel the production of the materials. The court found that the materials comprised returns and return information of third parties and concluded that disclosure was not authorized under Code Sec. 6103(h)(4)(A) because the Tax Court proceeding did not "arise out of, or in connection with" determining the liabilities of the third parties in the grand jury proceedings.

Tax Court Rejects Challenge to Procedural Validity of Notice of Deficiency: In Kelley v. Comm'r, T.C. Memo. 2023-126, the Tax Court held that a notice of deficiency issued after a taxpayer's return was flagged by the IRS's automated underreporting (AUR) software was validly issued under Code Sec. 6212(a), which authorizes a notice of deficiency to be sent if the IRS "determines" that there is a deficiency. The taxpayer argued that computer algorithms are not capable of "thoughtful and considered determination that the United States is entitled to an amount not yet paid," as required under the Fifth Circuit's holding in Portillo v. Comm'r, 932 F.2d 1128 (5th Cir. 1991), but the court rejected that argument after finding that cases flagged by the AUR system are subject to an in-depth analysis by tax examiners before a notice of deficiency is issued.

IRS Announces Free Direct File Pilot Project for 2024 Tax Season: In IR-2023-192, the IRS announced that during the 2024 tax season, the IRS will conduct a Direct File pilot - a new service that will provide certain taxpayers with relatively simple returns with the choice to electronically file their federal tax return directly with the IRS for free. The IRS stated that Arizona, California, Massachusetts and New York have decided to work with the IRS to integrate their state taxes into the Direct File pilot for filing season 2024, while taxpayers in nine other states without an income tax (Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming) may also be eligible to participate in the pilot.

Regulation Precludes Court from Considering Taxpayer's Evidence of Mailing: In Wrhel v. U.S., 2023 PTC 247 (W.D. Wis. 2023), a district court held that a taxpayer's refund request was untimely because the return on which he made the request was filed beyond the three-year lookback period in Code Sec. 6511(b)(2)(A). The taxpayer offered evidence suggesting that he mailed an earlier return, including a copy of the earlier return with no postmark, but the court found that under Reg. Sec. 301.7502-1(e)(2), the only evidence other than direct proof of delivery that it could consider was evidence that the taxpayer used registered or certified mail or a private delivery service.

Court Rejects Former IRS Employee's Wrongful Collection Lawsuit Against IRS: In Sheiman v. U.S. Dept. of the Treasury, 2023 PTC 240 (D. Conn. 2023), a district court held that it did not have jurisdiction over a former IRS employee's suit against the IRS for wrongful collection of his social security retirement benefits to recover sick leave compensation paid to him for time while he was playing golf. The court found that the lawsuit did not fit into any of the three categories over which the court has jurisdiction under 28 U.S.C. Section 1346 because the funds sought to be recovered were not a tax or a penalty and were not alleged to have been excessive or wrongfully collected.

Property Transactions

IRS Extends Replacement Period under Section 1033 for Certain Livestock Sales: In Notice 2023-67, the IRS is extended the time that farmers and ranchers in 49 states, the District of Columbia, Micronesia, the Marshall Islands, Puerto Rico, and the U.S. Virgin Islands have under Code Sec. 1033(e) to replace livestock sold on account of weather-related conditions. The Appendix to the notice lists the localities of each state or U.S. possession that qualify for the extension.

Tax Return Preparers

Final Regulations Provide Increased User Fees for Enrolled Actuaries: In T.D. 9982, the IRS issued final regulations that increase both the enrollment and renewal of enrollment user fees for enrolled actuaries from $250 to $680. The regulations affect individuals who apply to become an enrolled actuary or seek to renew their enrollment.

IRS Finalizes Regs Reducing PTIN Fees: In T.D. 9980 and REG-106203-23, the IRS issued interim final and proposed regulations that reduce the amount of the user fee to apply for or renew a preparer tax identification number (PTIN). The regulations reduce the amount of the user fee to apply for or renew a PTIN from $21 to $11 (plus an $8.75 third-party contractor fee), effective for applications filed on or after October 19, 2023.

