Current developments in taxation of individuals

This semiannual update surveys recent federal tax developments involving individuals. It summarizes notable cases, rulings, and guidance on a variety of topics issued during the six months ending April 2023. The update was written by members of the AICPA Individual and Self-Employed Tax Technical Resource Panel. The items are arranged in Code section order.

As it does each year, the IRS issued updates to certain procedural matters, in Rev. Procs. 2023-1, 2023-2, and 2023-3. Rev. Proc. 2023-1 is a revised procedure for issuing letter rulings. Its major changes from Rev. Proc. 2022-1 include clarification that a ruling will be issued on a completed transaction if the ruling request is submitted before a return containing a tax position on that transaction is filed, even if a return has been filed for the year in which the transaction took place.¹ Rev. Proc. 2023-1 clarifies that while generally, the user fee for all requests under the revenue procedure must be paid through pay.gov, foreign entities that wish to submit payment from a foreign bank may submit their payment by check instead of using pay.gov.²

In Rev. Proc. 2023-2, providing procedures for furnishing technical advice, the only significant change noted from Rev. Proc. 2022-2 is the incorporation of electronic signature and submission procedures into the general instructions for requesting letter rulings and determination letters.³

Rev. Proc. 2023-3 updates the domestic “no rule” listing. The 2023 version indicates that rulings will not be issued with respect to S corporations under Sec. 1362(f) as to whether various rights indicate that the one-class-of-stock requirement is violated, because it is a factual question. In addition, Sec. 1362(f) rulings will not be issued regarding certain inadvertently terminated or invalid S elections.⁴ Certain worker classifications under Secs. 3121, 3306, and 3401 have been added as no-ruling areas, and some previous items were modified.⁵

Sec. 36B: Refundable credit for coverage under a qualified health plan

Several cases before the Tax Court applied rules governing eligibility for and amounts of premium tax credits (PTCs) and advance premium tax credits (APTCs) that assist qualifying individuals in maintaining health insurance coverage.

Income over 400% of federal poverty line: In Henry,⁶ the Tax Court found that the taxpayer was not entitled to a PTC and was required to repay APTC payments because her income exceeded 400% of the federal poverty line (FPL). The taxpayer had been unemployed and in a “terrible” financial, physical, and mental state, the court stated. As a result, she made early withdrawals from a retirement or pension plan to cover living expenses. The Health Insurance Marketplace determined that the taxpayer was eligible for the PTC and the APTC.

Accordingly, for the 11 months of coverage she had in 2016, she received monthly APTC payments totaling $7,205. Her monthly premiums totaled $7,788. She was unable to pay the entire difference, and her coverage was terminated for nonpayment of premiums in November 2016. She contended that she canceled her insurance in February 2016, but there was no record of her doing so.

The taxpayer received Form 1095-A, Health Insurance Marketplace Statement, and a corrected Form 1095-A reflecting her coverage information, along with letters directing her to file a tax return if the form showed she received an APTC and to complete and attach Form 8962, Premium Tax Credit, to her tax return. She did file a 2016 tax return to report her income, which consisted of taxable pensions and annuities and taxable Social Security benefits totaling about $91,000. But she did not complete Form 8962 or attach it to her 2016 tax return.

The court found that her income was 598% of the FPL during 2016 and held that she was required to repay the credit. Although the taxpayer testified that she had canceled her health insurance in February 2016 and therefore no APTC payments should have been made on her behalf, she provided no documentation to corroborate her claim.

In Sneed,⁷ the Tax Court held that the taxpayer was ineligible for the PTC because her income exceeded 400% of the FPL for her family size, and she was required to repay the APTC payments made on her behalf. The taxpayer did not appear to dispute the determination but sought a collection alternative because of financial hardship. However, the court held that in a deficiency proceeding under Sec. 6213(a), the collectability of the tax liability was not an issue before the court and held she was required to repay the APTC payments she received.

Alternative calculation: Manzolillo⁸ is another PTC case. The couple in the case married in 2015 (the audit year). They both had requested APTC payments for their health insurance. When they completed Form 8962, they reported the credit as $3,200 instead of the actual $7,950 applied to premiums. They elected the alternative calculation for the year of marriage but failed to complete Part V of Form 8962.

The IRS audited their return and issued a notice of deficiency, which the court upheld after adjusting the PTC for the alternative marriage-year computation. The taxpayers argued that the IRS was precluded from increasing their tax liability because they received a refund for 2015, but the court held that, under the case law, it is well settled that granting a refund does not preclude the IRS from making a subsequent adjustment to a taxpayer’s liability.

Sec. 61: Gross income defined

In Fairbank,⁹ the Tax Court ruled in the IRS’s favor in a case involving multiple years of tax deficiencies and accuracy-related penalties. Spanning tax years 2003 to 2011, with the exception of 2010, the case addressed entity classification, undisclosed information, underreporting by way of a statute of limitation, unreported income from foreign accounts, and accuracy-related penalties due to negligence.

In the early 1960s, Barbara Fairbank (then Barbara Hagaman) was married to Earl Hagaman, and the couple had four children together. Earl Hagaman was a CPA working for large corporations throughout their marriage until the late 1970s, when he became an oil broker, working for his own companies. As a successful businessman and well-versed in financial matters, he had full responsibility over the couple’s finances, including several financial accounts in New Zealand and Switzerland. Despite Earl Hagaman’s personal financial success, he failed to file federal income tax returns for the years 1980 through 1982, during which he moved in excess of $16 million from banks in the United States to Switzerland and New Zealand.

In early 1981, the couple separated and in 1982 were divorced. In 1985, the IRS sent them a notice of jeopardy assessment for tax years 1980 through 1982, stating that Earl Hagaman had “engaged in sham operations … and derived large profits from these activities.” According to the IRS’s jeopardy assessment notice, the foreign operations generated significant income that Earl Hagaman failed to report on his U.S. federal income tax returns. The Service assessed more than $14.7 million in tax and interest.

In 1990, Barbara Fairbank received innocent-spouse relief for the tax years 1980 and 1981 (when still married to Hagaman). Hagaman settled his federal income tax liabilities with the IRS.

As part of the couple’s divorce agreement, Earl Hagaman was ordered to pay monthly child support. Despite what the interim agreement stated, the couple modified the agreement verbally, and he began paying Fairbank substantially more than originally ordered and made several deposits into foreign bank accounts, stating that Fairbank “wanted the payments to be made to her Swiss establishment, Xavana Establishment.”

