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Tax Research Briefs - Archived (July 2014 to November 2013)
JULY 2014
Bankruptcy
Prorated Amount of Child Tax Credit Is Property of Bankruptcy Estate: In In re Atwood, 2014 PTC 310 (Bankr. S.D. Ind. 6/23/14), a bankruptcy court held that the prepetition portion of the debtor's refundable child tax credit (CTC) was property of the bankruptcy estate. To the extent any part of the credit is attributable to the nonrefundable CTC (in which case it only reduced the debtors' tax liability), it is not property of the estate. The court rejected a Nebraska bankruptcy court decision that concluded that the CTC refund was after-acquired property and not property of the bankruptcy estate. The bankruptcy court noted that the majority of courts that have addressed the issue have agreed that a debtor who files a bankruptcy case before the end of the tax year nonetheless holds a contingent property interest in the CTC refund as of the petition date and that the prorated amount of the CTC refund is property of the estate.
Deductions
Bad Debt Deduction Rejected Where Taxpayer Could Not Reasonably Expect Repayment: In Dickinson v. Comm'r, T.C. Memo. 2014-136 (7/10/14), the Tax Court denied the taxpayer's bad debt deduction. The court found that, at the time the taxpayer advanced funds for which the bad debt deduction was taken, he knew the recipient of the funds was having money problems and thus could not have reasonably expected repayment. The court also noted that there was no evidence establishing any of the following objective factors that would support the taxpayer's position that the funds in question were loans: the existence of one or more promissory notes or similar documents; interest on the alleged loans; the existence of collateral securing the alleged loans; a fixed repayment schedule for the alleged loans; and repayment by the recipient of any portion of the alleged loans. [Code Sec. 166].
Sixth Circuit OKs Deduction for Lease Termination Costs:
In ABC Beverage Corporation v. U.S., 2014 PTC 287 the Sixth Circuit upheld a lower court decision that a lessee, who buys property it is leasing for a price greater than the property's fair market value, can immediately deduct as a lease termination expense the excess purchase price; however, other courts have come to a different conclusion. Read more...
Travel Agent Could Not Deduct Travel Expenses: In Peppers v. Comm'r, T.C. Summary 2014-55 (6/18/14), the Tax Court held that an independent travel agent could not deduct expenses for travel to locations that she said she needed to review for her travel website because she failed to provide any evidence of any reviews she may have created with respect to the visits she made. Further, the fact that she brought along at least one family member on each trip convinced the court that the trips were personal. [Code Sec. 162].
FaConservation Easement Donation Denied: In Scheidelman v. Comm'r, 2014 PTC 292 (2d Cir. 6/18/14), the Second Circuit affirmed the Tax Court and held that no deduction was allowed for the taxpayer's donation of a faconservation easement because the preservation of historic facades in the area where the taxpayer lived was a benefit, not a detriment, to the value of her property and, thus, the donation did not materially diminish the fair market value of the property. [Code Sec. 170].
Employment Taxes
IRS Issues Final Regs on Disregarded Entities and Tanning Excise Tax: In T.D. 9670 (6/26/14), the IRS issued final regulations on disregarded entities (including qualified subchapter S subsidiaries) and the indoor tanning services excise tax. The final regulations affect disregarded entities responsible for collecting the indoor tanning services excise tax and owners of those disregarded entities. The final regulations also affect disregarded entities and certain exceptions relating to FICA and FUTA taxes, as well as backup withholding rules and related information reporting requirements. [Code Sec. 3121].
Foreign
IRS Updates FFI Agreement: In Rev. Proc. 2014-38, the IRS updated the agreement entered into by a foreign financial institution (FFI) with the IRS to be treated as a participating FFI under Code Sec. 1471(b) and Reg. Sec. 1.1471-4. Rev. Proc. 2014-38 modifies and supersedes Rev. Proc. 2014-13. [Code Sec. 1471].
Gross Income
Taxpayers Can't Offset Lump-Sum Social Security Benefit by Insurance Repayment: In English v. Comm'r, T.C. Summary 2014-66 (7/10/14), the Tax Court held that the taxpayers were not entitled to offset income from a lump-sum social security benefit settlement by the amount they had to repay to an insurance company as a result of receiving the lump-sum benefit. However, the court concluded that because the disparate tax treatment of private and public disability benefits is somewhat confusing, and because the taxpayers sought the advice of two CPAs who counseled them that their benefits were not taxable, they were not liable for the penalties assessed by the IRS. [Code Sec. 86].
Salary Paid to Junior Reserve Officers' Training Corps Instructor Is Taxable Income: In Ambrosius v. Comm'r, T.C. Memo. 2014-126 (6/23/14), the Tax Court held that the taxpayer could not exclude from income a portion of his salary received from his employment as a Junior Reserve Officers' Training Corps instructor. According to the court, the amounts the taxpayer received were not nontaxable allowances from the federal government because the taxpayer was employed by the Baltimore City Public School System and was not on active duty. [Code Sec. 61].
Healthcare
T.D. 9672 (6/30/14) the IRS Finalizes Regs on Small Employer Health Insurance Tax Credit:The IRS has issued final regulations on the tax credit available for health insurance coverage offered by certain small employers to their employees. Read more...
Information Reporting
Temp. and Prop. Regs Authorize Disclosure of Certain Return Information: In REG-120756-13 (7/15/14) and T.D. 9677 (7/15/14), the IRS issued temporary and proposed regulations authorizing the disclosure of specified return information to the Bureau of the Census (Bureau) for the design of a decennial census. The regulations are the result a request from the Secretary of Commerce and require no action by taxpayers and have no effect on their tax liabilities. Thus, according to the IRS, no taxpayers are likely to be affected by the disclosures authorized by this guidance. [Code Sec. 6103].
IRS Finalizes Regs on Truncated Taxpayer Identification Number: In T.D. 9675 (7/15/14), the IRS issued final regulations regarding an IRS truncated taxpayer identification number (TTIN). Where not otherwise prohibited, the regulations allow the use of a TTIN in lieu of a taxpayer's social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN) on payee statements and certain other documents. The TTIN displays only the last four digits of a taxpayer identifying number and either asterisks (*) or Xs replace the first five digits of the identifying number. The regulations affect persons that furnish or receive payee statements and other documents that the Internal Revenue Code, regulations, or other published guidance requires to be furnished to another person to the extent a TTIN may appear in lieu of the SSN, ITIN, ATIN, or EIN of the payee or document recipient. [Code Sec. 6109].
Liens and Levies
Liens Survive Purchase of Property Subject to the Liens: In First Northern Bank & Trust Co. v. U.S., 2014 PTC 315 (M.D. Pa. 6/20/14), a district court held that a 2012 tax sale proceeding, in which a bank acquired property on which it had a first lien mortgage, was a judicial sale under Code Sec. 7425(a) and, because the IRS did not receive proper statutory notice, the IRS tax liens on the property survived the sale. [Code Sec. 7425].
Lien Did Not Necessarily Attach to Real Property Through Mortgage Payments: In Rominski v. U.S., 2014 PTC 316 (N.D. Ill. 6/25/14), a district court held that a federal tax lien associated with the taxpayer's tax debts did not necessarily attach to real property through the taxpayer's making of mortgage payments relating to the property. The court noted that the IRS cited no authority for its proposition that because a tax lien attaches to the taxpayer's cash, the lien "sticks to" real property that is subject to a mortgage on which the cash has been used to make payments. [Code Sec. 6321].
Nonrecognition Transactions
IRS Updates Qualified Intermediary Rules: In Rev. Proc. 2014-39, the IRS provides guidance for entering into a qualified intermediary (QI) withholding agreement with the IRS. It provides the application procedures for becoming a QI and renewing a QI agreement, as well as the final qualified intermediary withholding agreement (QI agreement), and provides that such agreement is not intended to be modified by a rider. The objective of the QI agreement is to allow a foreign intermediary to assume the withholding and reporting obligations for payments of income (including interest, dividends, royalties, and gross proceeds) made to its account holders or payees through one or more foreign intermediaries or flow-through entities. [Code Sec. 1031].
Original Issue Discount
July AFRs Issued: In Rev. Rul. 2014-20, the IRS issued the applicable federal rates for July 2014. [Code Sec. 1274].
Partnerships
Invalid Signature on Form 1065 Precludes Valid Return: In CCM 201425011, the Office of Chief Counsel advised that a Form 1065 that is not signed by a general partner or a limited liability company member manager is not a valid partnership return. Although the partnership return is invalid, the return that starts the running of the statute of limitations period is that of the taxpayer whose liability is being assessed; not that of the partnership or limited liability company whose return might also report the transaction that gives rise to the liability. [Code Sec. 6501].
Penalties
Merged Corporations Are the "Same Taxpayer" for Interest Netting Purposes:In a case of first impression, the Court of Federal Claims concluded that, following a merger, the entities that merged become one and the same as a matter of law and thus become the "same taxpayer" for purposes of interest netting. Wells Fargo & Company v. U.S., 2014 PTC 317 (Fed. Cl. 6/27/14). Read more...
Refusal to Pick Up Mail Precludes Ability to Schedule CDP Hearing and Contest Levy:A taxpayer could not decline to retrieve his mail when he was reasonably able and had multiple opportunities to do so, and thereafter successfully contend that he did not receive a notice of deficiency for purposes of scheduling a collection due process hearing. Onyango v. Comm'r, 142 T.C. No. 24 (6/24/14). Read more...
Circumstantial Evidence Can Suffice to Challenge Motive for IRS Summons: In U.S. v. Clarke, 2014 PTC 300 (S. Ct. 6/19/14) the court held that a person receiving a summons is entitled to contest it in an adversarial enforcement proceeding and, while the person objecting must offer some credible evidence to support a claim of improper motive on behalf of the IRS, circumstantial evidence can suffice. Read more...
Wife's Refusal to File Joint Returns Doesn't Constitute Reasonable Cause for Nonfiling: In Salzer v. Comm'r, T.C. Summary 2014-59 (6/24/14), the Tax Court rejected the taxpayer's argument that he should not be penalized for failing to file tax returns for two years because his wife refused to file joint returns. The taxpayer had contended that it would be illogical to pay tax as a married person filing separately given his history of filing joint returns for the prior 22 years. According to the court, his wife's refusal to file joint returns did not constitute reasonable cause to excuse him from the penalties assessed by the IRS. [Code Sec. 6651].
Money Laundering and Failing to File Form 8300 Nets 30 Months in Prison: In U.S. v. Calmes, 2014 PTC 307 (5th Cir. 6/19/14), the Fifth Circuit affirmed the conviction and 30-month prison sentence of a motorcycle dealer found guilty of money laundering, structuring a transaction to avoid IRS reporting requirements, and willfully failing to file Form 8300 to report cash transactions of $10,000 or more. According to the court, the refusal on one occasion by the motorcycle dealer to take $13,000 in cash without filing Form 8300 did not absolve him from guilt for the subsequent, distinct offense of structuring a transaction to avoid the filing requirement altogether.