September 2023

Corporations

IRS Provides Additional Guidance on Corporate Alternative Minimum Tax: In Notice 2023-64, the IRS provided additional interim guidance to help corporations determine whether the new corporate alternative minimum tax (CAMT) under Code Sec. 55, which was added by the Inflation Reduction Act of 2022, applies to them and how to compute the tax. The notice clarifies and supplements Notice 2023-07 and Notice 2023-20, issued earlier this year.

Deductions

Eleventh Circuit Rejects Taxpayer's Appeal in Conservation Easement Case: In Rocky Branch Timberlands LLC v. U.S., 2023 PTC 239 (11th Cir. 2023), the Eleventh Circuit affirmed the judgment of a district court dismissing a partnership's action for injunctive and declaratory relief after the IRS disallowed its $26.5 million deduction for a conservation easement. The Eleventh Circuit agreed with the district court that the taxpayer's lawsuit was barred by the Anti-Injunction Act and the tax exception to the Declaratory Judgment Act.

Electronic Filing

Businesses Must Electronically File Form 8300 Beginning January 1, 2024: In IR-2023-157, the IRS announced that starting January 1, 2024, businesses are required to electronically file Form 8300, Report of Cash Payments Over $10,000, instead of filing a paper return. This new requirement follows the final regulations published in T.D. 9972, which provide that businesses must e-file Forms 8300 (and other certain types of information returns) if they are required to file at least 10 information returns other than Form 8300.

IRS Updates E-Filing Hardship Waiver Procedures for Forms 8955-SSA and 5500-EZ: The IRS issued Rev. Proc. 2023-31, which supersedes procedures in Rev. Proc. 2015-47 for filers of Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits, and or Form 5500-EZ, Annual Return of A One Participant (Owners/Partners and Their Spouses) Retirement Plan or A Foreign Plan, required to be filed for a plan year beginning on or after January 1, 2024, to request a hardship waiver of the requirement to file these forms electronically. Rather than set forth specific procedures, the procedure refers filers to applicable publications, forms, instructions, or other guidance, including postings on the IRS website, for the procedures for seeking a hardship waiver or administrative exception form the electronic filing requirements for these forms.

IRS

IRS Announces Shift in Focus to Wealthy Taxpayers, Use of AI to Detect Tax Cheats: In IR-2023-166, the IRS announced that, with increased funding as a result of the Inflation Reduction Act of 2022, it is shifting more attention onto high-income earners, partnerships, large corporations, and promoters and will use improved technology and artificial intelligence to help its compliance teams detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless "no change" audits. The IRS also said it will ensure that audit rates do not increase for those earning less than $400,000 a year and add new fairness safeguards for those claiming the earned income tax credit.

Passthrough Entities

IRS FAQ Addresses How to Report Negative Amounts on E-Filed Schedules K-2 and K-3: In FS 2023-20, the IRS issued a frequently asked question (FAQ) to provide guidance to passthrough entities for electronically filing Schedules K-2 and K-3 to the IRS to report negative amounts. The FAQ advises that passthrough entities must (1) attach a General Dependency (XML) schema to the Schedule K-2 identifying the line items and the negative values for which the passthrough entity reported zero on Part II, Section 1; (2). attach a list of the impacted line items and the negative numbers, partner by partner; and (3) report to its partners or members any changes to the amounts reported on the original Schedules K-3 issued to the partners or members.

Procedure

Taxpayers Don't Qualify for Extended Tax Court Petition Filing Period: In Evenhouse v. Comm'r, T.C. Memo. 2023-113, the Tax Court held that a couple had 90 days, rather than 150 days, to file their petition with the Tax Court under Code Sec. 6213(a) and therefore granted the IRS's motion to dismiss because the petition was not filed within the 90-day period. The taxpayers argued that the 150-day period applied because they were travelling internationally on the date the IRS mailed the notice, but the court found that the taxpayers returned to the United States on the day the notice was mailed and therefore their absence from the country did not delay their receipt of the notice or otherwise adversely affect their ability to file a timely Tax Court petition.

