Document summaries for the week of July 31, 2017

EMPLOYEE BENEFITS

Revised procedures for suspension of benefits for certain DB plans

The IRS revised the procedures for applying for Treasury Department approval of a suspension of benefits under a multiemployer defined benefit pension plan that is in critical and declining status under Sec. 432(e)(9). Rev. Proc. 2017-43 (7/31/17).

 

EMPLOYMENT TAXES

Union Pacific wins $75 million refund suit

A railroad is entitled to a $75 million refund for taxes paid under the Railroad Retirement Tax Act, the Eighth Circuit held. The Act does not require the railroad to pay taxes when it paid its employees in company stock or made ratification payments to union-member employees. Union Pacific R.R. Co., No. 16-3574 (8th Cir. 8/1/17).

 

INDIVIDUALS

Taxpayer cannot deduct vehicle expenses where wholly owned corporation owned the vehicle

The Tax Court held that a taxpayer, who worked as an independent contractor for FedEx, was not entitled to deductions for unsubstantiated contract labor, depreciation, and Sec. 179 expenses relating to a vehicle used for the FedEx work, and vehicle repair and maintenance expenses. The vehicle at issue was leased by a corporation incorporated by the taxpayer and that corporation, the court said, had presumably deducted the lease expenses. Drah, T.C. Memo. 2017-149 (7/31/17).

Tax benefits denied where taxpayer failed to prove that his child lived with him for more than half the year

The Tax Court held that a taxpayer was not entitled to (1) a dependency exemption deduction, (2) a child tax credit, (3) an earned income tax credit (EITC), and (4) head of household filing status. The court found that the taxpayer failed to establish that his daughter had the same principal place of abode as the taxpayer for more than one-half the year, and failed to show he provided more than half of her support, and thus the child was not the taxpayer’s qualifying child or qualifying relative within the meaning of Sec. 152(c) or Sec. 152(d). Gachette, T.C. Summ. 2017-59 (7/31/17).

Transferee liable for company's tax bill

The Eleventh Circuit held that a taxpayer is liable as a transferee under Sec. 6901 for his former employer's unpaid taxes, even though he was a victim of fraud by other shareholders of the company. Kardash, No. 16-14254 (11th Cir. 8/4/17).

 

PARTNERSHIPS

Losses from CARDS transactions are not deductible; taxpayers liable for 40% penalty

The Tax Court held that a partnership and its partners were not entitled to deduct losses and fees associated with Custom Adjustable Rate Debt Structure (CARDS) transactions for tax year 2000 because the transactions lacked economic substance. The Tax Court also sustained the IRS’s determination that the taxpayers were liable for the 40 percent accuracy-related penalty for gross valuation misstatements with respect to the losses because the taxpayers failed to establish the reasonable cause and good-faith defense to the penalty. Curtis Investment Co., LLC, T.C. Memo. 2017-150 (8/2/17). 

Newsletter Articles

SPONSORED REPORT

CPEOs provide peace of mind around payroll services

The creation of these new IRS-certified service providers for small businesses clarifies some issues around traditional professional employer organizations.

PRACTICE MANAGEMENT

2016 Best Article Award

The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.D., and W. Eugene Seago, J.D., Ph.D., for their article, “Taxation of Worthless and Abandoned Partnership Interests.”