Document Summaries for the Week of June 27, 2016

INDIVIDUALS

Insolvent taxpayer excused from reporting COD income

The Tax Court held that a taxpayer received $7,875 in cancellation-of-debt (COD) income during 2011 as a result of overdrawing a bank account in 2008 and not repaying the bank, finding that the 36-month nonpayment period created a rebuttable presumption that the debt was discharged that year. However, the court found that the taxpayer could exclude the COD income under the Sec. 108(a)(1)(B) insolvency exception because his debts were $50,000 and his assets were valued at $35,500, leaving him insolvent. Newman, T.C. Memo. 2016-125 (6/28/16).

Loans and gifts from family and friends reduce unreported income calculated by IRS

The Tax Court held that, while the IRS proved using the bank-deposits method that the taxpayer had unreported gross income from his pottery business, the unreported income was not as large as the IRS determined because some of the taxpayer’s bank deposits were the result of loans and gifts from family and friends. Additionally, the court upheld the IRS’s assessment of a Sec. 6662(a) accuracy-related penalty, finding that the taxpayer was negligent because he did not properly substantiate several deductions and he failed to properly report some gross income. Nguyen, T.C. Memo. 2016-126 (6/29/16).

Couple can take abandonment loss for property used in a failed business

The Tax Court held that a couple were eligible for an abandonment loss on leasehold improvements used in a failed business. However, the court also upheld the IRS’s assessment of an accuracy-related penalty because the couple provided no evidence of expenses underlying either their itemized deductions or their Schedule E, Supplemental Income and Loss, deductions; conceded that they claimed losses on their Schedule C, Profit or Loss From Business, to which they were not entitled; had no records to support a loss reported on Form 4797, Sales of Business Property; and did not demonstrate that they acted with reasonable cause and in good faith with respect to the recordkeeping requirements. Chowdhury, T.C. Summ. 2016-31 (6/30/16).

 

INTERNATIONAL

Final regs. issued on country-by-country reporting

The IRS issued final regulations implementing new reporting requirements, under which the ultimate parent entity of a multinational enterprise group with revenue of $850 million or more in the preceding annual accounting period must report income and taxes paid on a country-by-country basis. T.D. 9773 (6/30/16) (see related news story).

New FATCA qualified intermediary agreement proposed

The IRS proposed a new FATCA qualified intermediary agreement, which would revise and update the current agreement, published in July 2014. Notice 2016-42 (7/1/16).

IRS PROCEDURE

Tax Court sustains filing of lien against taxpayer for 10 years of unpaid federal taxes

The Tax Court granted an IRS motion for summary judgment, thus sustaining the filing of a notice of federal tax lien for the taxpayer’s unpaid federal income tax liabilities for tax years 2000–2009. The court noted that the taxpayer was uncooperative in that he did not provide collection alternatives or financial information the IRS requested and that the IRS settlement officer had followed all the procedural requirements before filing the lien. Ward, T.C. Memo. 2016-124 (6/27/16).

North American area for convention locations updated

This IRS updated the list of all geographical areas included in the North American area for purposes of Sec. 274(h), limiting deductions for expenses incurred in connection with a convention held outside the “North American area.” Rev. Rul. 2011–26 was modified and superseded. Rev. Rul. 2016-16 (6/27/16).

Updated rules and specifications for substitute forms and schedules posted

The IRS issued a revenue procedure containing a revised Publication 1167, General Rules and Specifications for Substitute Forms and Schedules, which provides guidelines and general requirements for the development, printing, and approval of substitute tax forms. Rev. Proc. 2015-18 was superseded. Rev. Proc. 2016-34 (6/27/16).

IRS updates rules and specifications for certain substitute information returns

The IRS provided specifications for the private printing of red-ink substitutes for the 2016 revisions of certain information returns. The revenue procedure will be reproduced as the next revision of Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns. Rev. Proc. 2015-35 was superseded. Rev. Proc. 2016-35 (6/27/16).

Newsletter Articles

SPONSORED REPORT

Year-End Tax Planning and What’s New for 2016

A look at year-end tax planning strategies for individuals and businesses, as well as recent federal tax law changes affecting this year’s tax returns.

PRACTICE MANAGEMENT

CPAs Contend With Tax ID Theft

Tax-related identity theft fraud remains a widespread problem that is often difficult for victims and their tax preparers to correct.