Document Summaries for the Week of Nov. 21, 2016
Final regs. issued on health insurance
The IRS and other federal agencies issued final regulations regarding the definition of short-term, limited-duration insurance for purposes of the exclusion from the definition of individual health insurance coverage, and standards for travel insurance and supplemental health insurance coverage to be considered excepted benefits. T.D. 9791 (11/21/16).
IRS proposed updates to minimum present value requirements
The IRS issued proposed regulations that would amend the final regulations under Sec. 417 to update them for changes made by the Pension Protection Act of 2006, P.L. 109-280. REG-107424-12 (11/23/16).
Court admonishes accountant for failing to keep adequate records substantiating deductions
The Tax Court held that an accountant with decades of experience preparing federal income tax returns was not entitled to various deductions taken on her tax returns because she failed to provide adequate records to substantiate most of the deductions. She also was not entitled to adjustments to most of unreported income the IRS assessed using the bank deposits method. In addition, as a tax preparer, she should have known that she was required to maintain adequate records to support the tax positions taken on her returns. Because she failed to do so, she was liable for the accuracy-related penalties the IRS assessed. Barnes, T.C. Memo. 2016-212 (11/22/16).
Expenses for trip to south of France for art class are nondeductible
The Tax Court held that a taxpayer and his wife, who made their living as artists, could not deduct expenditures for air travel, car rental, car insurance, fuel, or art supplies purportedly spent during a trip to the south of France for an art class. The taxpayer provided no supporting evidence besides his own vague testimony, an email from the art instructor stating the cost of the class, and a bank statement listing the payment, which indicated the amount was paid in the year before the taxpayer took the deduction. The court also upheld the IRS’s denial of other car and truck expenses for lack of substantiation. Lingren, T.C. Memo. 2016-213 (11/22/16).
U.S. shareholder of CFC entitled to full dividends received deduction
The Tax Court held that a U.S. shareholder of a controlled foreign corporation was entitled to the full amount of a dividends received deduction (DRD) that it had claimed on its tax return. According to the court, Sec. 965(b)(3) did not provide that certain accounts receivable deemed created under a closing agreement the taxpayer entered into with the IRS constituted related party indebtedness arising during the testing period relevant to claiming the DRD. Analog Devices, Inc., 147 T.C. No. 15 (11/22/16).
Failure to raise tax payment allocation issue in CDP hearing precludes its being raised in court
The Tax Court held that a voluntary tax payment made by a couple who operated a law firm was not improperly allocated when the IRS did not apply the payment against their oldest tax liability first and that the couple never raised the payment allocation issue during their collection due process hearing. It was also not an abuse of discretion to deny the couple’s request for an in-person CDP hearing because the couple refused to provide requested financial information. Anderson, T.C. Memo. 2016-211 (11/21/16).
IRS issues new rules for IDRs in TG/GE examinations
Examiners in the IRS Tax Exempt/Government Entities (TE/GE) division have new procedures to follow when issuing information document requests (IDRs) to taxpayers in the course of examinations. TEGE 04-116-0028 (11/21/16) (see related news story).