In 2008, the IRS issued a John Doe summons requesting information relating to U.S. holders of undisclosed foreign accounts with Union Bank of Switzerland (UBS). This summons was instrumental in the U.S. Department of Justice securing a well-known settlement in which UBS admitted to engaging in a scheme of aiding U.S. clients in hiding income from the IRS.

During this process, the IRS discovered Fairbank had an unreported account with UBS and issued her a notice of deficiency for tax years 2003–2009 for all income generated from the account. Fairbank argued that the IRS could not assess the delinquent tax and penalties because the statute of limitation under Sec. 6501(a) had expired. The IRS contended that the notice of deficiency was timely. The limitation period remained open under Sec. 6501(c)(8) because Fairbank failed to notify the IRS of certain foreign transfers with respect to Xavana Establishment and the UBS account, the Service argued.

The Tax Court held that the statute of limitation had not run under Sec. 6501(c)(8) because Fairbank had not complied with the reporting requirements in Secs. 6048(b) and (c) and the notice of deficiency was timely issued. The court also held that Fairbank was not entitled to any reasonable-cause defense against accuracy-related penalties based on reliance on professional advice, as she had attempted to argue, because she had provided her CPA inaccurate information regarding her foreign bank accounts. Thus, the court held, she did not rely in good faith on the CPA’s advice.

Sec. 72: Annuities; certain proceeds of endowment and life insurance contracts

Lack of proof withdrawn funds met an exception: The taxpayer in Ghaly¹⁰ withdrew $71,147 from his retirement account in 2018 to provide for his family because he had been laid off from his job. Some of the funds were used for his son’s surgery. He also defaulted on a retirement plan loan that year. To restore the withdrawn amounts, he opened two new retirement accounts in 2020 and contributed the maximum amount allowed. He was issued two Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit- Sharing Plans, IRAs, Insurance Contracts, etc., for 2018. One form showed the withdrawal from the qualified plan with 20% federal withholding, and the other form showed the loan default balance of $44,178.

The Tax Court held that both distributions must be reported as income and that contributions in a subsequent year are irrelevant. Since the taxpayer was under age 59½, he also owed a 10% penalty on early distributions from a qualified retirement plan unless an exception applied. He produced an invoice for his son’s surgery for $34,000 but no proof that it was paid, and he submitted bank statements showing that he had made higher education payments in 2013 and 2014. The court held that none of those items proved he had paid an expense that would entitle him to an exception to the 10% penalty, so he was liable for the $11,533 penalty for the early distributions from his retirement plan.

Disability exception not proven: In Lucas,¹¹ the taxpayer challenged the IRS’s determination of a tax deficiency of $4,899 for tax year 2017. The taxpayer worked as a software developer; he had been employed for approximately four years prior to losing his job in 2017. The job loss contributed to his financial problems, so he obtained a distribution of $19,365 from a Sec. 401(k) plan. At this time, the taxpayer had not yet attained the age of 59½ years. The Form 1099-R that he received listed the distribution as an early distribution with no known exception.

When the taxpayer filed his 2017 tax return, he did not include the distribution in his taxable income, as he had received a medical diagnosis of diabetes in 2015; he believed that because of this diagnosis, the distribution did not constitute taxable income.

The court held in favor of the IRS, finding the medical diagnosis did not exempt the taxpayer from including the distribution in his income. Furthermore, he was subject to the 10% additional tax imposed on early distributions. The court held that his diabetes was not shown to have made him unable to engage in any substantial gainful activity within the meaning of Sec. 72(m)(7); therefore, he was ineligible for the disability exception in Sec. 72(v)(2)(B).

Sec. 104: Compensation for injuries or sickness

In Tillman-Kelly,¹² the taxpayers challenged the IRS’s determination of a deficiency in their 2017 federal tax return of $67,322 relating to unreported income from a lawsuit.

Bryant Tillman-Kelly, an employee of Chicago State University (CSU), expressed concerns to the ethics offices of the U.S. Department of Education and CSU that certain grant funds were being misappropriated. Following Tillman-Kelly’s reported concern, CSU terminated his employment in 2010. Upon his termination, he filed a suit against CSU, its trustees, and the dean to whom he had reported as an employee, alleging that they had retaliated against him for his complaints and that he “was subjected to humiliation, isolation, harsher discipline and different and comparatively more negative terms and standards of employment [than] other university employees, denial of benefits, demotions, and ultimately, termination.” Tillman-Kelly argued that the actions against him violated Illinois state whistleblower protections, and he sought damages to cover not only emotional distress and humiliation but also lost income and benefits. Tillman-Kelly received a payment of $230,671 in settlement of his suit. The settlement agreement described this payment as being for “alleged non-wage injuries, as non-economic emotional distress damages.”

In Tax Court, Tillman-Kelly claimed that the retaliation claim was actually rooted in a heated altercation between him and the dean, which resulted in physical injury from the slamming of a door, and that the settlement proceeds were meant to compensate him for that injury. Thus, he argued, the proceeds were excludable under Sec. 104(a)(2) because they were paid on account of physical injuries or sickness.

The Tax Court noted, however, that the settlement agreement, which characterized the payment as for “emotional distress damages” and did not reference any physical injury whatsoever, belied the Tillman-Kellys’ claim. As such, the court upheld the IRS’s determination that the settlement payment Tillman-Kelly received was not excludable from income and sustained the deficiency.

Sec. 165: Losses

Courts and the IRS considered the deductibility of claimed losses of several types under Sec. 165 during the period covered.

Gambling losses: In *Bright,*¹³ the taxpayer’s 2019 Form 1040, U.S. Individual Income Tax Return, indicated that he was a professional gambler with over $240,000 of income and the same amount of expenses on Schedule C, Profit or Loss From Business. The IRS disallowed all the expenses and assessed tax on the full amount of income. By using information provided to the taxpayer by casinos, the Tax Court was able to estimate over $190,000 in losses. The taxpayer was not able to prove that his winnings were less than the amount shown on his return, although it was obvious from his financial records that he did not profit from the gambling. The case cannot be used as a precedent but allowed the use of casino reports in determining gambling losses.

Worthless cryptocurrency: The IRS issued a legal memorandum addressing whether Sec. 165 applies to cryptocurrency that has declined in value and whether a taxpayer may thereby claim a loss due to worthlessness or abandonment. The Chief Counsel Advice (CCA) memo¹⁴ discussed both cryptocurrency and the definition of a qualifying loss under Sec. 165 and concluded that if the taxpayer has possession of the cryptocurrency, it has a liquidating value and could still be traded; no loss for total worthlessness is allowed. The memo also concluded that any loss would be claimed under Sec. 67(b) — a miscellaneous itemized deduction, which for tax years 2017 through 2025 is not allowable under Sec. 67(g).

