Document Summaries for the Week of Jan. 2, 2017
Stock issued to employee did not have substantial risk of forfeiture
The Fourth Circuit Court of Appeals affirmed a decision of the Tax Court (T.C. Memo. 2015-123) that the IRS complied with all applicable procedural requirements in issuing a notice of deficiency to the taxpayer and held that the Tax Court did not err in concluding that stock issued to an employee was not issued with a substantial risk of forfeiture. QinetiQ U.S. Holdings, Inc., No. 15-2192 (4th Cir. 1/6/17).
ESTATES, TRUSTS & GIFTS
Account transcripts can substitute for estate tax closing letters
The IRS announced that taxpayers who rely on estate tax closing letters for confirmation that the IRS has closed its examination of an estate tax return can rely on an account transcript issued by the IRS in place of an estate tax closing letter. Notice 2017-12 (1/6/17) (see related news story).
IRA distribution used to support family while unemployed is subject to 10% penalty tax
The Tax Court held that a taxpayer who received distributions totaling $119,000 from her IRA, which she used to support herself and her children after she lost her job, was subject to the 10% addition to tax under Sec. 72(t) as there is no exception for financial hardship and she failed to prove that she used the money for medical premiums or student loans, which might have qualified for the exception. However, the court also held that the taxpayer was not liable for the 20% accuracy-related penalty because a similar issue had been resolved by the IRS in her favor in an earlier year and the taxpayer’s conclusion that there was a financial hardship exception was a common misunderstanding by taxpayers and a reasonable one. Elaine, T.C. Memo. 2017-3 (1/3/17).
No bad debt deduction where couple cannot prove that advances made through their S corporation were worthless
The Tax Court held that advances by a husband and wife through their wholly owned S corporation, which provided high-risk capital to various companies including some in which the couple owned an equity interest, were not loans but investments in equity. Further, because those investments did not become worthless in 2005, the couple were not entitled to a business bad debt deduction for that year. They were also subject to the accuracy-related penalty even though a CPA prepared the return because the husband was an accountant with many years’ return preparation experience and his concession at trial that if he owed the tax, he owed the penalty. Sensenig, T.C. Memo. 2017-1 (1/3/17).
Court rejects argument that income was not taxable due to IRS failure to prove a legal connection
The Tax Court rejected a taxpayer’s argument that amounts he received were not taxable because the IRS failed to show a legal connection between his activity and payments from the entities for whom he worked and upheld the tax deficiencies assessed against the taxpayer. While also upholding penalties assessed against the taxpayer because he did not show credible authority for his failure to include the receipts in income and for filing his return late when the IRS returned his unsigned return, the court did find that it was without jurisdiction to address the IRS’s adjustment to the taxpayer’s withholding credits. Sullivan, T.C. Memo. 2017-2 (1/3/17).
Guidance on de minimis safe harbor from information-reporting penalties
The IRS provided guidance on the de minimis safe harbor from information-reporting penalties under Secs. 6721 and 6722 and the payee election not to have the safe harbor apply, effective for information returns required to be filed and payee statements that must be furnished after Dec. 31, 2016. Notice 2017-9 (1/4/16) (see related news story).
IRS revises procedures for letter rulings and information letters
The IRS issued revised procedures for letter rulings and information letters issued by its associate chief counsel in the areas of Corporate, Financial Institutions and Products, Income Tax and Accounting, International, Passthroughs and Special Industries, Procedure and Administration, and Tax Exempt and Government Entities. The IRS also issued revised procedures for determination letters issued by its Large Business and International, Small Business/Self Employed, Wage and Investment, and Tax Exempt and Government Entities divisions. The new procedures supersede Rev. Proc. 2016-1. Rev. Proc. 2017-1 (1/3/17).
Technical advice memoranda procedures updated
The IRS explained when and how an Associate office within the Office of Chief Counsel provides technical advice, conveyed in technical advice memorandums (TAMs). It also explained the taxpayer’s rights when a field office requests a TAM regarding a tax matter. Rev. Proc. 2016-2 is superseded. Rev. Proc. 2017-2 (1/3/17).
IRS revises domestic no-rulings list
The IRS issued its annual revised list of areas of the Code on which it will not issue letter rulings or determination letters. Rev. Procs. 2016-3, 2016-45, and 2016-50 are superseded. Rev. Proc. 2017-3 (1/3/17).
Revised procedures for exempt organization employee plan determination letters issued
The IRS issued consolidated and revised procedures for determination letters and letter rulings issued by the Commissioner, Tax Exempt and Government Entities Division, Employee Plans Rulings and Agreements Office. Rev. Procs. 2016-4, 2016-6, and 2016-8, and Section 3.03 of Rev. Proc. 2004-15 are superseded. Rev. Proc. 2017-4 (1/3/17).
Revised procedures for exempt organization determination letters issued
The IRS issued procedures for issuing determination letters on issues under the jurisdiction of the Director, Exempt Organizations Rulings and Agreements. It also superseded Rev. Procs. 2016-4, 2016-5, 2016-8, and 2016-10, and 2016-32. Rev. Proc. 2017-5 (1/3/17)
IRS issues annual international no-rulings list
The IRS issued its annual list of areas under the jurisdiction of the Associate Chief Counsel (International) for which it will not issue letter rulings or determination letters. Rev. Proc. 2016-7 is superseded. Rev. Proc. 2017-7 (1/3/17).