No Attorney Fees Awarded in Case Invalidating IRS Notice on Micro-captives: In CIC Services, LLC v. IRS, 2023 PTC 242 (E.D. Tenn. 2023), a district court denied a taxpayer's motion for attorney's fees in a case where the taxpayer prevailed in an action against the government arguing that Notice 2016-66, which identified certain micro-captive transactions as listed transactions, violated the Administrative Procedure Act (APA). The court found that even assuming the IRS's position that it was justified in issuing the notice was not substantially justified, its positions that the court lacked jurisdiction and that the APA notice and comment requirements did not apply were substantially justified.

August 2023

Accounting

IRS Releases August 2023 Applicable Federal Rates: In Rev. Rul. 2023-13, the IRS issued the applicable federal rates for August 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

Taxpayer's Entire Tax Refund Was Exempt in Chapter 7 Bankruptcy: In In re Garci-Morales, 2023 PTC 222 (Bankr. D. Colo. 2023), a bankruptcy court held that a taxpayer in a Chapter 7 bankruptcy was entitled to claim the full amount of his federal income tax refund as exempt under a Colorado statute providing an exemption for the full amount of a refund attributed to a child tax credit. The court rejected the trustee's contention that the court should apply a pro-rata method, under which a debtor's tax obligation is considered paid by all tax payments (exempt and non-exempt) based on the proportion each type of payment bears to the payment total, and concluded that property subject to an exemption should not be burdened with a tax liability.

Sixth Circuit Holds That ACA Shared Responsibility Payment Is a Priority Claim: In In re Juntoff, 2023 PTC 209 (6th Cir. 2023), the Sixth Circuit affirmed a decision of the Sixth Circuit Bankruptcy Appellate Panel and held that the IRS's claim for a shared responsibility payment under the Affordable Care Act is a claim for a "tax on or measured by income" under 11 U.S.C. Section 507(a)(8)(A) and therefore entitled to priority above other debtors. In reaching this conclusion, the Sixth Circuit agreed with the decisions of the Third Circuit in In re Szczyporski, 2022 PTC 129 (3d Cir. 2022), and the Fourth Circuit in U.S. v. Alicea, 2023 PTC 20 (4th Cir. 2023).

Retirement Accounts Lost Bankruptcy Exemption Due to Prohibited Transactions: In In re Langston, 2023 PTC 203 (Bankr. N.D. Tex. 2023), a bankruptcy court held that a taxpayer in a chapter 7 bankruptcy lost the right to claim the funds in his individual retirement accounts (IRAs) as exempt assets due to transfers of funds from the IRAs to the taxpayer's businesses, which the taxpayer used to pay both business and personal expenses. The court found that the transactions were prohibited transactions under Code Sec. 4975(c) that caused the IRAs to lose their status as qualified IRAs under Code Sec. 408(e)(2) and thus the IRAs constituted nonexempt property available for creditors.

Joint Tax Return Was Included in Debtor Spouse's Bankruptcy Estate: In In re Walton, 2023 PTC 202 (Bankr. N.D. Ohio 2023), a bankruptcy court granted a trustee's motion for turnover of the nonexempt portion of a tax refund the debtor and his non-filing spouse received with respect to their jointly filed tax return. The court rejected the debtor's argument that half of the refund belonged to his nonfiling spouse, leaving only half for his estate; the court found that the debtor was the primary wage earner and excess withholdings from his wages generated the refund, and therefore his spouse could not claim an interest in the refund.

Credits

IRS Issues 2024 Inflation Adjustments for Premium Tax Credit: In Rev. Proc. 2023-29, the IRS provided the applicable percentage table in Code Sec. 36B(b)(3)(A) for tax years beginning calendar year 2024, which is used to calculate an individual's premium tax credit under Code Sec. 36B. The procedure also provides the indexing adjustment for the required contribution percentage in Code Sec. 36B(c)(2)(C)(i)(II) for plan years beginning in calendar year 2024, which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Code Sec. 36B.