Casualty loss: In *Richey,*¹⁵ the taxpayers bought an oceanfront second home in 2007 and purchased a yacht the following year. In March 2017, Winter Storm Stella hit the area. The taxpayers claimed that the waterside portion of the residence was damaged as well as the yacht, which was stored at a marina for the winter. On their 2017 tax return, prepared using an H&R Block preparer, they claimed casualty losses of approximately $820,000 — $180,000 for the boat and the remainder for the house — for a deduction of nearly $740,000 after the income limitation. For each asset, they calculated the loss by determining its value before and after the storm, reducing the loss for the house by a small reimbursement. Since the losses were less than what they calculated as the assets’ bases, they deducted the entire amount. The return was selected for audit, and the casualty loss deduction was disallowed in full.

Unfortunately for the taxpayers, they were unable to support the amount of the loss. They had no appraisals of the properties before and after the casualty and no evidence that the assets were actually damaged by the storm. Without an appraisal of the house, the taxpayers could use the cost of repairs, but the receipts provided indicated that the property was improved in some respects rather than merely restored. The house’s basis was also a problem because the taxpayers claimed its purchase price was higher than that shown on a purchase contract that was entered into evidence. They also did not file an insurance claim (other than stating they received a nearly $40,000 reimbursement from an unspecified source), which is a fatal flaw.

The basis for the boat also lacked proper substantiation. In lieu of an appraisal, its estimated loss in value was based on published prices of similar vessels. No insurance claim was made for the boat, either. The IRS’s determination of no deductible loss was upheld.

Confiscation loss: In *Soleimani,*¹⁶ the taxpayer alleged that three parcels of real estate purchased for him by his uncle in the 1970s were confiscated by the Iranian government. He was born in Iran but had resided in the United States since the early 1960s and became a permanent resident in 1964. He last visited Iran in 1976; the unimproved real estate parcels were purchased for him in 1976, 1977, and 1978.

The taxpayer’s family had supported Shah Mohammad Reza Pahlavi of Iran, who was overthrown in 1979, and the taxpayer was afraid to return to the country. He wanted to sell the properties in 2006 and had a U.S.-resident friend travel to Iran to investigate them. The friend learned that the properties were still in the taxpayer’s name, but by 2007, a real estate broker hired by the friend informed the taxpayer that the titles had been transferred to the Iranian government.

The friend secured the services of an Iranian attorney, who accompanied him to inspect the properties and attempted to obtain records showing the confiscation. The attorney allegedly obtained a declaration document from Iranian officials dated 2008 showing that the properties had been acquired by the taxpayer in 1976, 1977, and 1978. The value of the properties in rials and U. S. dollars was also provided, along with the attorney’s address and bar license number. The declaration also provided a description of the properties and declared they were confiscated in 2007.

The taxpayer claimed a long-term capital loss deduction of $2.7 million and later amended the return to increase the loss to nearly $5.6 million. The IRS examined the return and disallowed the deduction. It also imposed a substantial-understatement penalty.

The Tax Court was provided the declaration and heard testimony from an expert in Iranian law to substantiate the claim. The Tax Court reviewed the materials and found discrepancies when comparing the items to maps. The taxpayer was given some time to file a report addressing the discrepancies. Instead, he submitted a supplemental report prepared by his expert witness.

Because the IRS had no opportunity to cross-examine the witness, the court allowed the IRS to provide an expert of its own. The IRS’s expert witness concluded that the attorney providing the declaration was fictitious, unknown at the address or telephone number provided or by the Iranian Bar Association. The witness also contended that the documents the taxpayer provided were forgeries and that records showed two of the properties were never owned by the taxpayer or the Iranian government.

The Tax Court held that substantial evidence indicated the declaration and documents obtained by the taxpayer’s attorney were forgeries and upheld the IRS’s assessment of tax, substantial-understatement penalties, and interest. However, the court found that the IRS had waited until too late in the proceedings to amend the pleadings to assert a fraud penalty without causing undue prejudice to the taxpayer.

Sec. 170: Charitable, etc., contributions and gifts

Courts in a number of cases were asked to determine whether taxpayers claiming charitable contribution deductions met the substantiation requirements of Sec. 170. Taxpayers claiming deductions must adhere to statutory and regulatory substantiation requirements, which depend on the size of the contribution and whether the donation is of cash or property. They must also maintain adequate records to support items underlying the claimed deductions.

Disallowance of deduction in certain cases and special rules: In *Chancellor,*¹⁷ the Tax Court had concluded in a 2021 decision that the taxpayer was not entitled to claim charitable contribution deductions on her 2015 tax return for cash contributions and expenses of volunteer work for her church. The taxpayer appealed to the Ninth Circuit, which issued a decision in December 2022 affirming the Tax Court’s decision.¹⁸

The taxpayer claimed a charitable contribution deduction of $6,000 in cash contributions and $500 in expenditures associated with her volunteer work for her church. For the cash contributions, the taxpayer presented no documentation showing the donees, dates, or amounts of the donations. For the volunteer expenses, she failed to substantiate the amounts or dates of expenditures allegedly incurred as part of her volunteer work.

Substantiation requirement for certain contributions: The Tax Court considered whether the taxpayers in Brooks¹⁹ met the substantiation requirements of Sec. 170, the “baseline documentation” requirement in Regs. Sec. 1.170A-14(g) (5) (i), and the increased substantiation rule with respect to cost basis in Regs. Sec. 1.170A-13(c). The case concerned a charitable contribution deduction related to the donation of a conservation easement originating in 2007 and resulting in carryover deductions claimed in 2010, 2011, and 2012, the years at issue. The IRS disallowed the carryover deductions due to the taxpayers’ failure to satisfy the requirement for a contemporaneous written acknowledgment, including a statement regarding whether the donee organization provided any goods or services in exchange for the donation.

The easement deed itself was presented as the contemporaneous written acknowledgment. It was silent as to whether the donee provided goods or services in consideration of the contribution. The absence of such language is acceptable as long as the deed states that the terms of the deed represent the entire agreement. The deed lacked an entire-agreement clause, contributing to the court’s finding that it could not serve as the contemporaneous written acknowledgment required by statute.²⁰

The taxpayers also ran afoul of the baseline documentation requirements of Regs. Sec. 1.170A-14(g)(5)(i), which compel the donor to provide documentation sufficient to establish the condition of the property at the time of the gift. The court found the submitted baseline report to be deficient in several types of data deemed to constitute adequate baseline documentation, including detailed maps, photographs, and information regarding road locations, sizes, or conditions.