Procedure
Code Section 6104 Does Not Supersede FOIA: In Public.Resource.Org v. U.S. Internal Revenue Service, 2014 PTC 313 (N.D. Calif. 6/20/14), a taxpayer sought from the IRS tax return data of several nonprofit organizations in machine-readable format. The IRS refused the taxpayer's request because it contended that the Freedom of Information Act (FOIA), under which the taxpayer's request was made, was superseded by Code Sec. 6104, a previously enacted disclosure provision concerning Form 990 filings. A district court sided with the taxpayer and held that because of the breadth of FOIA's disclosure requirements, which has been repeatedly upheld by the courts, and the inapplicability of the cases on which the IRS was relying, there was no basis to conclude that FOIA is superseded by Code Sec. 6104. [Code Sec. 6104].
IRS Clarifies Rules on Administrative Summonses: In T.D. 9669 (6/18/14) and REG-121542-14 (6/18/14), the IRS issued temporary and proposed regulations modifying regulations under Code Sec. 7602(a) relating to administrative summonses. Specifically, these regulations clarify that persons with whom the IRS or the Office of Chief Counsel contracts for services described in Code Sec. 6103(n) and its implementing regulations may be included as persons designated to receive summoned books, papers, records, or other data and to take summoned testimony under oath. [Code Sec. 7602].
Code Section 7443(f) Doesn't Violate Constitution: In Kuretski v. Comm'r, 2014 PTC 302 (D.C. Cir. 6/20/14), the D.C. Circuit rejected a taxpayer's argument that, because Code Sec. 7443(f) enables the President to remove Tax Court judges on grounds of inefficiency, neglect of duty, or malfeasance in office, it violates the constitutional separation of powers under Article III of the Constitution. The D.C. Circuit noted that this was the first case in any court of appeals to present the question of whether Code Sec. 7443(f) infringes the constitutional separation of powers. [Code Sec. 7443].
Assessment Date, Not Filing Date, Begins 10-Year Collection Period: In U.S. v. Bishop, 2014 PTC 309 (3d Cir. 6/24/14), the Third Circuit affirmed a district court and held that the IRS was within the 10-year assessment period for collecting the taxpayer's tax liability. The court noted that there is a difference between assessment dates and the date on which a return is filed. Citing Remington v. U.S., 210 F.3d 281 (5th Cir. 2000), the Third Circuit noted that although the filing date starts the three-year assessment period, the assessment date begins the 10-year collection period. [Code Sec. 6502].
IRS Publishes Reporting Format Requirements for 2013 Information Returns: In Rev. Proc. 2014-27, the IRS sets forth the 2013 requirements for using official IRS forms to file information returns with the IRS, preparing acceptable substitutes of the official IRS forms to file information returns with the IRS, and using official or acceptable substitute forms to furnish information to recipients.
Tax-Exempt Organizations
Streamlined Procedures for Applying for Tax-Exempt Status: In Rev. Proc. 2014-40 (7/1/14), the IRS sets forth procedures for applying for tax-exempt status under Code Sec. 501(c)(3) using a newly issued form, Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3). Rev. Proc. 2014-40 may be used by, and Form 1023-EZ is generally available for, certain U.S. organizations with assets of $250,000 or less and annual gross receipts of $50,000 or less. [Code Sec. 501].
Tax Practice
IRS Unveils Voluntary Return Preparer Education Program:
In Rev. Proc. 2014-42 (6/30/14) the IRS announced a new, voluntary Annual Filing Season Program, designed to encourage tax return preparers who are not attorneys, certified public accountants (CPAs), or enrolled agents to complete continuing education courses for the purpose of increasing their knowledge of the law relevant to federal tax returns. Read more...
JUNE 2014
Bankruptcy
Court Denies Request for Refund to Become Property of Bankruptcy Estate: In In re Pugh, 2014 PTC 257 (Bankr. E.D. Wisc. 5/27/14), a bankruptcy court denied a debtor's request to have a tax refund, which was acquired after the beginning of her bankruptcy case, become property of the bankruptcy estate rather than go towards offsetting an amount due to the IRS that arose subsequent to the tax refund. A bankruptcy plan, the court said, cannot force payment of a refund to the debtor while taxes are unpaid.
Credits
IRS Issues Inflation Adjustment Factors for Certain Energy-Related Credits: In Notice 2014-36, the IRS published the inflation adjustment factors and reference prices for calendar year 2014 for the renewable electricity production credit, the refined coal production credit, and the Indian coal production credit. The inflation adjustment factor for calendar year 2014 for qualified energy resources and refined coal is 1.5088. The inflation adjustment factor for Indian coal is 1.1587. The reference price for calendar year 2014 for facilities producing electricity from wind is 4.85 cents per kilowatt hour. The reference prices for fuel used as feedstock within the meaning of Code Sec. 45(c)(7)(A), relating to refined coal production are $31.90 per ton for calendar year 2002 and $56.88 per ton for calendar year 2014. The reference prices for facilities producing electricity from closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic energy have not been determined for calendar year 2014. [Code Sec. 45].
Compensation
Stock Rights Granted to Service Provider Exempt from Section 457A: In Rev. Rul. 2014-18 (6/10/14), the IRS was asked whether a nonstatutory stock option or a stock-settled stock appreciation right with respect to common stock of a nonqualified entity was a nonqualified deferred compensation plan subject to tax under Code Sec. 457A. The service recipient in the ruling was a foreign corporation and a nonqualified entity for purposes of Code Sec. 457A(b). The service provider was a limited liability company organized under state law and treated as a partnership for U.S. income tax purposes. Applying the principles of Code Sec. 457A and Code Sec. 409A, the IRS ruled that neither stock right was a nonqualified deferred compensation plan for purposes of Code Sec. 457A(a) because each was either a nonstatutory stock option that met the requirements of Reg. Sec. 1.409A-1(b)(5)(i)(A) or a stock appreciation right that met the requirements of Reg. Sec. 1.409A-1(b)(5)(i)(B). Thus, the IRS concluded, the stock rights granted to the service provider were exempt from Code Sec. 457A. [Code Sec. 457A].
Deductions
Amount Paid by Lessee to Buy Unexpired Lease Is a Business Expense: In ABC Beverage Corp. v. U.S., 2014 PTC 287 (6th Cir. 6/13/14), the Sixth Circuit affirmed a district court and held that a lessee who buys the property it is leasing from the lessor for a price greater than the value of the property can immediately deduct as a business expense the portion of the purchase price it paid to buy the unexpired lease. [Code Sec. 162].
TMP's Request for Summary Judgment Denied: In Reri Holdings I, LLC v. Comm'r, T.C. Memo. 2014-99 (5/22/14), the Tax Court denied a tax matters partner's request for summary judgment on the basis that, as a matter of law, the doctrines of "sham" and "lack of economic substance" did not apply in determining whether a taxpayer's charitable contribution is allowable. The court concluded that a trial was necessary to determine whether a partnership was organized solely for tax avoidance purposes and lacked economic substance. [Code Sec. 170].
Lawyer Not Entitled to Deduct Costs Based on Receipts Alone: In Canatella v. Comm'r, T.C. Memo. 2014-102 (5/28/14), the Tax Court rejected the taxpayer's assertion that he is entitled to deduct under Code Sec. 162 any expense for which he has a cancelled check or credit card receipt. As a result, the taxpayer, who is a lawyer, could not deduct over $300,000 in Schedule C expenses because he could not establish that the expenses were ordinary and necessary expenses paid or incurred in carrying on his law practice. [Code Sec. 162].
Employment Taxes
VP Can't Evade Responsible Person Penalty: In Moser v. U.S., 2014 PTC 252 (E.D. Ark. 5/27/14), a district court held that the vice-president of a construction company was a responsible person who acted willfully in failing to pay over trust fund taxes for the second and third quarters of 2009. The court concluded that, when cash flow problems arose as a result of the financial crisis in 2008, the company chose to pay its subcontractors to keep its projects moving forward rather than paying its payroll taxes. Although the taxpayer submitted several affidavits from employees stating that he did not have significant decision-making authority over the company's tax matters, the court observed that the evidence proved he in fact made the decision to divert funds that had been set aside to pay trust fund taxes. [Code Sec. 6672].
Estates, Gifts and Trusts
Inadequate Disclosure on Gift Returns Keeps Statute Running: In Est. of Hicks Sanders v. Comm'r, T.C. Memo. 2014-100 (5/27/14), the Tax Court held that an estate failed to show that statements the decedent attached to previously filed gift tax returns adequately disclosed the nature of stock of a closely held company gifted to relatives or the basis of the value reported so as to trigger the running of statute of limitations. [Code Sec. 6501].
Foreign
Permanent U.S. Resident Waived Right to Use Section 893 to Avoid Tax on Wages: In Abrahamsen v. Comm'r, 142 T.C. No. 22 (6/9/14), the Tax Court held that Code Sec. 893, which provides that certain compensation for official services to a foreign government or international organization are excludible from gross income and exempt from income tax, did not apply to wages the taxpayer received from Finland's Permanent Mission to the United Nations because she had previously executed a valid waiver of rights, privileges, exemptions, and immunities when she became a permanent U.S. resident. In addition, the court held that neither the U.S.-Finland tax treaty, the Vienna Convention on Diplomatic Relations, the Vienna Convention on Consular Relations, nor the International Organizations Immunities Act provides an income tax exemption to permanent U.S. residents working in nondiplomatic positions for international organizations. [Code Sec. 893].
IRS Issues Final Regs on Form 5472: In T.D. 9667 (6/6/14), the IRS issued final regulations on Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. The final regulations affect certain 25-percent foreign-owned domestic corporations and certain foreign corporations that are engaged in a trade or business in the United States that are required to file Form 5472. Contemporaneously, the IRS issued new proposed regulations that would remove a current provision for timely filing of Form 5472 separately from an income tax return that is untimely filed. As a result, the proposed regulations would require Form 5472 to be filed in all cases only with the filer's income tax return for the tax year by the due date (including extensions) of that return. [Code Sec. 6038A].
Proposed Regs Address Form 5472 Filing Requirement: In REG-114942-14 (6/6/14), the IRS issued proposed regulations on the manner of filing Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. The proposed regulations would remove a current provision for timely filing of Form 5472 separately from an income tax return that is untimely filed. As a result, Form 5472 would be required to be filed in all cases only with the filer's income tax return for the tax year by the due date (including extensions) of that return. The proposed regulations affect certain 25-percent foreign-owned domestic corporations and certain foreign corporations that are engaged in a trade or business in the United States that are required to file Form 5472. [Code Sec. 6038A].
No Foreign Tax Credit Allowed for Taxes Paid to European Union: In CCA 201423022 (6/6/14), the Chief Counsel's Office advised that because neither the European Union nor an international organization is considered a foreign country, a taxpayer cannot claim a foreign tax credit or an itemized deduction for taxes on wages paid to such organizations. Creditable and deductible income taxes, the Chief Counsel's Office noted, are limited to those paid to a foreign country. [Code Sec. 901].
