Document Summaries for the Week of Oct. 3, 2016


IRS issues monthly guidance on corporate bond yield curve and other rates

The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2) for September 2016. In addition, the notice provides the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2016-54 (10/3/16).



Taxpayer liable for trust fund recovery penalties

The IRS held that a taxpayer was liable for trust fund recovery penalties under Sec. 6672 for unpaid employment tax liabilities. The court concluded that the taxpayer did not carry his burden of establishing that the IRS abused its discretion in making the tax assessments because he did not contest the liability when he had an opportunity to do so. Smith, T.C. Memo. 2016-186 (10/4/16).



Tax lien has priority over administrative expenses

The Eleventh Circuit Court of Appeals, reversing a district court decision, held that special estate tax liens on property designated by Sec. 6324A, unlike liens on the gross estate under Sec. 6324, are not subject to an executor’s claims for administrative expenses, and the personal representative’s administrative expenses do not take priority over income tax liens imposed under Sec. 6321. Spoor, No. 15-12877 (11th Cir. 10/4/16).



Successful chiropractor used fake Social Security numbers and TINs to avoid paying taxes

The Tax Court held that a highly successful chiropractor, who failed to file any tax returns from 1997 through 2004, was liable for the multiple penalties assessed by the IRS for fraudulently failing to timely file his tax returns and pay the taxes due, as well as failing to make estimated payments of tax. The court noted that the taxpayer had avoided detection for many years by using false Social Security numbers on various bank accounts and giving fake taxpayer identification numbers to insurance companies that made payments to him, and that he pled guilty to tax evasion for 2001. Reynoso, T.C. Memo. 2016-185 (10/4/16).

No bad-debt deduction allowed where couple could not identify business associated with loan

The Tax Court held that (1) a husband and wife were not entitled to a business bad-debt deduction because they could not identify any business with which the debt was associated; (2) the couple did not have a net operating loss for 2010 available for carryback to the wife’s 2008 return; and (3) the husband could not substantiate the time he spent on real estate activities and thus did not qualify as a real estate professional for 2010 and could not deduct rental real estate losses. As a result, the court found the wife liable for an accuracy-related penalty for 2008 and the couple liable for most, but not all, of the accuracy-related penalties that the IRS assessed for 2010. Hatcher, T.C. Memo. 2016-188 (10/6/16).

Mileage numbers were rounded, not estimated, meeting substantiation requirements

The Tax Court held that a couple’s vehicle log book largely met the strict substantiation rules for deducting vehicle expenses and rejected the IRS’s theory that the mileage numbers were estimates because they all ended in 0 or 5. The court said the husband’s testimony that the numbers were not estimated but, rather, rounded was credible, and the court believed his testimony that the miles listed were based on actual, contemporaneous calculations of the miles driven. Powell, T.C. Summ. 2016-66 (10/6/16).

Settlement proceeds were not for physical injuries or sickness and thus are taxable to recipient

The Tax Court held that a taxpayer could not exclude from gross income $84,177 in settlement proceeds because evidence was insufficient to show that they were intended to compensate the taxpayer for personal physical injuries or physical sickness. The court further concluded that the taxpayer was liable for most of the penalties assessed by the IRS, except for a penalty for failing to pay estimated taxes. Despite not filing a return for the prior year, her prior-year tax liability was zero, and she was thus excepted from making estimated tax payments. Tishkoff, T.C. Summ. 2016-65 (10/6/16).

Investigation of father’s death was not a profit-making business, and related deductions are disallowed

The Tax Court held that a taxpayer’s investigation of his father’s death was not conducted with the genuine purpose of making a profit. Thus, the amount of allowable deductions of expenses he incurred attributable to the investigative activity were limited to the gross income he derived from the activity, which was zero. The court also concluded that an installment sale the taxpayer entered into with related parties had as one of its principal purposes avoiding federal income tax, and installment sale treatment was thus unavailable. Vest, T.C. Memo. 2016-187 (10/6/16).

Olympic athletes get income exclusion for prize money

Legislation amended Sec. 74 to exclude from income the value of any medal awarded in, or any prize money received from the United States Olympic Committee on account of, competition in the Olympic Games or Paralympic Games. United States Appreciation for Olympians and Paralympians Act of 2016, H.R. 5946 (10/7/16) (see related news story).



IRS issues nonacquiescence in Giant Eagle case

The IRS announced that it is not acquiescing to the Third Circuit’s decision in Giant Eagle, Inc., 822 F.3d 666 (3d Cir. 2016), rev’g T.C. Memo. 2014-146. AOD 2016-03 (10/3/16).

Entities may have to file Form 3468 if passing through rehab expenditures of another entity

The Office of Chief Counsel advised that, for purposes of the rehabilitation credit, if a passthrough entity is not an owner of a qualified rehabilitated building and certified historic structure but is merely a conduit passing through the qualified rehabilitated expenditures of another entity, the IRS may require the pass-through entity to file Form 3468, Investment Credit. The Chief Counsel’s Office also said that, for purposes of the rehabilitation credit, if a lessor of a new Sec. 38 property elects under Sec. 50(d)(5) to treat the lessee as having acquired the property, the IRS may require the lessor to provide the lessee with the National Park Service project number assigned by, and the date of the final certification of completed work received from, the secretary of the Interior. CCA 201641022 (10/7/16). 

Newsletter Articles


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.


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.