Regs. Sec. 1.170A-13(c) requires taxpayers claiming a deduction under Sec. 170 for a contribution of property valued at more than $5,000 to attach to the return on which the deduction is first claimed an appraisal summary containing certain information, including the cost basis and acquisition date of the contributed property. The taxpayers did not comply with this when they overstated the basis of the donated property on Form 8283, Noncash Charitable Contributions, approximately doubling the correct amount. They claimed this was due to scribal error, but the court held them to the requirement.

Qualified appraisal and other documentation for certain contributions: In Hoensheid,²¹ the timing of a donation featured prominently, in addition to issues related to substantiation and valuation. In this case, married taxpayers donated appreciated stock in a closely held corporation to a charitable organization that administered donor-advised funds.

When transactions such as this are structured properly, donors can avoid capital gains on the sale of the property and claim a charitable contribution deduction for the value of the donated property. In this instance, the taxpayers entered into negotiations for the sale of the subject stock to a third party months before the donation, but the transfer of the stock to the donor-advised fund took place just two days before the impending sale.

After reviewing the events and circumstances, the court found that the sale was a virtual certainty at the time of the gift and thus characterized the donation as an anticipatory assignment of income, charging the taxpayers with capital gain attributable to the stock shares. In and of itself, this finding did not prevent the taxpayers from claiming a charitable contribution deduction; however, the deduction was disallowed due to the failure to meet the qualified-appraisal requirement. Specifically, the appraisal stated an incorrect contribution date and had other defects, including that it did not sufficiently describe the property or the method and basis for the valuation. Moreover, it did not adequately describe the appraiser’s qualifications and valuation experience.

The taxpayers attempted to rely on the reasonable-cause defense as an excuse for their failure to obtain a qualified appraisal and to avoid accuracy-related penalties. The court held they did not have reasonable cause for not obtaining the qualified appraisal because the taxpayers used as an appraiser a financial services firm manager, who they knew lacked expertise in this area. Nonetheless, the court held that the accuracy-related penalties based on negligence or a substantial understatement of income tax did not apply because the taxpayers showed reasonable cause in the form of reasonable reliance on their attorney’s advice regarding the anticipatory-assignment-of-income issue.

Mandatory aggregation and qualified appraisal: In Bass,²² the taxpayer was denied a deduction for noncash charitable contributions of clothing, the value of which exceeded $5,000 but for which he did not obtain a qualified appraisal.

For any noncash charitable contribution exceeding $5,000, the donor is required to (1) obtain a qualified appraisal for the property contributed; (2) attach a fully completed appraisal summary to the income tax return for the year the deduction is claimed; and (3) maintain records containing certain information.²³ The taxpayer made 173 separate donations of clothing and nonclothing items. He testified that since the donated items shown on each receipt had a fair market value of less than $250, he did not need to have any of the items appraised. However, Sec. 170(f)(11) (F) and Regs. Sec. 1.170A-13(c)(1) (i) mandate aggregating similar items of property donated to one or more charitable organizations. While the Tax Court sustained the IRS’s denial of the deduction for these items, the taxpayer was allowed a deduction for the donation of furniture and other items with values below the $5,000 appraisal threshold and for which he satisfied the substantiation requirements.

Charitable limited liability company donation: In Lim,²⁴ the IRS filed a motion with the Tax Court for partial summary judgment regarding the married taxpayers’/S corporation owners’ charitable deduction claim for a gift of charitable limited liability company (CLLC) units to a foundation, which was undertaken as part of a tax evasion scheme promoted by their attorney. The attorney devised the following arrangement: He would form as a charitable giving vehicle a CLLC with the taxpayer’s S corporation as the sole member; create documents transferring assets to the CLLC by the taxpayer’s S corporation and transferring units in the CLLC to a charitable organization; and supply an appraisal to support the valuation claimed by the S corporation for the charitable gift.

The taxpayers agreed to the scheme and claimed a charitable contribution deduction on their 2016 individual tax return, which was passed through to them from their S corporation. On examination, the IRS disallowed the deduction, stating that the taxpayers failed to establish that the S corporation did in fact make the charitable gift and that they did not satisfy the substantiation requirements.

To support the claimed donation, the taxpayers relied upon an acknowledgment letter issued by the charitable organization. The letter contained several defects, including that it was addressed to the taxpayer spouse instead of the S corporation as the donor; it did not bear the signature of an officer or employee of the charitable entity; and, most importantly, the letter did not refer to a donation of units in the CLLC created by the attorney for the scheme and instead referred to units of an LLC that did not exist as of the date of the letter.

The IRS asserted in its motion that the taxpayers did not donate any LLC units to the charity, they failed to meet the applicable charitable deduction substantiation requirements, and they did not have reasonable cause for failing to meet the substantiation requirements. On the first issue, the court denied this part of the IRS’s motion, because the taxpayers presented some evidence (the acknowledgment letter, despite its defects), leaving it for trial to determine whether a donation had occurred.

On the substantiation issue, the IRS claimed that the substantiation requirements of Sec. 170(f)(11) were not met because the appraisal supporting the valuation of the claimed charitable gift was not, as a matter of law, a qualified appraisal within the meaning of Sec. 170(f)(11). The IRS’s rationale for disqualifying the appraisal was that the fee arrangement for the appraisal engagement was prohibited since it was based on a percentage of the appraised value of the property. Such an arrangement is specifically prohibited in Regs. Sec. 1.170A-13(c) (6) (i).

The court found that the attorney’s fee for the appraisal was clearly based, directly or indirectly, on the appraised value of the CLLC units the taxpayers allegedly donated and thus constituted a prohibited fee arrangement. Therefore, the appraisal was not a qualified appraisal, and the court granted the IRS’s motion for summary judgment on this issue.

On whether they had reasonable cause, the taxpayers contended that they had reasonable cause because they relied on the professional advice of a CPA and an attorney regarding the appropriateness of the charitable contribution deductions in question. The court stated that this is a facts-and-circumstances determination and it was conceivable that the taxpayers could show that they received and reasonably relied on professional advice. Accordingly, the court found that the reasonableness of this reliance would require the presentation of evidence at trial and denied summary judgment on this issue.

Qualified appraisal requirement for charitable contributions of cryptocurrency: A CCA memorandum²⁵ released Jan. 13, 2023, determined that taxpayers who donate cryptocurrency for which a charitable contribution deduction in excess of $5,000 is claimed are required to obtain a qualified appraisal under Sec. 170(f) (11) (C).²⁶ The CCA also stated that if a taxpayer does not obtain a qualified appraisal but instead determines the value of donated cryptocurrency based on the value reported by the cryptocurrency exchange on which the cryptocurrency is traded, the taxpayer will not be eligible for the reasonable-cause exception and the deduction will not be allowed.