Gross Income
IRS Rules on Tax Treatment of Mass. Senior Circuit Breaker Credit: In CCM 201423020 (6/6/14), the Office of Chief Counsel addressed the proper federal income tax treatment of the Massachusetts Senior Circuit Breaker Credit. According to the Chief Counsel's Office, the amount of the credit that reduces a potential state income tax liability as part of computing how much state tax is due is not includible in federal gross income and is not deductible for federal tax purposes. [Code Sec. 61].
IRS Updates Guidance on Indian Per Capita Payments: In Notice 2014-38, the IRS provides an updated Appendix to Notice 2013-1, which provides guidance on the federal tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes. Additional tribes have settled tribal trust cases against the United States since publication of the original guidance and Notice 2014-38 reflects the additional settlement agreements. [Code Sec. 61].
New Procedure Addresses General Welfare Exclusion for Indian Tribal Benefits: In Rev. Proc. 2014-35, the IRS describes common principles for the general welfare exclusion and provides safe harbors under which the IRS presumes that the individual need requirement of the general welfare exclusion is met for certain benefits provided under Indian tribal governmental programs and will not assert that benefits provided under specified programs represent compensation for services.
Penalties
FMV of Cash Surrender Value of Insurance Policy Was a Reportable Transaction: In CCA 201423025 (6/6/14), the Office of Chief Counsel advised that the fair market value of the taxpayer's cash value life insurance policy was part of a reportable transaction understatement, and therefore the Code Sec. 6662A penalty should be applied against the amount that's included in income. The Chief Counsel's Office said it was appropriate to conclude that the omitted income was attributable to a transaction listed in Notice 2007-83. [Code Sec. 6662A].
Procedure
Tax Court Decision Is Final Unless There Is Fraud or Jurisdictional Issues: In Snow v. Comm'r, 142 T.C. No. 23 (6/17/14), the Tax Court held that, as a general rule, the finality of a Tax Court decision is absolute. The recognized exceptions, the Tax Court stated, are when there has been a fraud on the court or when the decision was void because the court did not have jurisdiction to enter the decision. In the instant case, the court concluded that there was no fraud on the court and the court clearly had jurisdiction to decide whether it had jurisdiction to redetermine the taxpayers' deficiencies. As a result, the Tax Court denied the taxpayers' motions to vacate orders of dismissal that became final in 1997. [Code Sec. 7481].
IRS Abused Discretion in Denying Collection Alternatives: In Uribe v. Comm'r, T.C. Memo. 2014-116 (6/11/14), the Tax Court held that, while the IRS did not abuse its discretion in denying the withdrawal of a lien on the taxpayer's property, it did abuse its discretion in denying collection alternatives.
IRS Announces Interest Rates for Third Quarter of 2014: In Rev. Rul. 2014-14, the IRS announced that interest rates on tax overpayments and underpayments will remain the same for the calendar quarter beginning July 1, 2014. The rates will be 3 percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, 5 percent for large corporate underpayments, and .5 percent for the portion of a corporate overpayment exceeding $10,000. [Code Sec. 6621].
Tax Accounting
Taxpayer Is Not a Dealer in Securities by Virtue of Interest in Partnership:In CCM 201423019 (6/6/14), the Office of Chief Counsel advised that a taxpayer was not a dealer in securities because of its interest in a partnership. Although the partnership was a dealer in securities, and a flow-through entity, it was not a disregarded entity. So the ordinary character of the marked securities flowed through to the taxpayer, but the dealer activities of the partnership were not attributable to and did not flow through to the taxpayer. [Code Sec. 475].
Tax Credits
IRS Clarifies Effect of Sequestration on Section 1603 Awards: In Notice 2014-39, the IRS clarified the tax effect of sequestration as it relates to a grant awarded under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009 (ARRTA). The Code provides certain incentives for renewable energy generation, including a production tax credit under Code Sec. 45 (PTC) and an investment tax credit under Code Sec. 48 (ITC). ARRTA modified Code Sec. 48 to allow taxpayers to claim an ITC in lieu of a PTC with respect to certain property. ARRTA also created a new grant program (Section 1603 Program) allowing applicants to elect to receive a cash grant from the Treasury Department in lieu of tax credits. This notice applies to Section 1603 awards issued on or after March 1, 2013, which is the beginning date of the sequestration, and Section 1603 payments made pursuant to those awards. [Code Sec. 45].
Inflation Adjustment Factor for Section 45Q Credit Published: In Notice 2014-40, the IRS published the inflation adjustment factor for the credit for carbon dioxide (CO2) sequestration under Code Sec. 45Q for calendar year 2014. [Code Sec. 45Q].
Tax Practice
Evidence Did Not Support Penalties Assessed on Return Preparer: In Carlson v. U.S., 2014 PTC 286 (11th Cir. 6/13/14), the Eleventh Circuit held that there was insufficient evidence to support a jury's verdict that a tax return preparer was liable for $148,000 in penalties assessed by the IRS for aiding and abetting the understatement of tax liability in violation of Code Sec. 6701. The court concluded that, under Code Sec. 6701, the IRS must prove its case by clear and convincing evidence, rather than a preponderance of evidence, because Code Sec. 6701 requires the IRS to prove fraud. The IRS, the court stated, did not meet its burden of proving that the taxpayer actually knew the returns she prepared understated the correct tax. [Code Sec. 6701].
Documents Not Protected by Tax Practitioner Privilege or Other Privileges: In Schaeffler v. U.S. 2014 PTC 253 (S.D. N.Y. 5/28/14), a district court held that any attorney-client or tax practitioner privilege that attached to the taxpayer's documents was waived when the taxpayer shared them with the group of banks that were helping to finance the taxpayer's acquisition of another company. The court also held that an Ernst & Young tax memo, as well as the related responsive documents, would have been produced in the same form irrespective of any concern about litigation. Accordingly, the court held, these documents were not protected from disclosure under the work product doctrine. [Code Sec. 7525].
MAY 2014
Bankruptcy
Taxpayer's Tax Debt Discharged Where IRS Missed Window to Assess: In In re Taylor, 2014 PTC 229 (E.D. Tenn. 5/12/14), a district court held that, because the IRS assessed a debtor's 2008 taxes on a date that was beyond the 240-day window established by Bankruptcy Code Section 507(a)(8)(A)(ii), those taxes were dischargeable.
Capital Gains and Losses
Deficiencies Upheld after Taxpayer Fails to Present Evidence of Cost Basis: In Hoang v. U.S., 2014 PTC 216 (11th Cir. 5/2/14), the Eleventh Circuit affirmed the Tax Court and held that because the taxpayer never presented evidence of a cost basis for securities he sold, notwithstanding the Tax Court's repeated warnings that he must do so, the Tax Court correctly upheld the IRS's assessments of tax deficiencies and penalties of over $5 million and $1.3 million, respectively. [Code Sec. 1221].
C Corporations
IRS Issues Proposed Regs on Definition of an Acquiring Corporation: In REG-131239-13 (5/7/14), the IRS issued proposed regulations under Code Sec. 381 that modify the definition of an acquiring corporation with regard to certain acquisitions of assets. The proposed regulations affect corporations that acquire the assets of other corporations in corporate reorganizations. [Code Sec. 381].
Credits
Intent to Live Elsewhere Was Irrelevant in Determining Eligibility for FTHBC: In Goralski v. Comm'r, T.C. Memo. 2014-87 (5/15/14), the Tax Court held that a taxpayer was not entitled to the first-time home buyer credit. After his mother died, the taxpayer and his sister inherited her home and the taxpayer lived and slept there during the relevant period. The taxpayer had argued that he had not intended to remain there and moved in only to help his sister with her grief over the death of their mother. According to the court, it was irrelevant how little time the taxpayer spent at the home or whether he intended to live elsewhere. The fact was he lived there, did not maintain any other home during the relevant period, and had an ownership interest in the home. Thus, the court concluded, it was his principal, residence. [Code Sec. 36].
Deductions
Couple Can't Deduct Home Improvement Expenses as Trade or Business Expenses: In Ohana v. Comm'r, T.C. Memo. 2014-83 (5/8/14), the Tax Court held that a couple could not deduct their home improvement expenses relating to two properties they owned under the guise of being trade or business expenses of a real estate development business. The court concluded that, while the couple rented the properties out, their activities did not amount to a trade or business. The court agreed with the IRS that the only activity engaged in by the taxpayers was that of home improvement and cited the fact that the home had personalized touches, like a front door peephole low enough for the five-foot-four husband to reach it, that made the home a bit less marketable for sale and a bit more useful for the taxpayers to use. [Code Sec. 162].
Donated Property's Value Was Higher Than IRS Valuation: In Palmer Ranch Holdings Ltd. v. Comm'r, T.C. Memo. 2014-79 (5/6/14), the Tax Court evaluated the reasonable probability of a donated property's successful rezoning and held that, because it was reasonably probable that the property could be rezoned, the highest and best use of the donated property was development for multifamily dwellings. The court thus rejected a lower valuation assigned to the property by the IRS for purposes of the taxpayer's charitable contribution deduction. The court also rejected the IRS assessment of an accuracy-related penalty on the taxpayer. [Code Sec. 170].
IRS Rules on Proper Depreciation Class for Property Used in Converting Corn to Fuel: In Rev. Rul. 2014-17 (5/20/14), the IRS ruled that the proper asset class under Rev. Proc. 87-56 for depreciation of tangible assets used in converting corn to fuel grade ethanol is asset class 49.5. [Code Sec. 167].
No Reduction in Self-Employment Income for NOL Carryovers: In DeCrescenzo v. Comm'r, 2014 PTC 211 (2d Cir. 4/30/14), the Second Circuit affirmed the Tax Court and held that a self-employed accountant could not deduct net operating loss carryovers in calculating his self-employment income. The court also held that the notices of deficiency mailed to the taxpayer, relating to tax returns not filed in 2005 or 2006 were timely and contained sufficiently particularized determinations of the taxes he owed. Finally, the Second Circuit concluded that the Tax Court properly imposed a failure-to-pay penalty. [Code Sec. 1402].
Value of Conservation Easement Not as Low as IRS Determined: In Palmer Ranch Holdings Ltd. v. Comm'r, T.C. Memo. 2014-79 (5/6/14), the Tax Court held that, while the taxpayer overstated the fair market value of its conservation easement donation, the correct fair market value was not as low as the IRS determined. The court also concluded that the taxpayer was not liable for an accuracy-related penalty. [Code Sec. 170].