IRS Provides 2023 Inflation Adjustment and Phaseout for Enhanced Oil Recovery Credit: In Notice 2023-57, the IRS announced the inflation adjustment factor and phase-out amount for the enhanced oil recovery credit under Code Sec. 43(a) for tax years beginning in the 2023 calendar year. The notice concludes that because the reference price for the 2022 calendar year ($93.97) exceeds $28 multiplied by the inflation adjustment factor for the 2023 calendar year ($28 multiplied by 1.9998 = $55.99) by $37.98, the enhanced oil recovery credit for qualified costs paid or incurred in 2023 is phased-out completely.

Federal Credit Unions Can Claim Employee Retention Credit for Part of 2021: In CCA 202333001, the Office of Chief Counsel advised that federal credit unions may not claim the employee retention credit under Section 2301 of the CARES Act for wages paid after March 12, 2020, and before January 1, 2021, because they are instrumentalities of the United States government. However, the Chief Counsel's Office determined that for wages paid after December 31, 2020, and before July 1, 2021, and after June 30, 2021, and before October 1, 2021, federal credit unions may claim the employee retention credit because,, although they are instrumentalities of the United States government, they are also organizations described in Code Sec. 501(c)(1) and exempt from tax under Code Sec. 501(a).

Criminal

Sixth Circuit Affirms Conviction for Failing to Pay Over Trust Fund Taxes: In U.S. v. Chappelle, 2023 PTC 223 (6th Cir. 2023), the Sixth Circuit affirmed the conviction of the owner of a real estate management company for failing to turn over to the IRS withheld federal income, social security, and Medicare taxes. The Sixth Circuit found that in sentencing the taxpayer, the district court correctly applied a sophisticated-means enhancement to the offense level considering the taxpayer's "serial name changing," the "pyramiding scheme" of his real estate companies, and the "complex nature of money flowing in and out from [the taxpayer's] businesses to his private expenses."

Indictment for Tax Evasion Fell Within 6-Year Statute of Limitations: In U.S. v. Aumiller, 2023 PTC 225 (M.D. Pa. 2023), a district court denied a taxpayer's motion to dismiss an indictment against him for tax evasion under Code Sec. 7201 as barred by the six-year statute of limitations in Code Sec. 6531(2). The court found that the indictment could fairly be read to allege that the taxpayer's last affirmative act of evasion charged in the indictment, which included concealing bank accounts and real estate in the name of a family member, occurred within the limitations period.

Fourth Circuit Upholds Conviction for Attempt to File False Lien Against IRS Agent: In U.S. v. Reed, 2023 PTC 208 (4th Cir. 2023), the Fourth Circuit affirmed the conviction of an individual under 18 U.S.C. Section 1521 for attempting to file a false lien against the property of an IRS agent as retaliation for her efforts to collect his delinquent tax debts. The Fourth Circuit rejected the individual's argument that he filed the lien using the IRS agent's agency-approved pseudonym and thus did not file the lien against an "individual" as required under the statute.

Deductions

IRS Issues Depletion Percentage for Marginal Properties: In Notice 2023-50, the IRS stated that the applicable percentage for purposes of determining percentage depletion on marginal properties under Code Sec. 613A(c)(6)(C) for calendar year 2023 is 15 percent. The IRS noted that the "applicable percentage" is the percentage (not greater than 25 percent) equal to the sum of 15 percent, plus one percentage point for each whole dollar by which $20 exceeds the reference price (determined under Code Sec. 45K(d)(2)(C)) for crude oil for the calendar year preceding the calendar year in which the tax year begins and that the reference price determined under Code Sec. 45K(d)(2)(C) for the 2022 calendar year is $93.97.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2023-53, 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).