Qualified conservation contribution: In Notice 2023-30, issued April 10, 2023, the IRS provided safe-harbor language for extinguishment and boundary line adjustment clauses in conservation easement deeds, as the Service was required to do by Section 605(d)(1) of the SECURE 2.0 Act.²⁷ Under Section 605(d)(2) of the act, donors are permitted, but not obligated, to amend their deeds to include this language. Donors who wished to make the change must have done so by July 24, 2023. The notice does not address any other deed amendments and applies only if the amended deed is signed by the donor and donee and recorded on or before July 24, 2023, and the amendment is effective as of the date of the recording of the original easement deed.

If a donor substituted the safe-harbor deed language for the equivalent language in the original easement deed and the amended document was signed by the donor and donee by July 24, 2023, the corrected deed will be treated as effective for purposes of Sec. 170, Section 605(d)(2) of the SECURE 2. 0 Act, and Notice 2023-30 as of the date the original deed was recorded, regardless of whether the amended eligible easement deed is effective retroactively under relevant state law.

Validity of regulation regarding extinguishment proceeds: As discussed in the March 2023 Tax Adviser update article on developments in individual taxation,²⁸ decisions in the Hewitt²⁹ and Oakbrook³⁰ cases resulted in a split between the Sixth and Eleventh circuits regarding whether the IRS violated the notice-and-comment rulemaking requirements of the Administrative Procedure Act (APA) when it promulgated the conservation easement extinguishment proceeds regulation.³¹ In Hewitt, the Eleventh Circuit held that the IRS failed to respond to “significant comments” concerning the extinguishment proceeds calculation and, in doing so, violated the APA’s procedural requirements. The court, therefore, found the regulation’s allocation method for postextinguishment proceeds invalid.

In Oakbrook, the Sixth Circuit upheld the procedural and substantive validity of the extinguishment proceeds regulation. Subsequently, Oakbrook Land Holdings LLC petitioned the U. S. Supreme Court to review the Sixth Circuit ruling, hoping the justices would step in to resolve the circuit split. The Supreme Court declined to do so.³²

Sec. 172: NOL deduction

When an NOL deduction is claimed, Regs. Sec. 1.172-1(c) requires the tax return to include a statement presenting the amount of the NOL deduction claimed and “all material and pertinent facts relative thereto,” including a detailed schedule of the calculation of the NOL deduction. In some recent cases, taxpayers ran afoul of this regulation.

NOL carryfowards: In *Patacsil,*³³ married taxpayers owned a business that operated communal living residences, providing care for adults with developmental disabilities. One issue in the case centered on the taxpayers’ NOL carryforward claims. Specifically, the taxpayers claimed that they incurred an NOL in 2016 that resulted in a carryforward to 2017. The IRS disallowed the 2017 carryforward claim due to a lack of substantiation. While the taxpayers provided the court with a tax preparation software screenshot stating that they elected to waive the carryback of the NOL, neither this nor the detailed statement required by Regs. Sec. 1.172-1(c) was filed with their 2017 tax return. Consequently, the court upheld the disallowance of the NOL carryforward claim.

Substantiation of NOLs: In Amos,³⁴ the taxpayer was a Miami CPA and restaurateur who claimed significant NOLs in 1999 and 2000, which then swelled and ultimately carried forward to tax years 2014 and 2015. The IRS denied the claimed NOL carryforward deductions on two grounds: (1) the taxpayer failed to offer adequate proof of the original 1999 and 2000 NOLs, and (2) she did not demonstrate that any NOL was available to carry forward to 2014 and 2015. In the first instance, the taxpayer relied chiefly on her 1999 and 2000 tax returns as evidence of the underlying losses. In previous cases, the court had held similar evidence to be insufficient³⁵ and noted that the taxpayer’s tax returns showed only that she had claimed the NOLs, not that she was entitled to them.

In the second instance, the taxpayer did not demonstrate her right to NOL carryforward deductions for 2014 and 2015 because she did not include the detailed statement required by Regs. Sec. 1.172-1(c), the court found. The statements attached to her 2014 and 2015 tax returns indicated simply that the carryforwards were from losses accumulated in prior years. As such, they did not provide “all material and pertinent facts relative” to the NOL carryforwards. Furthermore, the taxpayer did not provide sufficient historical data from tax years 2001 to 2013 to permit the court to determine how much of the NOLs remained available for carryforward to 2014 and 2015. In light of these shortcomings, the court sustained the IRS’s disallowance of the deductions.

Denial of horse-related NOL carryforwards affirmed: Skolnick is a precedential Third Circuit decision.³⁶ In 2021, when the Tax Court affirmed the IRS’s determination that the taxpayers’ horse-related activity did not qualify as an activity engaged in for profit under Sec. 183, the court also held that the taxpayers failed to substantiate NOL carryforwards that purportedly arose from the horse-related activity.³⁷ The taxpayers appealed, claiming the court erred when it upheld the IRS’s position.

With regard to the NOL carryforwards, the Third Circuit reviewed the sufficiency of the evidence submitted for tax deductions for clear error. The first two items of evidence put forth by the taxpayers to support NOL deductions were prior-year income tax returns. These were found to be insufficient because taxpayers cannot rely solely on their own tax returns to substantiate losses.³⁸ The third piece of evidence was an IRS no-change letter related to the audit of the taxpayers’ 2008 tax returns.

The Third Circuit noted that the letter did not in and of itself validate the losses claimed by the taxpayers; it simply proposed no changes to the 2008 tax return. Again, tax returns cannot establish losses on their own. The taxpayers also failed to submit sufficient historical data from the years in which the claimed NOLs arose. After reviewing the evidence put forth by the taxpayers, the Third Circuit determined that the Tax Court did not clearly err in denying the NOL carryforward deductions.

Sec. 179: Election to expense certain depreciable business assets

In Hoakison,³⁹ the IRS asserted that the taxpayer, Steven Hoakison, was a collector of antique tractors and that ⁴⁰ farm tractors at issue were acquired principally for personal reasons and served no business purpose. The Service disallowed depreciation and Sec. 179 deductions related to the tractors that the taxpayer claimed on Schedule F, Profit or Loss From Farming, for tax years 2013, 2014, and 2015. The taxpayers petitioned the Tax Court for redetermination and ultimately prevailed.

