Document Summaries for the Week of Sept. 5, 2016
Defined benefit plans can make split distributions under final rules
The IRS finalized proposed rules that permit defined benefit participants to elect to receive split benefits of monthly annuity payments together with a lump-sum payout without disqualifying the plan. T.D. 9783 (9/9/16) (see related news story).
National monthly average premium for a bronze-level qualified health plan published
The IRS provided the national monthly average premium for a bronze-level qualified health plan (NABP) available through health insurance marketplaces in 2016. The NABP is the maximum monthly individual shared-responsibility payment under Sec. 5000A for nonexempt individuals who do not have minimum essential coverage for a month. Rev. Proc. 2016-43 (9/6/16).
Sisters not entitled to foreign tax credits for taxes paid to Virgin Islands
The Tax Court held that three sisters were not entitled to foreign tax credits against their 2001 U.S. income tax liabilities for taxes paid to the Virgin Islands because (1) they failed to establish that their determination that they were subject to Virgin Islands tax rather than U.S. tax was reasonable, and (2) the foreign tax credit does not apply to taxes paid to the Virgin Islands. Vento, 174 T.C. No. 7 (9/7/16).
Chief Counsel’s Office reconsiders Tribal General Welfare Exclusion Act refunds
The Office of Chief Counsel was asked to review its earlier conclusion that certain refund claims, although timely filed under a special provision of the Tribal General Welfare Exclusion Act of 2014, were nonetheless barred by Sec. 6511(b)(2), which limits refunds to taxes paid within the lookback period. After reanalyzing the issue, the Chief Counsel’s Office advised it now believes that the waiver provision enacted by Congress applies not as an extension, but as an exception or waiver when all requirements are met, and provided examples of situations that qualify. CCA 201636041 (9/2/16).
IRS may proceed with levy on taxpayer owing unpaid trust fund recovery penalties
The Tax Court held that the taxpayer was not entitled to contest the underlying liabilities for unpaid trust fund recovery penalties and, thus, the IRS’s decision to proceed with a levy was not an abuse of discretion. In reaching its conclusion, the court noted that the settlement officer (1) verified that all legal and procedural requirements had been met, (2) considered the issues the taxpayer properly raised, and (3) determined that the proposed collection action appropriately balanced the need for the efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary. Cox, T.C. Summ. 2016-53 (9/6/16).
Guidance on 2% tax under Sec. 5000C
Final regulations provide guidance to U.S. government acquiring agencies and foreign persons to determine what goods or services are subject to the Sec. 5000C 2% tax on payments made by the U.S. government to foreign persons under certain contracts, how to remit the tax, and how to claim an exemption under an income tax treaty. T.D. 9782 (9/6/16).
An erroneous notice that was subsequently abated did not relieve taxpayer from paying correct amounts
The Tax Court upheld a tax and penalty assessment against the taxpayer for an alimony deduction he was not entitled to, which the taxpayer conceded. The IRS’s abatement of a subsequent erroneous deficiency notice to the taxpayer did not excuse the taxpayer from paying the correct amount due. Cooper, T.C. Summ. 2016-54 (9/7/16).
Chief Counsel’s Office addresses abatement of penalties due to taxpayer’s dementia
In response to a question whether the IRS should abate late-filing and failure-to-timely-pay income tax penalties assessed against a taxpayer because she was allegedly mentally incapable of handling her financial affairs, the Office of Chief Counsel advised that the IRS should first consider whether the taxpayer qualifies for an abatement under the first-time abatement rules. If not, then the penalties could be abated for reasonable cause if the IRS determines that the taxpayer suffered from dementia during the time period when the tax return was required to be prepared and filed and the accompanying tax liability paid. It also addressed whether a person with the taxpayer’s power of attorney could qualify for abatement and determined that the taxpayer, not her agent, had the duty to file and pay. CCA 201637012 (9/9/16).
Restitution order did not violate Constitution’s Ex Post Facto Clause
The Office of Chief Counsel advised that, because the Firearms Excise Tax Improvement Act of 2010 confers authority on the IRS to assess and collect criminal restitution ordered after Aug. 16, 2010, the IRS is not retroactively applying Sec. 6201(a)(4) to the restitution ordered against the taxpayer, and the restitution-based assessments did not violate the Ex Post Facto Clause of the Constitution. However, the Chief Counsel’s Office stated, the failure-to-pay penalties assessed on each tax period are inappropriate. CCA 201637001 (9/9/16).
Chief Counsel’s Office concludes that excise tax waiver is appropriate
The Office of Chief Counsel agreed with an IRS revenue officer’s recommendation of granting a taxpayer a waiver of the excise tax under Part II of Form 8928, Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code. The Chief Counsel’s Office noted that the Form 8928 instructions (page 4) provide that the IRS may waive part or all of the excise tax under Part II, to the extent that payment of the tax would be excessive relative to the failure involved. CCAs 201637014; 201637015 (9/9/16).
Forfeited deposit is ordinary income, not capital gain
The Tax Court held that a partnership was not entitled to capital gain treatment on a forfeited deposit it received as a result of a buyer’s backing out of a deal to buy the partnership’s hotel because Sec. 1234A applies only to capital assets. The court rejected the partnership’s argument that because the sale of the hotel would have been treated as a capital gain under Sec. 1231, the income from the deposit should be treated as capital gain as well. CRI-Leslie, LLC, 147 T.C. No. 8 (9/7/16).