Disaster Relief
Tax Relief Available for Victims Affected by Storms in Alabama, Arkansas, and Mississippi: In AL/TN-2014-20AL (5/5/14), TX-AR-2014-29 (5/5/14), GA-MS-2014-47 (5/2/14), the IRS declared that victims of the severe storms, tornadoes, straight-line winds and flooding that took place on April 27 (Arkansas) and April 28, 2014 (Alabama and Mississippi) in parts of Alabama, Arkansas, and Mississippi may qualify for tax relief. The declaration allows the IRS to postpone certain deadlines for taxpayers who live or have a business in the disaster areas. For instance, certain deadlines falling on or after April 27 or April 28, and on or before October 15, have been postponed to October 15, 2014. This includes the May 15 deadline for many tax-exempt organizations to file their annual Form 990. It also includes the June 16 and September 15 deadlines for making quarterly estimated tax payments. A variety of business tax deadlines are also affected, including the April 30 and July 31 deadlines for quarterly payroll and excise tax returns. In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after April 27 or April 28, and on or before May 13, as long as the deposits are made by May 13, 2014. [Code Sec. 7508A].
Foreign
IRS Publishes Names of Expats: In a Treasury Department Notice (5/2/14), for the quarter ending March 31, 2014, the IRS published the names of individuals who have chosen to expatriate and thus have lost U.S. citizenship within the meaning of Code Sec. 877(a) or Code Sec. 877A. [Code Sec. 6039G].
IRS to Issue Regs on Foreign Triangular Reorgs: In Notice 2014-32 (4/25/14), the IRS announced that it will issue regulations under Code Sec. 367 relating to the treatment of property used to acquire parent stock or securities in certain triangular reorganizations involving one or more foreign corporations. [Code Sec. 367].
IRS Issues Guidance on Government Bonds and PFICs: In Notice 2014-31 (4/24/14), the IRS extends the application of Notice 2012-45, which provides guidance regarding the treatment of certain government bonds for purposes of determining whether a foreign corporation is a passive foreign investment company (PFIC) under Code Sec. 1297, to tax years of foreign corporations beginning in 2014, 2015, and 2016. [Code Sec. 1291].
Healthcare
Final Regs Address Reporting Requirements for Health Exchanges: In T.D. 9663 (5/7/14), the IRS issued final regulations on the requirements for Affordable Insurance Exchanges (Exchanges) to report information relating to the health insurance premium tax credit enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. These final regulations apply to Exchanges that make qualified health plans available to individuals. [Code Sec. 36B].
Insurance Companies
Entity Qualifies as an Insurance Company for Tax Purposes: In Rev. Rul. 2014-15 (5/8/14), the IRS ruled that because more than half of the business done by an entity that is regulated as an insurance company under state law constitutes insurance, the entity qualifies as an insurance company under Subchapter L for the tax year. [Code Sec. 801].
IRS
IRS Accepting Applications for IRS Advisory Council: In IR-2014-59 (5/1/14), the IRS announced it is accepting applications for the Internal Revenue Service Advisory Council (IRSAC). Applications will be accepted through June 13, 2014. IRSAC's purpose is to provide an organized public forum for IRS officials and representatives of the public to discuss relevant federal tax administration issues. IRSAC members submit a report to the IRS Commissioner annually at a public meeting in the fall. IRSAC is comprised of up to 35 members, who are appointed to three-year terms by the Commissioner. Applications are currently being accepted for approximately seven appointments that will begin in January 2015.
Original Issue Discount
June 2014 AFRs Issued: In Rev. Rul. 2014-16 (5/20/14), the IRS issued the applicable federal rates for June 2014. [Code Sec. 1274].
Partnerships
IRS Addresses Interaction of Statute of Limitation Rules on Partnerships: In CCA 201420018 (5/16/14), the Office of Chief Counsel addressed the interplay of the statute of limitations rules of Code Sec. 6501 and Code Sec. 6229 on TEFRA partnerships. According to the Chief Counsel's Office, Code Sec. 6229 operates only to extend a partner's statute of limitations period; it does not shorten the partners' otherwise applicable statute of limitations period for assessment. [Code Sec. 6229].
Penalties
Seventh Circuit Affirms Sentences in Tax-Fraud Conspiracy: In U.S. v. Vallone, 2014 PTC 235 (7th Cir. 5/16/14), on remand from the Supreme Court, the Seventh Circuit concluded that sentences handed down to defendants convicted of engaging in a sophisticated tax-fraud conspiracy did not violate the U.S. Constitution where the sentencing guidelines changed between the date the crimes were committed and the date the defendants were sentenced. [Code Sec. 7201].
IRS Grants Penalty Relief for Late Filing of Forms 5500: In Notice 2014-35 (5/9/14), the IRS announced administrative relief from certain penalties for a failure to timely comply with annual reporting requirements relating to Forms 5500 and annual registration statements. The administrative relief applies to late filers that satisfy the requirements of Notice 2014-35 and the Delinquent Filer Voluntary Compliance (DFVC) Program administered by the Department of Labor Employee Benefits Security Administration. The relief in Notice 2014-35 supersedes the relief previously granted in Notice 2002-23. [Code Sec. 6652].
IRS Establishes Pilot Program Relating to Certain Qualified Plans: In Rev. Proc. 2014-32 (5/9/14), the IRS announced the establishment of a temporary one-year pilot program providing administrative relief to plan administrators and plan sponsors of certain retirement plans from the penalties otherwise applicable under Code Sec. 6652(e) and Code Sec. 6692 for a failure to timely comply with the annual reporting requirements imposed under Code Secs. 6047(e), 6058, and 6059. The administrative relief provided under Rev. Proc. 2014-32 applies only to plan administrators and plan sponsors of retirement plans that are subject to the reporting requirements of Code Secs. 6047(e), 6058, and 6059, but that are not subject to the reporting requirements of Title I of the Employee Retirement Income Security Act of 1974. [Code Sec. 6652].
Fifth Circuit Questions Whether Nonpayment of Taxes Is a Deportable Offense: In Corral-Trevizo v Holder, 2014 PTC 234 (5th Cir. 5/14/14), the Fifth Circuit vacated a decision by the Board of Immigration Appeals dismissing an appeal by an illegal immigrant of a decision by an immigration judge (IJ) ordering him deported under 8 U.S.C. Section 1227(a)(2)(A)(iii). The IJ had determined that the nonpayment of taxes by the immigrant constituted an aggravated felony, which is a deportable offense. The Fifth Circuit found that there was some question as to whether the immigrant really committed an aggravated felony as defined under 8 U.S.C. Section 1101(a)(43)(M). [Code Sec. 7202].
In Flake v. Comm'r T.C. Memo. 2014-76 (5/5/14), the Tax Court denied the taxpayers' business mileage deductions because they failed to satisfy the strict substantiation requirements of Code Sec. 274(d). However, the Tax Court rejected the IRS's imposition of a 75 percent fraud penalty on the tax underpayment, finding that (1) the taxpayers testified credibly that although their business records were unorganized, they had made a good-faith effort in keeping them in compliance with the tax laws; and (2) the wife's recent active role in her husband's business and the inadequacy of her recordkeeping skills was attributable to her inexperience at this task and her competing duties as a mother to numerous children rather than any fraudulent intent. The court also rejected the IRS's argument that, because the couple had $177,000 in cash reserves that they kept in a box at home, this indicated fraudulent intent [Code Sec. 6673].
Procedure
Taxpayer Can't Recover Costs Where Conflicts with IRS Agent Delayed Resolution: In Carpentier v. Comm'r, T.C. Memo. 2014-75 (4/29/14), the Tax Court held that a taxpayer was not entitled to recover litigation costs relating to a favorable determination that the taxpayer was entitled to interest abatement on a tax deficiency where conflicts between the taxpayers and the agent auditing the returns delayed the settlement of the audit. [Code Sec. 7430].
Retirement Planning
IRS Issues Guidance on Certain Plan Amendments Relating to Windsor Decision: In Notice 2014-37 (5/15/14), the IRS provides guidance on mid-year amendments to certain safe harbor qualified plans to reflect the outcome of U.S. v. Windsor, 2013 PTC 167 (S. Ct. 2013). The notice supplements Notice 2014-19, which provides guidance on the application (including the retroactive application) of the Windsor decision and the holdings of Rev. Rul. 2013-17 to retirement plans qualified under Code Sec. 401(a). The notice provides that a plan will not fail to satisfy the requirements to be a Code Sec. 401(k) or (m) safe harbor plan merely because the plan sponsor adopts a mid-year amendment pursuant to Notice 2014-19. [Code Sec. 401].
Final Regs Clarify Rules on Retirement Plan Payments for Health Insurance: In T.D. 9665 (5/12/14), the IRS issued final regulations clarifying the rules regarding the tax treatment of payments by qualified retirement plans for accident or health insurance. The final regulations set forth the general rule under Code Sec. 402(a) that amounts held in a qualified plan that are used to pay accident or health insurance premiums are taxable distributions unless specifically excluded. The final regulations do not extend this result to arrangements under which amounts are used to pay premiums for disability insurance that replaces retirement plan contributions in the event of a participant's disability. [Code Sec. 402].
Taxpayer Must Include Distribution from Ex-husband's 401(k) in Income: In Weaver-Adams v. Comm'r, T.C. Memo. 2014-73 (4/28/14), the Tax Court held that the taxpayer had to include in income a distribution received from her ex-husband's 401(k) plan pursuant to a qualified domestic relations order. The court rejected the taxpayer's argument that she was not required to include the distribution in her gross income because her ex-husband was indebted to her, paid her from the 401(k) plan to satisfy the debt, and the debt gave her basis in the amount distributed. The court agreed with the IRS that, because a participant in a 401(k) plan has no tax basis in the account since the contributions are made pre-tax, the taxpayer could not have basis in the 401(k) plan distribution as a transferee and distributee. [Code Sec. 402].
Tax Practice
Former Lawyer/CPA Disbarred from Practice before the IRS: In IR-2014-58 (5/1/14), the IRS announced that a former CPA and former attorney in Massachusetts was disbarred because his CPA license had been revoked and he falsely claimed to be a CPA on power of attorney forms submitted to the IRS.
Tax-Exempt Organizations
IRS Issues Caution as May 15 Form 990 Filing Deadline Approaches: In IR-2014-57 (4/29/14), the IRS cautioned that, as the May 15 filing deadline for many tax-exempt organizations to file Form 990 approaches, such organizations should not to include social security numbers or other unneeded personal information on their Form 990. [Code Sec. 501].
APRIL 2014
Alimony
Contingent Spousal Maintenance Payments Were Not Alimony: In Johnson v. Comm'r, T.C. Memo. 2014-67 (4/14/14), the Tax Court held that because the "spousal maintenance" payments being made by the taxpayer to his former spouse will terminate based on a child-related contingency (i.e., when his youngest child graduates from high school), the taxpayer is not entitled to deduct the payments as alimony. [Code Sec. 215].
Backup Withholding
Proposed Regs Would Remove Provisions Relating to QPCA Program: In REG-163195-05 (3/24/14), the IRS issued proposed regulations that would remove deadwood provisions relating to information reporting and backup withholding for the now obsolete qualified payment card agent (QPCA) program. REG-163195-05 also withdraws proposed regulations relating to the QPCA program. [Code Sec. 3406].