Gross Income

Taxpayer's Losses in 2020 Crypto Market Crash Don't Offset Gains in Earlier Years: In Kim v. Comm'r, T.C. Memo. 2023-91, the Tax Court upheld the deficiencies and penalties assessed against a taxpayer who failed to report and pay taxes on gains from sales of cryptocurrency in years 2013-2017. The court rejected the taxpayer's argument that the IRS had "unclean hands" because the government's response to the COVID-19 pandemic in early 2020 caused a crash in the cryptocurrency market that led to the loss of his cryptocurrency assets; the court explained that the doctrine estoppel applies only in rare cases to conduct immediately related to the cause in controversy and the government's actions in 2020 had no relationship to the gains he realized in earlier years.

Health Care

IRS Issues Proposed Regulations Relating to Mental Health and Substance Abuse Benefits: In REG- 120727-21, the IRS issued proposed amendments to regulations implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) and proposed new regulations implementing the nonquantitative treatment limitation (NQTL) comparative analyses requirements under MHPAEA, as amended by the Consolidated Appropriations Act, 2021 (Pub. L. 116-260). Specifically, the proposed rules would amend the existing NQTL standard to prevent plans and issuers from using NQTLs to place greater limits on access to mental health and substance use disorder benefits as compared to medical/surgical benefits.

International

IRS Provides Temporary Relief from 2022 Foreign Tax Credit Final Regulations: In Notice 2023-55, the IRS announced temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under Code Sec. 901 and Code Sec. 903. The temporary relief applies for tax years beginning on or after December 28, 2021, and ending on or before December 31, 2023, as the IRS continues to analyze issues related to the final regulations published in T.D. 9959 and considers proposing amendments to those regulations.

Procedure

IRS Announces Interest Rate Increases for Fourth Quarter of 2023: In Rev. Rul. 2023-17, the IRS issued the rates of interest on tax underpayments and overpayments for the quarter beginning October 1, 2023. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning October 1, 2023, will be 8 percent (up from 7 percent for the quarter that began on July 1) for overpayments (7 percent in the case of a corporation, up from 6 percent), 8 percent (up from 7 percent) for underpayments, and 10 percent (up from 9 percent) for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 5.5 percent (up from 4.5 percent).

Uncashed Refund Check Mooted Taxpayer's Refund Lawsuit: In Jarrett 2023 PTC 228 (6th Cir. 2023), the Sixth Circuit affirmed a district court's dismissal of a taxpayer's suit against the IRS for a refund as moot after the IRS issued a full refund check to the taxpayer, even though the taxpayer did not cash the check. The Sixth Circuit found that by issuing the taxpayer a check for the overpayment plus interest, the IRS resolved the taxpayer's claim and mooted the refund lawsuit, even though the taxpayer's suit included a request for a permanent injunction prohibiting the IRS from treating certain cryptocurrency tokens produced by the taxpayer as realized income.

New IRS Program Allows Fast Track Processing of Letter Ruling Requests: In Rev. Proc. 2023-26, the IRS described a new program that provides an opportunity for fast-track processing of certain requests for letter rulings solely or primarily under the jurisdiction of the Associate Chief Counsel (Corporate). This new program replaces the pilot program established by Rev. Proc. 2022-10.

IRS Ends Most Unannounced Visits to Taxpayers: In FS-2023-17, the IRS announced a policy change that ends most unannounced visits to taxpayers by revenue officers, which the IRS said is part of a larger effort to transform its operations following passage of the Inflation Reduction Act last year and the creation of the new IRS Strategic Operating Plan in April. According to the IRS, instead of making an unannounced or unscheduled field visit, revenue officers generally will send an appointment letter to schedule an initial or follow-up meeting with the taxpayer; unannounced visits will only be done in a few unique circumstances.

Trusts and Estates

Promoters of Certain Marketed Trust Structure Are Misinterpreting Section 643: In AM 2023-006, the Office of Chief Counsel advised that the promoters of certain trusts referred to as "non-grantor, irrevocable, complex, discretionary, spendthrift trusts" are mistakenly interpreting Code Sec. 643 to remove certain trust income from current taxation in their promotional materials. According to the Chief Counsel's Office, the promotional materials read subsections of Code Sec. 643 out of context and do not address Code Sec. 641, which provides the basic rule that the trust's taxable income is generally computed as it is for individuals.