Hoakison was a longtime farmer who also worked as a delivery driver. He and his wife farmed over 480 acres across five noncontiguous pieces of property located miles apart in Iowa. They purchased dozens of older, used tractors for their farm operation. The IRS asserted that the age of the tractors rendered them nostalgic items and that Hoakison did not actually need the number of tractors reported for business purposes.

Hoakison explained to the court that he purchased older, used tractors because they were of the type he had been using all of his life, so he was knowledgeable about their operation and maintenance. In addition, they cost a fraction of a new tractor’s price, enabling him to pay for them in cash without incurring debt. The tractors were typically kept at each farm site instead of being driven between locations and, in many cases, were dedicated to specific farming-related tasks. This allowed Hoakison to maximize the limited amount of time he had available each day to devote to farming activities.

In its holding, the Tax Court stated that the IRS’s position disregarded the taxpayers’ individual circumstances and testimony. The court found that Hoakison credibly testified that he used each of the tractors in his farm operations and that the nature of his activities supported the number of tractors acquired. Thus, the depreciation and Sec. 179 deductions were allowed.

Sec. 183: Activities not engaged in for profit

Racing: In *Avery,*40 the taxpayer was an attorney who claimed he advertised his law practice by driving a race car. The principal question in this case was whether the IRS erred in declining to allow deductions for $303,366 of advertising expenses that Avery allegedly incurred during 2008 through 2013 in his business as an attorney.

According to Avery, these deductions corresponded to the expenses he incurred in conducting a car racing activity. He said that these activities promoted his litigation practice. However, the IRS replied that Avery failed to substantiate half of these expenses and that the racing-related costs that he substantiated were not ordinary business expenses.

The Tax Court upheld the IRS’s determination, finding that Avery failed to support his claim that his car racing activity promoted his law practice. The court found that his racing activity was a hobby, the racing venues he raced at did not have any connection with the location of his law practice, and he did not actually obtain any personal injury litigation business through the purported advertising. Therefore, the court concluded that Avery was not entitled to deduct the advertising expenses related to car racing.⁴¹

Ranching: Wondries⁴² involved a dispute over the taxpayers’ cattle ranching activity and whether it was engaged in for profit under Secs. 162 and 183. The taxpayers, who had experience operating multiple auto dealerships, said they purchased the ranch intending to raise and sell cattle as well as provide guided hunting expeditions on the property. However, they soon realized that these plans would not be profitable due to unforeseen cost constraints, so they soon reduced the cattle herd and shifted to an investment focus, hoping to one day sell the property at a gain.

The main issue in the case was whether the taxpayers entered into the cattle ranching business with a profit motive. The Service asserted that they had not. However, the taxpayers provided evidence showing that they hired an experienced foreman to oversee the day-to-day operations, maintained reliable accounts for ranching activities, and had experience turning around multiple auto dealerships to make them profitable. They also owned other properties in desirable locations where they vacationed, which was consistent with their assertion that their primary motivation here was to earn a profit, the Tax Court said.

While commenting that this was a “close case,” the Tax Court concluded that the taxpayers engaged in their ranching activity for profit rather than as a hobby and that the IRS had improperly denied their loss deductions.

Sec. 212: Expenses for production of income

In Schmerling,⁴³ the Tax Court disallowed expenses that the taxpayer deducted on his Schedule C and recharacterized some as unreimbursed employee expenses.

This case involved the 2014 tax year, before miscellaneous itemized deductions were suspended by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. The taxpayer was an automobile salesman at a BMW dealership. He received a Form W-2, Wage and Tax Statement, from the dealership. In addition to his W-2 income, he was compensated by other companies in connection with his position at the dealership. Specifically, he received income reported on a Form 1099-MISC, Miscellaneous Income, from BMW through a performance bonus program for sales managers. He also received a Form 1099-MISC from Devex Inc., an underwriter of extended warranty service contracts, reporting commissions he earned on the sales of the contracts. The taxpayer reported the Form 1099-MISC income from BMW and Devex and deducted various expenses, such as travel, lease of business property, tips, supplies, and phone on Schedule C.

The IRS determined that the Schedule C activities did not constitute a trade or business separate and apart from the petitioner’s employment with the dealership. The Service recharacterized the gross receipts from BMW and Devex as “other income” not subject to self-employment tax and found that the deductions he reported should either be disallowed or should be reported on Schedule A, Itemized Deductions, as miscellaneous itemized deductions. The taxpayer sought review of the IRS’s determination in Tax Court.

The Tax Court sided with the IRS. The court was not persuaded that the petitioner’s relationships with BMW and Devex provided him the opportunity to earn a living separate and apart from his status as an employee of the dealership. The Tax Court allowed some of the claimed deductions as unreimbursed employee business expenses and upheld the IRS’s denial of others.

Sec. 274: Disallowance of certain entertainment, etc., expenses

Temporary work: In *Ledbetter,*⁴⁴ married taxpayers argued that they were entitled to deduct mileage expenses for travel to and from the husband’s work assignment at a nuclear plant because his employment was temporary. Although the husband’s various work assignments were all at the same nuclear plant, the taxpayers claimed the assignments were temporary because they were indefinite in duration, contingent on funding, and prone to stoppages.

The Tax Court denied the taxpayers’ claim because, although the husband’s work assignments were indefinite in length, they were not temporary as defined by statutory and case law. A work location is not temporary if it is a location at which the taxpayer works or performs services regularly. Employment is considered indefinite rather than temporary unless termination is actually foreseeable within a short time.⁴⁵

The court noted that the husband was continuously employed at the same nuclear plant from 2012 to 2019, albeit with different contractors, and he faced no period of layoff exceeding four months during that time. During the years at issue, 2015 and 2016, he worked 235 and 253 days, respectively. The longest break between workdays during either year was nine days, and all of those days worked were at the same location. The court concluded that his employment at the nuclear plant was indefinite and not temporary and that his vehicle expenses constituted nondeductible commuting expenses.

Unsubstantiated business expenses: In *Amundsen,*⁴⁶ the Tax Court disallowed due to lack of substantiation most expenses the taxpayer claimed on his Schedule C. The taxpayer was a CPA and attached a Schedule C for his accounting practice to his 2017 return. He improperly reported all expenses as cost of goods sold, even though they were distinct expenses such as rent, home office, supplies, meals, travel, licenses, etc. He provided ledgers, financial statements, bank statements, and canceled checks; however, he did not provide any receipts corresponding to the expenses listed in his documents or details of the purchases listed on his bank statements.