Employment Taxes
CEO and CFO Were Liable for Unpaid Employment Taxes:In Schiffmann v. U.S., 2014 PTC 185 (D.C. R.I. 4/9/14), a district court held that, because a company's chief executive officer and the chief financial officer continued to pay creditors rather than pay the company's employment tax liability, they were "responsible persons" who acted willfully in failing to pay over the company's employment taxes, and were thus personally liable for the company's unpaid employment taxes. [Code Sec. 6672].
Court Finds That Former Company President Was a Responsible Person: In Bradbury v. U.S., 2014 PTC 148 (E.D. Ark. 3/24/14), a district court held that the president of a failing company was a "responsible person" who acted willfully in failing to pay over the company's employment taxes, and was thus personally liable for the company's unpaid employment taxes. [Code Sec. 6672].
Estates, Trusts, and Gifts
Decedent's Estate and Co-Executors Liable for Unpaid Employment and Income Taxes: In Est. of Powell v. U.S., 2014 PTC 196 (M.D. Ga. 4/18/14), a district court entered a default judgment against a decedent's estate, and the co-executors administering the estate, for unpaid employment and income tax liabilities of the decedent, as well as interest and penalties accruing on those amounts. [Code Sec. 6621].
Exclusions
IRS Updates List of Indian Tribal Trust Case Settlements: In Notice 2014-22, the IRS updates the appendix included in Notice 2013-1. Notice 2013-1 provided guidance on the federal tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes. Notice 2013-1 included an appendix listing the tribes that have entered into settlement agreements of tribal trust cases. Additional tribes have settled tribal trust cases against the United States since publication of Notice 2013-1. The updated Appendix in Notice 2014 reflects the additional settlement agreements. [Code Sec. 61].
Foreign
IRS Issues Guidance on U.S. Persons Owning PFIC Stock Through Exempt Orgs: In Notice 2014-28 (4/14/14), the IRS provides guidance on the treatment of U.S. persons that own stock of a passive foreign investment company (PFIC) through certain tax exempt organizations and accounts. [Code Sec. 1291].
IRS Provides 2014 Foreign Housing Adjustments: In Notice 2014-29 (4/14/14), the IRS provided adjustments to the limitation on housing expenses for purposes of Code Sec. 911 for specific locations for 2013. The adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States, While the notice is effective for tax years beginning on or after January 1, 2014, a taxpayer may elect to apply the 2014 adjusted housing limitations contained in the notice to his or her tax year beginning in 2013. [Code Sec. 911].
IRS Provides Guidance on Complying with FATCA: In Announcement 2014-17, the IRS provided foreign financial institutions (FFIs) in jurisdictions that have reached an agreement in substance on the terms of an intergovernmental agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA), with the clarity they need to prepare to comply with FATCA. The announcement also addresses stakeholders' practical concerns by allowing an FFI ten additional days to register in preparation for FATCA implementation on July 1 and still ensure that its Global Intermediary Identification Number (GIIN) will appear on the first public list of GIINs. [Code Sec. 1471].
Fringe Benefits
IRS Issues SIFL Rates for First Half of 2014: In Rev. Rul. 2014-10, the IRS provided the Standard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect for the first half of 2014. The SIFL rates may be used in valuing noncommercial flights on employer-provided aircraft. [Code Sec. 61].
Healthcare Taxes
IRS Provides Safe Harbor Relating to Health Insurance Providers Fee: In Notice 2014-24, the IRS provides a temporary safe harbor for covered entities that report direct premiums written for expatriate plans on a Supplemental Health Care Exhibit (SHCE). A covered entity may apply this temporary safe harbor for purposes of reporting direct premiums written on Form 8963, Report of Health Insurance Provider Information, which is used to calculate the annual fee on covered entities engaged in the business of providing health insurance for U.S. health risks.
Net Investment Income Tax
IRS Issues Corrections to NIIT Regs: In Announcement 2014-18 (4/21/14), the IRS issued minor corrections to final regulations (T.D. 9644) on the net investment income tax. [Code Sec. 1411].
Procedure
Tax Liens: In Bedrock Financial Corporation v. U.S., 2014 PTC 193 (E.D. Ca. 4/17/14), a district court held that where a title company also acted as the escrow agent at the closing of a refinance loan, the company's failure to disburse loan funds to satisfy a tax lien in the course of the closing constituted conversion or waste of the property secured by the tax lien. [Code Sec. 6321].
CDP Hearing Was Improper Because of IRS Officer's Prior Involvement in OIC: In Moosally v. Comm'r, 142 T.C. No. 10 (3/27/14), an IRS settlement officer's review of a taxpayer's rejected offer in compromise for her unpaid tax liabilities for certain tax periods constituted "prior involvement" with those tax liabilities for those periods. Thus, the settlement officer was not an impartial officer, and the IRS did not fulfill its statutory duty to provide the taxpayer with a "fair" collection due process hearing. [Code Sec. 6320].
IRS Acted Within Its Authority by Setting Off Deficiencies Against Refunds: In El Paso CGP Co., L.L.C v. U.S., 2014 PTC 142 (5th Cir. 2014), the Fifth Circuit held that the variance doctrine did not bar a taxpayer's refund suit when the only variance between the suit and the taxpayer's claim before the IRS arose from alleged IRS failures to follow proper procedures of which the taxpayer was unaware when those failures occurred. However, the court held that the IRS acted within its authority by setting off deficiencies against refunds that were owed to the taxpayer. [Code Sec. 1314].
Retirement Plans
IRS Grants 60-Day IRA Rollover Waiver Based on Claim of Spousal Abuse: In PLR 201415014 (4/11/14), the IRS granted a taxpayer a waiver of the 60-day IRA rollover period where the taxpayer claimed that her failure to meet the 60-day deadline was due to the actions of her spouse, which prevented her from managing her financial affairs. The taxpayer claimed that she lived in fear of her spouse's abusive treatment, that her spouse forced her to sign a distribution request form for the IRA, and that she was afraid to question his actions. [Code Sec. 408].
IRS Will Issue Opinion and Advisory Letters for Pre-approved Plans: In Announcement 2014-16, the IRS stated that on March 31, 2014, or as soon as possible thereafter, it will issue opinion and advisory letters for pre-approved (i.e., master and prototype and volume submitter) defined contribution plans that were restated for changes in plan qualification requirements listed in Notice 2010-90 and that were filed with the IRS during their second submission period under the remedial amendment cycle under Rev. Proc. 2007-44. Employers using these pre-approved plan documents to restate a plan for the plan qualification requirements will be required to adopt the plan document by April 30, 2016. From May 1, 2014, through April 30, 2016, the IRS will accept applications for individual determination letters from employers under the second six-year remedial amendment cycle for defined contribution pre-approved plans. [Code Sec. 401].
IRS Provides Simplified Safe Harbor Procedures for Rollover Contributions: In Rev. Rul. 2014-9, the IRS provides simplified safe harbor due diligence procedures a plan administrator may use in order to be deemed to have reasonably concluded that an amount was a valid rollover contribution. The revenue ruling provides two new streamlined safe harbor due diligence procedures that, in the absence of evidence to the contrary, will give rise to the presumption that the administrator of the receiving plan reasonably concluded that a rollover was valid. [Code Sec. 401].
IRS Modifies Procedures for Issuing Letters for Pre-Approved 403(b) Plans: In Rev. Proc. 2014-28, the IRS modified Rev. Proc. 2013-22, which sets forth the IRS's procedures for issuing opinion and advisory letters for Code Sec. 403(b) pre-approved plans (that is, 403(b) prototype plans and 403(b) volume submitter plans). [Code Sec. 403].
Tax Credits
First-Time Home Buyer Credit Denied: In Moreland v. Comm'r, 2014 PTC 193 (N.D. Ala. 4/17/2014), a district court held that a married couple was not entitled to a first-time home buyer credit for 2009 because, despite the use of a property swap with an unrelated third party to make it appear that they qualified for the credit, in substance, they acquired the home from a related person (their parents). [Code Sec. 36].
IRS Publishes 2013 Nonconventional Fuels Credit Adjustment Factor: In Notice 2014-25 (4/21/14), the IRS published the inflation adjustment factor, nonconventional source fuel credit, and reference price for calendar year 2013 as required by Code Sec. 45K. [Code Sec. 45K].
IRS Publishes 2014 Renewable Electricity Production Credit Adjustment Factors: The IRS has published in the Federal Register (79 Fed. Reg. 21,514 (4/16/14)) the inflation adjustment factors and reference prices for calendar year 2014 as required by Code Sec. 45. [Code Sec. 45]
Transfer Pricing
IRS Transfer Pricing Allocation Was Based on Flawed Analysis: In In re DeCoro USA, Ltd., 2014 PTC 141 (Bankr. M.D. N.C. 3/18/14), a bankruptcy court held that the debtor had shown by a preponderance of the evidence that the IRS's allocation of income under the Code Sec. 482 transfer pricing rules was based on a flawed analysis that did not comply with the IRS's own regulations and was thus unreasonable. As a result, the burden shifted to the IRS to show that its allocation and claim for additional taxes were correct, which the IRS failed to do. [Code Sec. 482].
MARCH 2014
Bankruptcy
Court Rejects IRS Appeal of Holding That It Violated Bankruptcy Discharge Injunction: In Murphy v. IRS, 2014 PTC 115 (D. Me. 3/4/14), a district court rejected an IRS appeal of the bankruptcy court on a petition under Code Sec. 7433(e). The bankruptcy court had granted partial summary judgment against the IRS, concluding that the IRS had committed a willful violation of the bankruptcy court's discharge injunction contrary to Code Sec. 7433(e). [Code Sec. 7433].
Deductions
Depreciation Expenses Includible in Calculating Qualified Settlement Fund Income: In CCA 201411027, the Office of Chief Counsel advised that, with respect to a prior ruling in CCA 201347019, depreciation expenses relating to commercial real estate properties held by a receivership were necessary expenses incidental to the purposes of the receivership namely, the administration, preservation, and realization of the assets the receiver was ordered to take control of for the benefit of defrauded investors and the distribution of the net recovered amounts to those investors. Thus, the Chief Counsel's Office stated, the depreciation expenses at issue were an administrative cost or other incidental expense that was deductible in calculating the modified gross income of a qualified settlement fund under Reg. Sec. 1.468B-2(b)(2). [Code Sec. 468B].
No Dependency Deduction for Student Who Financed Her Education: In Burse v. Comm'r, T.C. Summary 2014-21 (3/10/14), the Tax Court held that the taxpayer could not take a dependency exemption for his wife's daughter, who was a college student. Because the student financed her education with student loans, the proceeds of those loans counted as support she provided for herself and, thus, the taxpayer did not contribute over half of the student's support. [Code Sec. 152].
IRS Bars Appraisers from Valuing Facade Easements for Five Years: In IR-2014-31 (3/19/14), the IRS announced that its Office of Professional Responsibility entered into a settlement agreement with a group of appraisers from the same firm accused of aiding in the understatement of federal tax liabilities by overvaluing facade easements for charitable donation purposes. Under the settlement agreement, the appraisers admitted to violating relevant provisions of Circular 230 related to due diligence and submitting accurate documents to the government. [Code Sec. 170].