July 2023

Accounting

IRS Issues July 2023 Applicable Federal Rates: In Rev. Rul. 2023-12, the IRS provides various prescribed rates for federal income tax purposes for July 2023, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by Code Sec. 1274.

Credits

Air Pollution Control Company's Projects Do Not Qualify for Research Credit: In Betz v. Commissioner, T.C. Memo. 2023-84, the Tax Court held that the shareholders of an S corporation that designs and supplies air pollution control systems were not entitled to claim flowthrough Code Sec. 41 research credits in connection with 19 of the company's projects. The court found that the projects were not pilot models, the wages of the company's employees were not incurred with the performance of qualified services, and for some of the projects, the company did not retain substantial rights in the results of its research and thus for those projects, its expenses were incurred in connection with funded research and therefore were not creditable.

Apparel Retailer's Research Activities May Qualify for Research Credit: In TAM 202327015, the National Office advised that certain research activities undertaken by an apparel retailer with respect to the development of a business component may be for a qualified purpose under Code Sec. 41(d)(3). The National Office also advised that the taxpayer's research activities with respect to the development of the business component may satisfy the process of experimentation test under Code Sec. 41(d)(1)(C) if the taxpayer undertook the activities for both qualified and nonqualified purposes under Code Sec. 41(d)(3), if substantially all of the research activities for the business component constitute elements of a process of experimentation for a qualified purpose described in Code Sec. 41(d)(3)(A).

IRS Issues Inflation Adjustment Factor for Code Section 45 Credit: In 88 Fed. Reg. 40400 (6/21/23), the IRS published the inflation adjustment factor and reference price for calendar year 2023 for the renewable electricity production credit under Code Sec. 45. The guidance also provides the credit amounts for calendar year 2023.

Criminal

Eleventh Circuit Upholds Conviction and Prison Sentence for PPP Loan Fraud: In U.S. v. Crowther, 2023 PTC 169 (11th Cir. 2023), the Eleventh Circuit affirmed the convictions and 3-year prison sentence of an individual who was found guilty of bank fraud, making a false statement to a lending institution, and money laundering after he obtained a $2.1 million Paycheck Protection Program (PPP) loan by stating that he intended to use the money for payroll, rent and utilities for his roofing company but instead created fictitious employees and spent the PPP loan funds on a boat, a horse, and other personal expenses. The Eleventh Circuit rejected the individual's argument that he was permitted to use the PPP funds for any purpose so long as he intended to repay the loan and concluded that the evidence supported the finding that he lied about his need for, and the purpose of, his PPP loan.

Deductions

Tax Court Denies Bad Debt Deduction for Advances That Constituted Equity: In Allen v. Comm'r, T.C. Memo. 2023-86, the Tax Court held that a taxpayer who made issued advances to businesses he owned was not entitled to take Code Sec. 166 bad debt deductions because the advances constituted equity rather than debt. The court found that the advances were not bona fide debt because repayment was dependent on the company's sales, the companies had no ability to repay the debts, there was no real expectation of repayment, and the funds were used to acquire capital assets rather than to meet the cost of daily operational needs.

IRS Issues Final Regulations on Consolidated Net Operating Loss Carryovers: In T.D. 9977, the IRS issued final regulations that permit consolidated groups that acquire new members that were members of another consolidated group to elect in a year subsequent to the year of acquisition to waive all or part of the pre-acquisition portion of the carryback period for certain losses attributable to the acquired members where there is a retroactive statutory extension of the net operating loss carryback period. The final regulations finalize certain provisions in proposed regulations that were published in July 8, 2020, and remove temporary regulations published on the same date.

Online Stock Exchange's Fees Were Not Domestic Production Gross Receipts: In BATS Global Markets Holdings, Inc. v. Comm'r, 2023 PTC 188 (10th Cir. 2023), the Tenth Circuit affirmed a judgment of the Tax Court holding that an online stock exchange operator was not entitled to the domestic production activities deduction under now-repealed Code Sec. 199 because its fees for customers' use of the exchange's software did not qualify as domestic production gross receipts. The Tenth Circuit found that the exchange failed to demonstrate that a third party derived revenue from licenses or other dispositions of software that was substantially identical to the exchange's software, as required by the third-party comparable exception in Reg. Sec. 1.199-3(i)(6)(iii).