The bank account was used for both personal and business expenditures, making it difficult for the Tax Court to differentiate between legitimate business expenses under Sec. 162 and personal expenses under Sec. 262. The taxpayer’s tax diary for travel expenses failed to satisfy the strict substantiation requirements of Sec. 274(d), since he failed to list the time, place, and business purpose of his travels. His home office deduction was disallowed because he did not provide any evidence to support the nature or extent of the work performed in his personal residence and failed to satisfy Sec. 280A(c). The Tax Court said the fact that he reported rent expenses for two locations other than his home office further supported its conclusion that his personal residence was not his principal place of business.

Sec. 401: Qualified pension, profit-sharing, and stock bonus plans

Follow-up legislation to 2019’s SECURE Act⁴⁷ was enacted in December 2022. Unlike its predecessor, which had dramatic effects, the SECURE 2.0 Act⁴⁸ made many small changes to the retirement rules, with varying effective dates. The new law was aimed largely at encouraging investment in retirement plans by lower-income workers. Automatic enrollment in retirement plans was expanded, and new exceptions were added to the 10% tax on early distributions to allow access in certain limited situations to retirement funds before age 59½. Catch-up contribution limits were also increased, and the age for required minimum distributions (RMDs) was increased slightly to age 73. Roth IRAs were encouraged by making them more readily available.

The act also helps taxpayers who make errors subject to penalty taxes by shortening the statute of limitation on penalty assessments and reducing the penalty for missed RMDs from 50% to 25%. The 25% penalty rate can be further reduced to 10% if the error is cured on a timely basis. During the period covered by this individual tax update article, the IRS released guidance on some provisions of the SECURE 2. 0 Act.

Relief for custodians reporting RMDs: In Notice 2023-23, the IRS provided guidance to financial institutions regarding RMD reporting. The guidance relates to the SECURE 2. 0 Act provision delaying the required beginning date for RMDs to age 73. Because of this change in the required beginning date, IRA owners who turn 72 in 2023 do not need to take an RMD for 2023. Under the relief provided in Notice 2023-23, financial institutions will not be considered to have acted improperly in sending statements to IRA owners turning 72 this year informing them that they needed to take an RMD, so long as the financial institution notified the owner by April 28 that no RMD is in fact due.

Interim guidance for EPCRS expansion: SECURE 2.0 expanded the use of the Employee Plans Compliance Resolution System (EPCRS), which is set forth in Rev. Proc. 2021-30, to IRAs and similar plans. Notice 2023-43 was issued to provide “interim interpretive guidance” regarding the new rules in advance of an update to Rev. Proc. 2021-30 to reflect SECURE 2.0. The notice allows a plan sponsor to selfcorrect inadvertent failures before Rev. Proc. 2021-30 is updated if specified conditions are met but does not allow IRA custodians to self-correct an inadvertent failure before the update of Rev. Proc. 2021-30.

Sec. 408: Individual retirement accounts

Tax and personal financial planning advisers often remind clients that for a surviving spouse to roll over an IRA or other retirement benefit, they should be named as a beneficiary of the plan. Two recent IRS letter rulings demonstrate that the error can be fixed by a private letter ruling, but obtaining a letter ruling is expensive. Currently, the IRS exacts a fee of $12,600, in addition to the cost of the CPA or attorney who writes up the request and shepherds it through the system.

No beneficiary named: In Letter Ruling 202322014, the decedent had not named a beneficiary for the IRA from which he had been taking RMDs for a number of years. The surviving spouse was named executor and was the sole beneficiary of the decedent’s estate. Under the IRA agreement with the custodian, the decedent’s estate became the beneficiary if none were named. The IRS ruled that the IRA would not be treated as an inherited IRA, that the surviving spouse could roll over the IRA, and that the rollover amount was not includible in the surviving spouse’s gross income (except in the case of a rollover to a Roth IRA). The surviving spouse was given 60 days from the date of the ruling in which to complete the rollover.

Estate named as beneficiary: In Letter Ruling 202322013, the beneficiary of two separate IRAs was the decedent’s estate. The decedent had not reached the required beginning date and had not been taking distributions from either account. The decedent’s surviving spouse was both the executor and sole beneficiary of the decedent. As in the above ruling, the surviving spouse was allowed time to roll over the benefits. Both IRAs had been transferred to a beneficiary IRA in the name of the decedent’s estate; that step did not prove fatal.

Sec. 469: Passive activity losses and credits limited

The IRS issued multiple letter rulings that granted taxpayers an extension of time to file an election under Sec. 469(c)(7)(A) and Regs. Sec. 1.469-9(g) (3) to treat all interests in rental real estate as a single rental real estate activity.⁴⁹ A common theme in these letter rulings is that the taxpayer relied on a qualified tax professional who did not advise making the election. CPAs should consider highlighting this election when assisting or advising individual clients who have more than one real estate activity.

Such advice might have helped the taxpayers in Dunn,⁵⁰ where the Tax Court’s decision also provides several other good reminders that form matters. In this case, the taxpayers included rental activities related to properties that they owned personally on a partnership tax return instead of reporting it directly on their personal Form 1040. They also did not keep records regarding the amount of time spent on each rental property or how the time was spent.

The incorrect reporting on the partnership tax return prevented losses from flowing through the partnership to the Form 1040. If the taxpayers had properly reported these activities on their personal return, under the passive activity loss rules, the taxpayers might have been able to deduct the losses if they had also been able to document that at least one of them reached the 750-hour threshold to be considered a real estate professional and had made the election under Sec. 469(c)(7) and Regs. Sec. 1.469-9(g) to treat all their interests in rental real estate as a single rental real estate activity. However, the couple was unable to prove that either spouse was a real estate professional, and they did not make the election to aggregate their rental real estate interests as a single activity.

Sec. 1400Z-2: Special rules for capital gains invested in opportunity zones

IRS Letter Ruling 202249005, issued Oct. 17, 2022, and released Dec. 9, 2022, relates to the application of the 50% gross income requirement under Sec. 1400Z-2(d)(3)(A)(ii). Two separate qualified opportunity zone businesses (QOZBs) had been created to construct and develop new retail and multifamily housing. The two QOZBs were merged, and then one of the pieces of property that had been purchased for development was sold. The letter ruling was requested to confirm that the proceeds of that sale would not disqualify the partnership from being a QOZB, since one of the requirements to be a QOZB is that 50% of the business’s total gross income must be from the active conduct of a trade or business within a qualified opportunity zone (QOZ).

The letter ruling concludes that gross income derived from the sale of land could be treated as the gross income derived from the active conduct of a trade or business in a QOZ, provided that the taxpayer adopted a new or revised working capital plan that utilized the proceeds of such a sale, net of tax distributions, as working capital that met the required spending timeline of the originally allowed period for the working capital used to purchase the property of up to 31 months and up to 24 additional months.