Failure to File Joint Return Precludes Use of Spousal Attribution Rule: In Oderio v. Comm'r, T.C. Memo. 2014-39 (3/10/14), the Tax Court held that, while Reg. Sec. 1.469-9(c)(4) and Reg. Sec. 1.469-5T(f)(3) allow for spousal attribution with respect to the material participation requirements of Code Sec. 469(c)(7)(B), they do not allow for spousal attribution for purposes of meeting the other requirements, namely, that a taxpayer perform more than one half of his or her personal services and more than 750 hours in real estate trades or businesses. Because the taxpayer did not file a joint return with her spouse, the court said, she cannot satisfy the material participation requirements through her spouse and must separately satisfy them herself. [Code Sec. 469].
Foreign
Rev. Proc. Addresses Eligibility Rules for Certain Individuals in Foreign Countries: In Rev. Proc. 2014-25, the IRS provides information to any individual who failed to meet the eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in a foreign country precluded the individual from meeting those requirements for tax year 2013. The countries listed in the revenue procedure are Egypt, Lebanon, Pakistan, and Yemen. [Code Sec. 911].
IRS Announces Modification to Prop. Reg. Sec. 1.871-15(e): In Notice 2014-14, the IRS announced its intention to modify Prop. Reg. Sec. 1.871-15(e) to limit specified equity-linked instruments (ELIs) to ELIs issued on or after 90 days after the final regulations are published. [Code Sec. 871].
Health Care
Final Regs Address Information Reporting for Health Care Providers: In T.D. 9660 (3/10/14), the IRS issued final regulations providing guidance to providers of minimum essential health coverage that are subject to the information reporting requirements of Code Sec. 6055. The final regulations affect health insurance issuers and carriers, employers, governments, and other persons that provide minimum essential coverage to individuals. [Code Sec. 6055].
Final Regs Provide Guidance to Employers on Health Care Coverage Reporting: In T.D. 9661 (3/10/14), the IRS issued final regulations providing guidance to employers that are subject to the information reporting requirements under Code Sec. 6056, enacted by the Affordable Care Act (i.e., generally employers with at least 50 full-time employees, including full-time equivalent employees). Code Sec. 6056 requires those employers to report to the IRS information about the health care coverage, if any, they offered to full-time employees, in order to administer the employer shared responsibility provisions of Code Sec. 4980H. [Code Sec. 6056].
Original Issue Discount
April 2014 AFRs Issued: In Rev. Rul. 2014-12, the IRS issued the applicable federal rates for April 2014. [Code Sec. 1274].
Procedure
IRS Can't Foreclose on Taxpayer's Home Where Her Ex-Husband Owed IRS: In Smith v. U.S., 2014 PTC 124 (D. Conn. 3/7/14), a district court looked to the present possessory interest of the taxpayer and her ex-husband, not the past possessory interest, in ruling against the IRS, and for the taxpayer, with respect to a forced sale of property on which the IRS had a lien. The court stated that it hoped to avoid an unfair result because the ex-wife had possession of the property and the lien was the result of the ex-husband's nonpayment of taxes and the court used its limited discretion to avoid ordering a foreclosure to satisfy the lien. [Code Sec. 6323].
Union Not Fined for Turning Over Taxpayer's Retirement Funds to IRS: In Dillender v. Carpenters' Pension Trust Fund of St. Louis, 2014 PTC 125 (M.D. Tenn. 3/7/14), a magistrate judge recommended that a taxpayer's complaint seeking compensatory damages from a carpenter's union for paying a portion of his retirement account to the IRS be dismissed. The judge held that, upon being served with a notice of levy, the union was legally required by Code Sec. 6332(a) to pay over to the IRS retirement funds belonging to the taxpayer. [Code Sec. 6332].
CPA's Conviction for Attempting to Evade Taxes Upheld: In U.S. v. Baisden, 2014 PTC 126 (D. Neb. 3/10/14), a district court denied a CPA's motion to have the court vacate his conviction for willfully attempting to evade and defeat the income tax due for a married couple in the amount of $236,000. [Code Sec. 7201].
IRS Announces Interest Rates for Second Quarter of 2014: In Rev. Rul. 2014-11, the IRS announced that interest rates on tax overpayments and underpayments will remain the same for the calendar quarter beginning April 1, 2014. The rates will be 3 percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, 5 percent for large corporate underpayments, and .5 percent for the portion of a corporate overpayment exceeding $10,000. [Code Sec. 6621].
IRS Revokes Procedure Authorizing DOL Forms in Place of Form 990: In Rev. Proc. 2014-22, the IRS revoked Rev. Proc. 79-6, which provided for the use of certain U.S. Department of Labor forms in place of certain portions of the Form 990, Return of Organization Exempt from Income Tax. According to the IRS, the use of the DOL forms is no longer appropriate. [Code Sec. 6033].
Retirement Planning
IRS Provides Guidance on the Corporate Bond Monthly Yield Curve: In Notice 2014-16, the IRS provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average segment rates under Code Sec. 430(h)(2). [Code Sec. 430].
Failure to Timely Repay Loan to SEP-IRA Results in Additional Income and Penalties: In Alexander v. Comm'r, T.C. Summary 2014-18 (2/26/14), the Tax Court held that the taxpayer failed to report as income a taxable retirement distribution from a simplified employee pension (SEP) individual retirement account (IRA) and was liable for the 10 percent penalty tax on early distributions under Code Sec. 72(t). The taxpayer failed to timely repay a loan to the SEP IRA and, the court concluded, any error that may have been committed by the investment firm that held the SEP IRA was not a bookkeeping error as indicated by the taxpayer. [Code Sec. 408].
No IRA Deduction for Taxpayer Who Participated in 401(k) Plan: In Hurd v. Comm'r, T.C. Summary 2014-17 (2/25/14), the Tax Court held that, because the taxpayer participated in her employer's 401(k) plan and because she earned more than the threshold for her filing status, no IRA deduction was allowed. The court rejected her contention that because her employer did not contribute to the company plan on her behalf and because her interest in the plan had not vested, she was not an active participant in a qualified plan. [Code Sec. 219].
Tax-Exempt Bonds
Median Gross Income Figures for Use by Bond Issuers Released: In Rev. Proc. 2014-23, the IRS provides guidance with respect to the United States and area median gross income figures that are to be used by issuers of qualified mortgage bonds and issuers of mortgage credit certificates in computing the income requirements described in Code Sec. 143(f). [Code Sec. 143].
Tax Accounting
IRS Ruling Addresses Method Change for Calculating E&P: In PLR 201410029, the IRS ruled that a change in the taxpayer's method of accounting for depreciation for taxable income purposes under Code Sec. 446(e) and Code Sec. 481(a) requires a correlative change in computing depreciation for earnings and profits (E&P) purposes under Code Sec. 312(k)(3). Accordingly, IRS consent is not required to make that change for E&P purposes, separate and apart from the consent required to change the taxpayer's method of accounting for depreciation for taxable income purposes. Further, because the depreciation deduction for taxable income is not the same for E&P purposes, additional adjustments are required to account for the change in computing depreciation for E&P purposes, which are made under Code Sec. 312 and the accompanying regulations. [Code Sec. 446].
Tax Practice
Practitioner Recommendations Requested by IRS: In Notice 2014-18, the IRS is soliciting recommendations from practitioners of items that should be included on the 2014-2015 IRS Priority Guidance Plan. In reviewing recommendations and selecting projects for inclusion on the 2014-2015 Priority Guidance Plan, IRS will consider (1) whether the recommended guidance resolves significant issues relevant to many taxpayers; (2) whether the recommended guidance promotes sound tax administration; (3) whether the recommended guidance can be drafted in a manner that will enable taxpayers to easily understand and apply the guidance; (4) whether the recommended guidance involves regulations that are outmoded, ineffective, insufficient, or excessively burdensome and that should be modified, streamlined, expanded, or repealed; (5) whether the IRS can administer the recommended guidance on a uniform basis; and (6) whether the recommended guidance reduces controversy and lessens the burden on taxpayers or the IRS.
FEBRUARY 2014
Bankruptcy
IRS Must Turn Over Debtor Funds: In re Reisbeck, 2014 PTC 83 (Bankr. D. Mont. 2/13/14), a bankruptcy court concluded that relief from a stay, as requested by the IRS, was not an appropriate exercise of the court's discretion and granted the debtor's motion that the IRS turn over funds obtained post-petition from the debtor's insurance commissions, based on a pre-petition levy. According to the court, it was appropriate to deny the IRS's motion for relief so that the debtor could proceed to propose a repayment plan.
Bankruptcy Trustee Can't Recoup a Debtor's Federal Tax Payment: In In re Equipment Acquisition Resources, Inc., 2014 PTC 70 (7th Cir. 2/4/14), the Seventh Circuit reversed a district court holding that an Illinois bankruptcy trustee could bring an action under Bankruptcy Code Section 544(b)(1) to recoup a debtor's federal tax payment. The trustee's ability to recover federal tax payments, the court noted, hinged on the interplay between Sections 544 and 106 of the Bankruptcy Code. The court found that Section 106(a)(1) does not displace the actual-creditor requirement in Section 544(b)(1). Ordinarily, a creditor cannot bring an Illinois fraudulent-transfer claim against the IRS; therefore, the court held, under Section 544(b)(1), neither can a debtor in possession.
Deductions
No Alimony Deduction for Payment to Ex-Spouse: In McNealy v. Comm'r, T.C. Summary 2014-14 (2/19/14), the Tax Court held that the taxpayer could not take a $40,000 alimony deduction for a payment to his ex-spouse. The payment was made under a clause in the divorce decree that expressly stated that the $40,000 payment was for the equalization of the distribution of marital assets, and the marital settlement agreement made clear that the equalization payment was intended to ensure the equitable division of the property. [Code Sec. 71].
Employment Taxes
Family and Health Problems Aren't Reasonable Cause for Not Filing Returns: In Stevens Technologies, Inc. v. Comm'r, T.C. Memo. 2014-13 (1/27/14), the Tax Court held that, although a company's owner had significant health and family problems, those problems did not amount to reasonable cause for the company's failure to timely file its tax returns, pay its employment taxes, and make its deposits. Further, the IRS did not abuse its discretion when it determined that the company's history of failing to pay its tax liabilities supported the IRS's lien filings and weighed against accepting an installment agreement. [Code Sec. 6330].
Estates, Gifts, and Trusts
Persons in Constructive Possession of Decedent's Property Can be Considered Executors: In CCA 201406010, the Office of Chief Counsel advised that when there is no longer an appointed executor for a decedent's estate, under Code Sec. 2203, each person in actual or constructive possession of any property of the decedent is then considered an executor. Any notifications by the IRS to such persons must be done individually. [Code Sec. 2203].