Taxpayer's Expenses Incurred in Pursuing M.B.A. Degree Were Not Deductible: In T.C. Summary 2023-21, the Tax Court held that a taxpayer was not entitled to deduct the education expenses she incurred in pursuing a Master of Business Administration (M.B.A.) degree as ordinary and necessary business expenses under Code Sec. 162(a). The court found that the M.B.A courses qualified the taxpayer to perform tasks that were significantly different from the tasks she performed at the job she held prior to entering business school and being hired at another company and therefore were nondeductible expenses under Reg. Sec. 1.162-5(a).

Conservation Easement Deduction Amount Limited to Donor's Basis in the Property: In Glade Creek Partners, LLC v. Comm'r, T.C. Memo. 2023-82, the Tax Court held that a partnership that donated a conservation easement on undeveloped real estate was entitled to deduct the amount of its basis in the land rather than the land's fair market value. The court found that the land was inventory in the hands of a partner that contributed it to the partnership and that under Code Sec. 724(b), the partnership was required to carry over the partner's characterization for five years after the contribution; therefore, a sale of the property by the partnership would have generated ordinary income, and under Code Sec. 170(e)(1)(A) the deduction had to be reduced by the amount of such ordinary income.

No Disaster Loss Deduction Allowed for Liquidation of Controlled Foreign Corporations: In CCA 202325007, the Office of Chief Counsel advised that a taxpayer that was the sole shareholder of three controlled foreign corporations (CFCs) was not permitted to deduct losses resulting from the liquidation of the CFCs as disaster losses under Code Sec. 165(i) because, regardless of whether the losses were attributable to a federally declared disaster, the losses did not occur in a federally declared disaster area. The Chief Counsel's Office found that a reasonable approach to determining where a loss sustained with respect to stock in a foreign corporation was to look to business metrics such as income producing assets, customers, employees, and revenue streams; the Chief Counsel's Office also found that an appropriate standard would be to require that "substantially all" of the applicable metrics occur in the disaster area for the loss sustained to be considered to occur in a disaster area.

Employee Benefits

IRS Issues Proposed Regs on Methodology for Constructing Corporate Bond Yield Curve: In REG-124123-22, the IRS issued proposed regulations specifying the methodology for constructing the corporate bond yield curve that is used to derive the interest rates used in calculating present value and making other calculations under a defined benefit plan, as well as for discounting unpaid losses and estimated salvage recoverable of insurance companies. The regulations affect participants in, beneficiaries of, employers maintaining, and administrators of certain retirement plans, as well as insurance companies.

Employment Taxes

Restricted Stock Units Are Considered Wages at Time of Vesting: In CCA 202327014, the Office of Chief Counsel addressed the tax treatment of restricted stock units (RSUs) paid to a U.S. corporation's employees while they were performing services in the United States, but who are later transferred to a controlled foreign corporation (CFC) and are performing services for the CFC solely outside of the United States at the time the RSUs vest. The Chief Counsel's Office advised that under the facts presented, the RSUs must be taken into account as wages for FICA tax purposes on the vesting date under a special timing rule in Reg. Sec. 31.3121(v)(2)-1(e)(7); the Chief Counsel's Office also advised that the source of the RSU income would need to be determined under the time-basis method set forth in Reg. Sec. 1.861-4(b)(2)(ii)(E).

Excise Taxes

IRS Provides Transitional Guidance with Respect to Stock Repurchase Excise Tax: In Announcement 2023-18, the IRS confirmed that no taxpayer is required to report the new excise tax imposed by Code Sec. 4501 on repurchases of corporate stock on any returns, or to make any payments of such tax, before the time specified in forthcoming regulations. The IRS stated that for taxpayers with a tax year ending after December 31, 2022, but prior to publication of the forthcoming proposed regulations, such regulations are expected to provide that any liability for the stock repurchase excise tax for such tax year will be reported on a Form 720, Quarterly Federal Excise Tax Return, that is due for the first full quarter after the date of the publication of the forthcoming regulations, and that the deadline for payment will be the same as the filing deadline.