The ruling states that the sale qualified as income from an active trade or business within the QOZ because the property was purchased with capital originally treated as working capital by the QOZB, and Regs. Sec. 1. 1400Z2(d)-1(d)(3)(vi)(B) provides that, if any gross income is derived from property that is treated as a reasonable amount of working capital, then that gross income is counted toward the satisfaction of the 50% test in Sec. 1397C(b)(2).

This letter ruling is good news for real estate QOZBs that had to modify their construction plans due to COVID-19, where that modification included a sale of a portion of the land originally purchased for development.

Sec. 4973: Tax on excess contributions to certain tax-favored accounts and annuities

Penalty statute of limitation: The SECURE 2.0 Act has effectively negated the Tax Court’s 2011 ruling in Paschall⁵¹ concerning the statute of limitation that applies when the IRS seeks to impose a penalty excise tax upon an individual for making an excess contribution to an IRA. Paschall held that the statute of limitation did not start running for purposes of the penalty excise tax upon the filing of Form 1040 in the absence of accompanying Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. The court reasoned that the Form 1040 alone did not make it reasonably possible for the IRS to discern that any potential tax liability existed. Because the statute of limitation never started running, the penalty excise tax could be imposed at any time, the court held.

SECURE 2.0 has changed this. The act specifically addresses how the statute of limitation operates for penalties imposed by Secs. 4973 and 4974 (see Sec. 6501(l)(4)). The AICPA has asked that the IRS clarify whether the relief for excess accumulations applies equally to fiduciary returns as well as individual returns (letter from Jan Lewis, CPA, chair, AICPA Tax Executive Committee, “Re: Prioritization of Guidance Under SECURE 2.0 Act of 2022” (April 27, 2023)).

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Footnotes

¹Rev. Proc. 2023-1, §9.05(1).

²Rev. Proc. 2023-1, §15.08.

³Rev. Proc. 2023-2, §§7 and 8.

⁴Rev. Proc. 2023-3, §§3.01(108) and (109). See also Rev. Proc. 2022-19, §3.01.

⁵Rev. Proc. 2023-3, §3.01(120).

⁶Henry, T.C. Memo. 2023-2.

⁷Sneed, T.C. Summ. 2023-11.

⁸Manzolillo, T.C. Memo. 2022-107.

⁹Fairbank, T.C. Memo. 2023-19.

¹⁰Ghaly, T.C. Summ. 2023-13.

¹¹Lucas, T.C. Memo. 2023-9.

¹²Tillman-Kelly, T.C. Memo. 2022-111.

¹³Bright, No. 10095-22 (T.C. 5/4/23) (bench opinion).

¹⁴Chief Counsel Advice (CCA) 202302011.

¹⁵Richey, T.C. Memo. 2023-43.

¹⁶Soleimani, T.C. Memo. 2023-60.

¹⁷Chancellor, T.C. Memo. 2021-50.

¹⁸Chancellor, No. 21-71264 (9th Cir. 12/16/22).

¹⁹Brooks, T.C. Memo. 2022-122.

²⁰Sec. 170(f)(8).

²¹Hoensheid, T.C. Memo. 2023–34.

²²Bass, T.C. Memo. 2023-41.

²³Regs. Sec. 1.170A-13(c)(2).

²⁴Lim, T.C. Memo. 2023-11.

²⁵CCA 202302012.

²⁶See also Geiszler, Arnold, and McKinley, “Qualified Appraisal Required for Charitable Contributions of Cryptoassets,” 235-6 Journal of Accountancy 30 (June 2023).

²⁷The SECURE 2.0 Act, enacted as Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328.

²⁸Bowles et al., “Current Developments in Taxation of Individuals,” 54-3 The Tax Adviser 30 (March 2023).

²⁹Hewitt, 21 F.4th 1336 (11th Cir. 2021).

³⁰Oakbrook Land Holdings, LLC, 28 F.4th 700 (6th Cir. 2022).

³¹Regs. Sec. 1.170A-14(g)(6)(ii).

³²Oakbrook, No. 20-323 (U.S. 1/9/23) (cert. denied).

³³Patacsil, T.C. Memo. 2023-8.

³⁴Amos, T.C. Memo. 2022-109.

³⁵Citing Bulakites, T.C. Memo. 2017-79; McRae, T.C. Memo. 2019-163; Ghafouri, T.C. Memo. 2016-6; and Wagner, T.C. Memo. 2015-120.

³⁶Skolnick, 62 F.4th 95 (3d Cir. 2023).

³⁷Skolnick, T.C. Memo. 2021-139.

³⁸Citing Roberts, 62 T.C. 834, 837 (1974).

³⁹Hoakison, T.C. Memo. 2022-117.

⁴⁰Avery, T.C. Memo. 2023-18.

⁴¹See also McKinley and Geiszler, “Attorney’s Racing Activities Fall Short of the Finish Line,” 235-6 Journal of Accountancy 30 (June 2023).

⁴²Wondries, T.C. Memo. 2023-5.

⁴³Schmerling, T.C. Summ. 2023-14.

⁴⁴Ledbetter, T.C. Summ. 2023-19.

⁴⁵Bogue, T.C. Memo. 2011-164, slip op. at 30; Michel, 629 F.2d 1071 (5th Cir. 1980), aff’g T.C. Memo. 1977-345.

⁴⁶Amundsen, T.C. Memo. 2023-26.

⁴⁷Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, Division O of the Further Consolidated Appropriations Act, 2020, P.L. 116-94.

⁴⁸SECURE 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328.

⁴⁹E.g., IRS Letter Ruling 202309003.

⁵⁰Dunn, T.C. Memo. 2022-112.

⁵¹Paschall, 137 T.C. 8 (2011).

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Contributors

Elizabeth Brennan, CPA, is a practitioner in New Orleans. Christina Figueroa, CPA, is a partner with PwC LLP in Los Angeles. Mary Kay Foss is a CPA in Walnut Creek, Calif. Shannon Hudson, CPA, MST, is a founding partner of Altair Group PLLC in Bedford, N.H. Amie Kuntz, CPA, is a partner in the national tax group of RubinBrown LLP. Dana McCartney, CPA, is a partner with Maxwell Locke & Ritter LLP in Austin, Texas. Darren Neuschwander, CPA, is a managing member with Green, Neuschwander & Manning LLC, a virtual CPA firm with members across the country. Neuschwander is the chair, and the other authors are members, of the AICPA Individual and Self-Employed Tax Technical Resource Panel. For more information about this article, contact thetaxadviser@aicpa.org.

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