Gross Income
Failure to Purchase Replacement Property Precludes Involuntary Conversion Exclusion: In Curtis v. Comm'r, T.C. Memo. 2014-19 (1/28/14), the Tax Court held that, because the taxpayer did not purchase replacement property, he could not exclude gain on the involuntary conversion of an apartment building he owned. However, because the taxpayer used 5 percent of the property as his personal residence, he could exclude 5 percent of the gain from gross income under Code Sec. 121. [Code Sec. 121].
Settlement Amounts from General Release Are Taxable: In Green v. Comm'r, T.C. Memo. 2014-23 (1/29/14), the Tax Court held that settlement proceeds from an agreement with the taxpayer's former employer, which made no reference to any physical injury or sickness resulting from any actions of that former employer, were not excludible from the taxpayer's gross income. Under the settlement agreement, the taxpayer agreed to a general release of all claims against her former employer. The court noted that it has previously held that all settlement proceeds are included in gross income where there is a general release but no allocation of settlement proceeds among various claims. [Code Sec. 104].
Foreign
IRS Issues Regs on Information Reporting by FFIs: In T.D. 9657 and REG-130967-13, the IRS issued final, temporary, and proposed regulations under Code Sec. 1471 through Code Sec. 1474 on information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts and withholding on certain payments to FFIs and other foreign entities. The regulations affect persons making certain U.S.-related payments to FFIs and other foreign entities and payments by FFIs to other persons. [Code Sec. 1471].
Regs Revise Rules on Withholding for Foreign Persons: In T.D. 9658 (2/XX/14), the IRS issued final and temporary regulations that revise the final regulations on withholding of tax on certain U.S. source income paid to foreign persons, information reporting and backup withholding with respect to payments made to certain U.S. persons, portfolio interest paid to nonresident alien individuals and foreign corporations, and the associated requirements governing collection, refunds, and credits of withheld amounts under these rules. According to the IRS, the revisions are necessary to coordinate these regulations with the documentation, withholding, and reporting provisions included in regulations regarding information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts and withholding on certain payments to FFIs and other foreign entities. The temporary regulations also revise the rules on the statutory exemption for portfolio interest in light of amendments to the statute. The temporary regulations also remove certain transitional documentation rules from the regulations relating to withholding of tax on certain U.S. source income paid to foreign persons. [Code Sec. 1441].
Health Care
Final Regs Implement Rules on 90-Day Waiting Period: In T.D. 9656 (2/24/14), the IRS issued final regulations that implement the 90-day waiting period limitation under Section 2708 of the Public Health Service Act, as added by the Patient Protection and Affordable Care Act, and incorporated into the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The regulations also amend regulations implementing existing provisions, such as some of the portability provisions added by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), because those provisions of the HIPAA regulations have become superseded or require amendment as a result of the market reform protections added by the Affordable Care Act. [Code Sec. 9801].
Prop. Regs. Address Length of Orientation Period: In REG-122706-12 (2/24/13), the IRS issued proposed regulations that would clarify the maximum allowed length of any reasonable and bona fide employment-based orientation period, consistent with the 90-day waiting period limitation set forth in Section 2708 of the Public Health Service Act, as added by the Patient Protection and Affordable Care Act. [Code Sec. 9815].
Insurance
Ruling Discusses Calculation of End-of-Year Reserves: In Rev. Rul. 2014-7, the IRS ruled that the amounts of end-of-year life insurance reserves for a life insurance contract in two situations presented in the ruling were the amounts of the tax reserve determined under Code Sec. 807(d)(2). [Code Sec. 807].
Retirement Plans
Taxpayer Not Entitled to Multiple Rollover Contributions in the Same Year: In Bobrow v. Comm'r, T.C. Memo. 2014-21, the Tax Court held that the plain language of Code Sec. 408(d)(3)(B) limits the frequency with which a taxpayer may elect to make a nontaxable rollover contribution. By its terms, the one-year limitation in Code Sec. 408(d)(3)(B) is not specific to any single IRA maintained by an individual, the court noted, but instead applies to all IRAs maintained by a taxpayer. The fact that the taxpayer was also a tax lawyer was a factor considered by the court in sustaining the accuracy-related penalty. [Code Sec. 408].
Tax-Exempt Organizations
Prop. Regs. Provide Guidance on Calculating UBTI: In REG-143874-10 (2/6/14), the IRS issued new proposed regulations providing guidance on how certain organizations that provide employee benefits must calculate unrelated business taxable income (UBTI). The IRS also withdrew proposed regulations relating to UBTI that were published in 1986. [Code Sec. 512].
Priest and Church Allowed to Intervene in Religion Case: In Freedom From Religion Foundation, Inc., v. Koskinen, 2014 PTC 65 (W.D. Wisc. 2/3/14), a district court granted a motion to intervene in a case in which the taxpayer is seeking a declaratory judgment stating that the IRS's alleged policy of providing preferential treatment to churches and religious organizations is unlawful, as well as an injunction requiring the IRS to abandon that policy. The motion to intervene was filed by Father Patrick Malone and the Holy Cross Anglican Church. The church is a tax-exempt organization that does not obey the electioneering restrictions of Code Sec. 501(c)(3), and Father Malone regularly makes statements during worship services and church gatherings in which he urges members of the congregation to vote for or against certain candidates for public office. They argued that they have a legal right to participate in political campaigns without forfeiting their tax-exempt status and that their position is supported by the Religious Freedom Restoration Act and the Free Speech, Free Exercise, and Establishment Clauses of the First Amendment. [Code Sec. 501].
Penalties
Bankruptcy Obligations Didn't Excuse Nonpayment of Excise Taxes: In Nakano v. U.S., 2013 PTC 85 (9th Cir. 2/18/14), the Ninth Circuit rejected a former airline executive's argument that his failure to pay airline passenger excise taxes to the IRS was not willful because of the airline's funds were encumbered by its bankruptcy obligations. Thus, he was liable for the 100 percent penalty tax. [Code Sec. 6672].
Procedure
IRS Corrects Errors in Rev. Proc. 2014-4: In Rev. Proc. 2014-19, the IRS corrects several errors contained in Rev. Proc. 2014-4, one of the annual revenue procedures issued in January of each year. Rev. Proc. 2014-4 explains how the IRS gives guidance to taxpayers on issues under the Tax Exempt and Government Entities Division of the IRS. [Code Sec. 501].
Rejection of Installment Agreement Appropriate, Court Holds: In Arede v. Comm'r, T.C. Memo. 2014-29 (2/20/14), the Tax Court held that it was not an abuse of discretion for an Appeals officer to reject the taxpayers' partial payment installment agreement because the taxpayers never explained the discrepancies in their reported assets (specifically, their investment account). According to the court, taxpayers are not entitled to unlimited time to supplement the administrative record. [Code Sec. 6159].
JANUARY 2014
Deductions
Failure to Properly Document Contribution Precludes Deduction: In Alli v. Comm'r, T.C. Memo. 2014-15 (1/27/14), the Tax Court held that a Detroit apartment building contributed by the taxpayers to Volunteers of America was really a contribution by the taxpayers' wholly owned S corporation. Because the qualified appraisal and other documentation requirements necessary to take a charitable deduction were not met, no charitable deduction was allowed. [Code Sec. 170].
Estates, Gifts, and Trusts
Proposed Regs Address Basis Determination for CRTs: In REG-154890-03 (1/17/14), the IRS issued proposed regulations that provide rules for determining a taxable beneficiary's basis in a term interest in a charitable remainder trust (CRT) upon a sale or other disposition of all interests in the trust to the extent basis consists of a share of adjusted uniform basis. The regulations are proposed to apply to sales and other dispositions of interests in CRTs occurring on or after January 16, 2014, except for sales or dispositions occurring pursuant to a binding commitment entered into before January 16, 2014. [Code Sec. 1014].
Foreign
Regs Identify Stock Disregarded in Calculation Foreign Corp Ownership: In T.D. 9654 (1/17/14) and REG-121534-12 (1/17/14), the IRS issued temporary and proposed regulations that identify certain stock of a foreign corporation that is disregarded in calculating ownership of the foreign corporation for purposes of determining whether it is a surrogate foreign corporation. These regulations also provide guidance with respect to the effect of transfers of stock of a foreign corporation after the foreign corporation has acquired substantially all the properties of a domestic corporation or of a trade or business of a domestic partnership. [Code Sec. 7874].
Healthcare
IRS Provides Relief from Individual Shared Responsibility Payment: In Notice 2014-10, the IRS provides relief from the individual shared responsibility payment required under Code Sec. 5000A for months in 2014 in which individuals have limited-benefit health coverage that is not minimum essential coverage. [Code Sec. 5000A].
Net Investment Income Tax
Form 8960 Finalized: The IRS has finalized Form 8960, Net Investment Income Tax Individuals, Estates, and Trusts. There was no change from the draft version. [Code Sec. 1411].
Original Issue Discount
February 2014 AFRs Issued: In Rev. Rul. 2014-06, the IRS issued the applicable federal rates for February 2014. [Code Sec. 1274].
Partnerships
Prop. Partnership Regs Address Partnership Loss Transfers and Basis Adjustments: In REG-144468-05 (1/16/14), the IRS issued proposed regulations that provide guidance on certain provisions of the American Jobs Creation Act of 2004 and conform the regulations to statutory changes in the Taxpayer Relief Act of 1997. The proposed regulations also modify the basis allocation rules to prevent certain unintended consequences of the current basis allocation rules for substituted basis transactions and provide additional guidance on allocations resulting from revaluations of partnership property. The proposed regulations are generally not effective until finalized. [Code Sec. 704].
Procedure
Letters 3477 Were Final Determinations: In Corbalis v. Comm'r, 142 T.C. No. 2 (1/27/14), the Tax Court held that Letters 3477 denying the taxpayers' claim for interest suspension and stating that the determinations were not subject to judicial review were final determinations for purposes of Code Sec. 6404(h) even though the taxpayers' concurrent claims for abatement of interest attributable to unreasonable errors and delays by the IRS were still pending. [Code Sec. 6404].
IRS Issues Annual Ruling and Determination Letters: In Rev. Procs. 2014-1 , 2014-2, 2014-3, 2014-4, 2014-5, 2014-6, 2014-7, 2014-8, 2014-9, and 2014-10, the IRS issued its annual ruling and determination letters.
Retirement Plans
Deadline to Submit On-Cycle Applications Extended: In Announcement 2014-4, the IRS extends to February 2, 2015, the deadline to submit on-cycle applications for opinion and advisory letters for pre-approved defined benefit plans for the plans' second six-year remedial amendment cycle. [Code Sec. 411].
December 2013
Employment Taxes
Social Security Wage Base Increases to $117,000 in 2014: The Social Security Administration announced that the social security wage base for 2014 is $117,000, up from $113,700 in 2013. Amounts in excess of the wage base are not subject to social security tax. The wage base does not apply to the Medicare portion of FICA tax. Thus, the total amount of an employee's wages is subject to the Medicare tax. [Code Sec. 3121].