International

IRS Issues Additional Guidance on Transition from Interbank Offered Rates: In T.D. 9976, the IRS issued additional final regulations that provide guidance on the transition away from the use of interbank offered rates (IBORs) to other reference rates. Specifically, this regulation provides the replacement rate for the IBOR presently used in the published rate election, which may be used by taxpayers to determine the amount of interest expense attributable to their excess U.S.-connected liabilities and allocable to income that is effectively connected with the conduct of a trade or business within the United States.

Procedure

Taxpayer Cannot Sue IRS for Offset of Refund for Unpaid Child Support: In Hadsell v. U.S., 2023 PTC 189 (9th Cir. 2023), the Ninth Circuit affirmed a district court's dismissal of a taxpayer's action under the Federal Tort Claims Act (FTCA) and Code Sec. 7433, stemming from the IRS's application of tax payments to offset the taxpayer's past-due child support. The court found that the FTCA does not authorize claims premised on actions during the scope of the IRS's assessment and collection efforts and found that the offset was authorized under Code Sec. 6402(c), which specifically provides that no court has jurisdiction to hear any action brought to restrain or review such an offset.

IRS Sends Special Follow-Up Mailing to Taxpayers in Certain Disaster Areas: In IR-2023-121, the IRS announced that it is sending a special follow-up mailing to taxpayers in California, Alabama, Arkansas, Florida, Georgia, Indiana, Mississippi and Tennessee in designated disaster areas to let them know that they have extra time to file and pay their taxes. This new mailing is going to taxpayers who received a CP14 notice from the IRS in late May and June because they have a balance due; the IRS explained that, while the notices stated they need to pay in 21 days, these taxpayers actually have until later this year to timely pay under the disaster declaration.

IRS Was Not Bound by Payment Schedule for Restitution-Based Assessment: In Seggerman v. Comm'r, T.C. Memo. 2023-78, the Tax Court upheld the IRS's filing of notice of federal tax lien (NFTL) to collect a restitution-based assessment after a district court ordered a taxpayer to pay over $4.2 million in restitution for unpaid estate taxes and required the taxpayer to make payments according to a monthly payment schedule. The taxpayer argued that he never fell behind on the payments and that the NFTL was prematurely filed and should be withdrawn, but the Tax Court agreed with the IRS that it was not bound by the district court's payment schedule because the IRS has independent authority under Code Sec. 6201(a) to collect an RBA in the same manner as a tax.

Form 1040 Purportedly Filed for Taxpayer Was Invalid Due to Invalid Signature: In Parducci v. Comm'r, T.C. Memo. 2023-75, the Tax Court held that a Form 1040, U.S. Individual Tax Return, filed for a taxpayer was not a valid return because, although the form bore a signature purporting to be the taxpayer's signature, the return was not signed by the taxpayer or by an agent authorized to sign the return on the taxpayer's behalf. The court found that the signature was not the taxpayer's signature based on the opinion of a forensic document examiner who showed that the signature did not match and was not similar to the taxpayer's signatures on other documents.

Tax Return Preparers

Court Declines to Rule Summarily on Motion to Permanently Enjoin Tax Preparer: In U.S. v. Powell, 2023 PTC 171 (E.D. Mich. 2023), a district court denied the government's motion for summary seeking to permanently enjoin an individual and her tax preparation companies from acting as return preparers under Code Sec. 7407 for allegedly manipulating income on customers' returns in order to qualify for the earned income tax credit and engaging in other conduct subject to penalty under Code Sec. 6694. The court noted that the government's case relied on customers' deposition testimony and found that the case was rife with questions of witness credibility and factual contradictions, and therefore it could not be properly resolved on summary judgment.

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