Document Summaries for the Week of Jan. 9, 2017

CORPORATIONS

IRS cannot determine if company qualifies as other than a life insurance company

The IRS Office of Chief Counsel, in response to a question as to whether a company qualified as an insurance company other than a life insurance company under Sec. 501(c)(15), advised that not enough information was provided to reach a definitive conclusion. However, the Chief Counsel’s Office noted that, even if the company does qualify, its annual gross receipts for two years in a row appeared to exceed the $600,000 per year limitation in Sec. 501(c)(15). CCA 201702037 (1/13/17).

 

EMPLOYEE BENEFITS

Last day for remedial amendment period for Sec. 403(b) plans is March 31, 2020

The IRS provided that the last day of the remedial amendment period for Sec. 403(b) plans, for purposes of Section 21 of Rev. Proc. 2013-22, is March 31, 2020. The selection of the last day of the remedial amendment period had previously been reserved in Rev. Proc. 2013-22, which sets forth the procedures for issuing opinion and advisory letters for Sec. 403(b) preapproved plans. Rev. Proc. 2017-18 (1/13/17).

IRS issues guidance on corporate bond monthly yield curve

The IRS issued a notice 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). In addition, the notice provides guidance as to 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 2017-13 (1/13/17).

 

ESTATE, TRUSTS & GIFTS

No abuse of discretion found where IRS failed to file a lien against estate’s nonprobate assets

The Tax Court held that the IRS (1) did not abuse its discretion by failing to file a lien against an estate’s nonprobate assets before the statute of limitation ran, thus foreclosing the possibility of collecting estate tax due from nonprobate assets, and (2) did not abuse its discretion in determining that levying probate assets of the estate was efficient. Thus, the IRS settlement officer did not err in sustaining the filing of a notice of federal tax lien against the estate and issuing a levy notice. Estate of Myers, T.C. Memo. 2017-11 (1/10/17).

 

INDIVIDUALS

Taxpayers reap penalties for failing to provide substantiation

The Tax Court held that, because a couple failed to provide documentation they claimed to have with respect to certain unreported income and deductions, they did not satisfy their burden of substantiating the disputed amounts and, thus, were not entitled to the deductions. The court also upheld late-filing and accuracy-related penalties against the couple. Brodmerkle, T.C. Memo. 2017-8 (1/9/17).

Inflation adjustments issued for employer-provided vehicles

The IRS issued the 2017 inflation-adjusted amounts for the maximum vehicle values for purposes of determining the amount that is included in employees’ income for personal use of an employer-provided vehicle. Notice 2017-3 (1/9/17) (see related news story).

Couple did not qualify as real estate professionals

The Tax Court held that a couple could not deduct more than $55,000 in rental real estate losses on their 2010 tax return because they did not qualify as real estate professionals. The court concluded that the evidence that the taxpayers introduced to prove that they spent more than 750 hours managing their rental properties was implausible and, in the case of a property located in Egypt, not completely translated from Arabic. Makhlouf, T.C. Summ. 2017-1 (1/11/17).

 

INTERNATIONAL

Guidance on determination of income or loss under Sec. 987

Final regulations provide guidance under Sec. 987 regarding the determination of the taxable income or loss of a taxpayer with respect to a qualified business unit (QBU) subject to Sec. 987, as well as the timing, amount, character, and source of any Sec. 987 gain or loss. T.D. 9794 (1/9/17).

Rules issued on recognition and deferral of foreign currency gain or loss under Sec. 987

The IRS issued temporary and proposed regulations containing rules relating to the recognition and deferral of foreign currency gain or loss under Sec. 987 with respect to a QBU in connection with certain QBU terminations and certain other transactions involving partnerships. REG-128276-12 (1/9/17).

 

IRS PROCEDURE

No “do over” allowed for taxpayer whose errors caused OIC to be rejected

The Tax Court denied a taxpayer’s request to have its case remanded for additional consideration, saying the purpose of a remand is not to afford a “do over” for a taxpayer whose missteps during the collection due process procedure caused its offer in compromise (OIC) to be rejected. However, because the IRS did not show good cause why a levy on the taxpayer should be allowed to proceed immediately, the court denied the IRS’s motion to permit the levy. Pazzo Pazzo, Inc., T.C. Memo. 2017-12 (1/10/17).

No relief from statute of limitation based on sympathy for personal circumstances

The Tax Court held that a taxpayer was not entitled to a refund of an overpayment from her 2011 tax year that the IRS applied against the assessed joint income tax liability of the taxpayer and her husband for 2002. The court noted that the tax at issue had been paid over two years before the filing of taxpayer’s request for innocent spouse relief and that there was no provision for relief from the statute of limitation based on sympathy for her personal circumstances. Williams, T.C. Memo. 2017-10 (1/10/17).

Couple are subject to levy and liable for penalties relating to EITCs that had been refunded

The Tax Court held that the IRS (1) did not abuse its discretion in not abating the Sec. 6651(a)(3) penalty relating to a couple’s earned income tax credits that had been refunded in 2003 and 2004; (2) did not abuse its discretion in failing to abate all interest accrued on the couple’s unpaid tax liabilities for years 2003 and 2004; and (3) did not abuse its discretion in sustaining collection by levy of the couple’s unpaid income tax liabilities for 2003 and 2004. In so holding, the court noted that the couple had failed to offer a collection alternative at their Sec. 6330 hearing and failed to provide the IRS settlement officer with the requested financial information. Santana, T.C. Memo. 2017-14 (1/12/17).

IRS settlement officer has no duty to check up on taxpayer who fails to file required documentation

The Tax Court granted an IRS motion for summary judgment and upheld the IRS’s notice of intent to levy on a taxpayer with unpaid tax liabilities of approximately $26,000 for years 2007 through 2010. The court rejected the taxpayer’s suggestion that an IRS settlement officer has an affirmative duty to check up on a taxpayer who fails to make good on his own promise to submit documentation required to consider a collection alternative. Phillips, T.C. Memo. 2017-13 (1/11/17).

 

MISCELLANEOUS

Revised definition of issue price for tax-exempt bonds

The IRS issued final regulations that provide a revised definition of “issue price” for purposes of the arbitrage restrictions under Sec. 148 that apply to tax-exempt bonds under Sec. 103, tax credit bonds under Sec. 54A, and direct-pay bonds under Sec. 6431. T.D. 9801 (1/9/17).

 

PARTNERSHIPS

Partnership was sham; accuracy-related penalties upheld

The Tax Court held that a partnership that involved a promoted tax shelter variant was a sham and should be disregarded for federal income tax purposes. As a result, the court upheld IRS adjustments to the loss, deduction, contribution, and distribution items the entity reported on its Form 1065, U.S. Return of Partnership Income, and sustained the IRS’s imposition of an accuracy-related penalty under Sec. 6662. New Millennium Trading, LLC, T.C. Memo. 2017-9 (1/10/17).

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