IRS Issues Regs on Voluntary Withholding Agreements: In T.D. 9646 (11/29/13) and REG-146620-13 (11/29/13), the IRS issued temporary and proposed regulations relating to voluntary withholding agreements. The regulations allow the IRS to issue guidance to describe payments for which income tax withholding under a voluntary withholding agreement would be appropriate. The regulations affect persons making and persons receiving payments for which the IRS issues subsequent guidance authorizing the parties to enter into voluntary withholding agreements. [Code Sec. 3402].
Dividends by Alaska Native Corporation Eligible for Voluntary Withholding: In Notice 2013-77, the IRS provides that dividends and other distributions made by an Alaska Native Corporation to its shareholders are eligible for voluntary withholding under Code Sec. 3402(p)(3)(B). [Code Sec. 3402].
Foreign
Proposed Procedure Would Provide Advanced Pricing Guidance: In Notice 2013-78, the IRS proposes a revenue procedure that would update and supersede Rev. Proc. 2006-54. The proposed revenue procedure would provide guidance on requesting assistance from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement program and the Treaty Assistance and Interpretation Team, under the provisions of U.S. tax treaties. It would also provide guidance on determinations the U.S. competent authority may make on competent authority issues. [Code Sec. 482].
IRS Notice Addresses APAs: In Notice 2013-79, the IRS proposes a revenue procedure that would update and supersede Rev. Proc. 2006-9, as modified by Rev. Proc. 2008-31. The proposed revenue procedure would provide guidance and instructions on advanced pricing agreements (APAs) and guidance and information on the IRS's administration of APAs. [Code Sec. 482].
Gross Income and Exclusions
Minister Exemption under Section 107(2) Is Unconstitutional: In Freedom From Religion Foundation, Inc. v. Lew, 2013 PTC 373 (W.D. Wisc. 11/22/13), a district court held that the federal income tax exemption received by ministers of the gospel under Code Sec. 107(2) violates the First Amendment and is thus unconstitutional. The court ruled that the taxpayers had standing to sue because it was clear from the face of the statute that the taxpayers, both atheists, were excluded from an exemption granted to others. [Code Sec. 107].
Health Insurance
Final Regs Issued on Health Insurance Providers Fee: In T.D. 9643 (11/29/13), the IRS issued final regulations relating to the annual fee imposed on covered entities engaged in the business of providing health insurance for U.S. health risks. This fee is imposed by Code Sec. 9010 of the Patient Protection and Affordable Care Act, as amended. The regulations affect persons engaged in the business of providing health insurance for United States health risks. [Code Sec. 9010].
Innocent Spouse
Court Again Confirms Taxpayer Isn't Eligible for Innocent Spouse Relief: In Haag v. U.S., 2013 PTC 372 (1st Cir. 11/25/13), the First Circuit affirmed a district court and held, for the second time, that the taxpayer did not qualify for equitable relief under Notice 2011-70. [Code Sec. 6015].
Insurance Companies
Loss Payment Patterns and Discount Factors for the 2013 Released: In Rev. Proc. 2013-36, the IRS prescribes the loss payment patterns and discount factors for the 2013 accident year. These factors will be used to compute discounted unpaid losses under Code Sec. 846. [Code Sec. 846].
Salvage Discount Factors for 2013 Released: In Rev. Proc. 2013-37, the IRS prescribes the salvage discount factors for the 2013 accident year. These factors must be used to compute discounted estimated salvage recoverable under Code Sec. 832. [Code Sec. 832].
Liens and Levies
Taxpayer Liable for Taxes as Fraudulent Transferee: In U.S. v. Patras, 2013 PTC 368 (3d Cir. 11/19/13), the Third Circuit affirmed a district court and held that the taxpayer was liable for taxes as a fraudulent transferee of property previously owned by her husband, and the IRS, as a creditor of her husband, was entitled to a personal judgment against her. [Code Sec. 6322].
Original Issue Discount
AFRs Issued for December 2013: In Rev. Rul. 2013-26, the IRS issued the applicable federal rates for December 2013. [Code Sec. 1274].
Partnerships
Transferor of Partnership Capital Interest Must Recognize Undistributed P&L: In Crescent Holdings, LLC v. Comm'r, 141 T.C. No. 15 (2013), the Tax Court was asked to decide whether the transferor or the transferee of a nonvested partnership capital interest must include in gross income the undistributed partnership profit or loss allocations attributable to a partnership capital interest. Noting that this was an issue of first impression and that Reg. Sec. 1.83-1(a) does not address whether income attributable to the property, but not actually received by the transferee, is included in the gross income of the transferee or the transferor, the court held that the transferor of a partnership capital interest must recognize in income the undistributed partnership profit or loss allocations attributable to a nonvested capital interest. [Code Sec. 83].
Procedure
Final Regs Lay Out Price Increases for Certain Agreements with the IRS: In T.D. 9647 (12/2/13), the IRS announced that the fee for entering into an installment agreement before January 1, 2014, is $105 and the fee for entering into an installment after that time increases to $120. A reduced fee applies in certain situations. The fee for restructuring or reinstating an installment agreement before January 1, 2014, is $45, and after that the fee increases to $50. The fee for processing an offer to compromise before January 1, 2014, is $150 and rises to $186 after that. In certain situations, no fee is charged. [Code Sec. 6159].
Late Refund Request Precludes Tax Refund: In Fitzsimons v. U.S., 2013 PTC 365 (Fed. Cl. 11/18/13), the Court of Federal Claims held that the taxpayer's refund suit failed because the taxpayer's taxes were deemed paid more than three years before he filed his refund claim. Because the taxpayer filed his 2007 return in 2012, he was limited to a refund of taxes paid in the three-year period immediately preceding the date he filed his 2007 return. The taxes paid during the 2007 tax year were deemed to have occurred on the due date for filing the 2007 return April 18, 2008 and his refund claim was filed nearly four year later. [Code Sec. 6511].
Tax Credits
PEO Not Entitled to Claim Credit for Employer FICA Taxes Paid: In TAM 201347020, the National Office advised that because a professional employer organization (PEO) was neither the common law employer nor the Code Sec. 3401(d)(1) employer of its clients' employees, it did not incur the employer portion of the FICA tax with regard to the tips received by those employees and was not entitled to claim the Code Sec. 45B credit for employer FICA taxes paid on employee tips. [Code Sec. 45B].
November 2013
Capital Gain or Loss
Final Regs Address Sale or Exchange Treatment for Derivative Contracts: In T.D. 9639 (11/6/13), the IRS issued final regulations relating to the transfer or assignment of certain derivative contracts. The final regulations provide guidance to the nonassigning counterparty to a derivative contract and an assignee on certain notional principal contracts that are derivative contracts. The final regulations provide that the nonassigning counterparty does not have an exchange for purposes of Reg. Sec. 1.1001-1(a) when certain derivative contracts are transferred or assigned and clarify that the embedded loan rules of Sec. 1.446-3(g)(4) do not apply to such transactions. [Code Sec. 1001].
Deductions
Failure to Make Election Precluded Deduction under Sec. 181: In Staples v. Comm'r, T.C. Memo. 2013-262 (11/18/2013), the Tax Court held that the taxpayer could not take a deduction for research expenses for a film series he was producing because he did not make a valid election under Code Sec. 181. Further, the court held that even if it were to apply the doctrine of substantial compliance to accept the taxpayer's Form 1040, Schedule C, as a valid Code Sec. 181 election, the taxpayer would still not be entitled to the benefits of the Code Sec. 181 deduction because he did not met the requirement of having begun principal photography on the project. [Code Sec. 181].
Gross Income
Cash Received from Fugitive Client Is Income: In Gassaway v. Comm'r, 2013 PTC 353 (5th Cir. 11/8/13), the Fifth Circuit affirmed the Tax Court and held that the receipt by a lawyer of cash from a client was taxable income and not a loan. The court agreed with the Tax Court that, even if the full amount was not for services to the client, who was a fugitive at the time of the transaction, the absence of a bona fide intent to repay the advance led to the conclusion that it was the taxpayer's income at the time he received it. [Code Sec. 61].
Health Care
Final Regs Implement Mental Health and Addiction Plans: In T.D. 9640 (11/11/13), the IRS, Department of Labor, and the Department of Health and Human Services issued final rules implementing the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, which requires parity between mental health or substance use disorder benefits and medical/surgical benefits with respect to financial requirements and treatment limitations under group health plans and group and individual health insurance coverage. [Code Sec. 9812].
Procedure
Second Circuit Remands Transferee Liability Case Back to Tax Court: In Diebold v. Comm'r, 2013 PTC 362 (2d Cir. 11/14/13), the Second Circuit held that because the Tax Court determined that there was no state law liability, it did not consider the other questions determinative to a situation involving transferee liability. Thus, the Second Circuit remanded the case to the Tax Court to determine: (1) whether the shareholder of a personal holding company was a transferee under Code Sec. 6901, relying on the federal law principles that govern the question of transferee status; (2) whether the taxpayer in the case was a transferee of a transferee; and (3) which statute of limitations-the three-year statute of limitations in Code Sec. 6901(c)(2), the six-year statute of limitations in Code Sec. 6501(e)(1)(A), or some other statute of limitations-applies. [Code Sec. 6901].
Retirement Plans
Final Regs Provide Additional Guidance under Sec. 401(k) and (m): In T.D. 9641 (11/15/13), the IRS issued final regulations relating to certain cash or deferred arrangements under Code Sec. 401(k) and matching contributions and employee contributions under Code Sec. 401(m). The regulations provide guidance on permitted mid-year reductions or suspensions of safe harbor nonelective contributions in certain circumstances for amendments adopted after May 18, 2009. The regulations also revise the requirements for permitted mid-year reductions or suspensions of safe harbor matching contributions for plan years beginning on or after January 1, 2015. The final regulations affect administrators of, employers maintaining, participants in, and beneficiaries of certain defined contribution plans that satisfy the nondiscrimination tests of Code Sec. 401(k) and Code Sec. 401(m) using one of the design-based safe harbors. [Code Sec. 401].
Prop. Regs Address Qualified Plan Limitation for Certain Indian Tribe Member Services: In REG-120927-13 (11/15/13), the IRS issued proposed regulations that would clarify that amounts paid to an Indian tribe member as remuneration for services performed in a fishing rights-related activity may be treated as compensation for purposes of applying the limits on qualified plan benefits and contributions. These regulations would affect sponsors of, and participants in, employee benefit plans of Indian tribal governments. [Code Sec. 415].
IRS Provides Guidance on Corporate Bond Amount: In Notice 2013-75, the IRS provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average segment rates under Code Sec. 430(h)(2). [Code Sec. 430].
Tax-Exempt Organizations
Operating Recreational Ice Rinks Qualifies as Charitable Purpose: In TAM 201344009, the National Office advised that an organization's operation of recreational ice rinks that are available to the community in several different aspects met the requirements for a charitable purpose and thus the organization was a Code Sec. 501(c)(3) organization. [Code Sec. 501].
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