Document Summaries for the Week of Aug. 24, 2015


Percentages and yields needed to calculate insurance company investment income released

A new revenue procedure provides the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Sec. 842(b) for tax years beginning after Dec. 31, 2013. Rev. Proc. 2015-42 (8/21/15)

Regs. issued on allocation of W-2 wages for domestic production activities deduction

The IRS issued temporary and proposed regulations on the allocation of W-2 wages for purposes of the W-2 wage limitation on the amount of a taxpayer’s Sec. 199 domestic production activities deduction. The regulations address allocation of wages paid by two or more taxpayers that employee the same employees during the year and determination of W-2 wages if the taxpayer has a short tax year. T.D. 9731; REG-136459-09 (8/26/15) (see related news story)

Failure to pay penalty in full results in dismissal for lack of jurisdiction

The Federal Claims Court dismissed a company’s refund request because it failed to pay the full amount of a penalty. The penalties for failing to register certain transactions as tax shelters were nondivisible and had to be paid in full before filing suit. Diversified Group, Inc., No. 1:14-cv-00627 (Fed. Cl. 8/26/15)



Notice specifies minimum funding requirements

The IRS issued guidance on the Cooperative and Small Employer Charity Pension Flexibility Act, P.L. 113-97, which specifies minimum funding requirements and related rules for certain defined benefit pension plans maintained by groups of cooperatives and related entities and groups of charities. Notice 2015-58 (8/28/15)



Couple cannot deduct personal expenses on Schedule C

The Tax Court held that a couple were not entitled to deduct certain business expenses claimed on Schedules C, Profit or Loss From Business, for tax years 2010, 2011, and 2012, and were required to include in income a state income tax refund. The court also held that the couple were liable for accuracy-related penalties under Sec. 6662(a). Chen, T.C. Memo. 2015-167 (8/24/15)

Tax Court upholds validity of election requirement for foreign earned income exclusion

The Tax Court held that the IRS had authority to issue Regs. Sec. 1.911-7(a)(2), which requires the election to exclude foreign earned income be made within certain time periods. The regulation is a valid implementation of the election requirement under Sec. 911. McDonald, T.C. Memo. 2015-169 (8/25/15)

Taxpayer met the “at or near” requirement for substantiating vehicle mileage

The Tax Court held that a sole proprietor could deduct business expenses, including vehicle mileage expenses, in a greater amount than the IRS allowed and that the taxpayer was not liable for the accuracy-related penalty. The court noted that Temp. Regs. Sec. 1.274-5T says a contemporaneous log is not required to substantiate vehicle mileage expenses; the regulations focus more on the need to record the requisite information at or near the time of each business use of the vehicle; and the taxpayer met the “at or near” requirement. Ezzell, T.C. Summ. 2015-52 (8/25/15)

Good faith and apparent reasonableness of position precludes penalties

The Tax Court concluded that because refund claims by a retired U.S. Army lieutenant colonel were erroneously allowed in prior years, the taxpayer had a reasonable belief that his position in excluding a portion of his military retirement pay from income for the years at issue was correct. While the Tax Court held that the retirement pay was not excludable, the court said the taxpayer was not liable for penalties on the portion that had been erroneously excluded from income. Taylor, T.C. Summ. 2015-51 (8/24/15)

No dependency exemption allowed without Form 8332

Without a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a similar written statement containing the information prescribed by Sec. 152(e)(2) attached to his return, the taxpayer was not entitled to dependency exemption deductions for two children who lived with him for 176 days during the tax year. The Tax Court also held that taxpayer was not entitled to claim the earned income credit or child tax credit or to use head of household filing status. Stapleton, T.C. Memo. 2015-171 (8/27/15)



Branches are not separate entities for FATCA purposes

The IRS clarified that in Model 1 IGA jurisdictions, a branch must register for FATCA as a branch of its owner and not as a separate entity. FATCA FAQs: Branch/Disregarded Entity (8/25/15)

Proposed regulations on establishing bona fide U.S. territory residency

The IRS issued proposed regulations that would allow taxpayers to include up to 30 days of “constructive presence” when establishing bona fide residency in a U.S. territory under Sec. 937. REG-109813-11 (8/26/15) (see related news story)



Tax Court sustains levy

The Tax Court held that the IRS’s determination to proceed with a proposed levy was proper and the IRS settlement officer did not abuse her discretion in sustaining it. Wills, T.C. Summ. 2015-50 (8/24/15)

No evidence that lien against taxpayer interfered with his finding a job

The Tax Court granted the IRS’s motion for summary judgment, concluding that the IRS’s motion should not be denied on the basis of general allegations that a lien filed by the IRS was interfering with the taxpayer’s ability to find gainful employment. Schumacher, T.C. Memo. 2015-166 (8/24/15)

Taxpayers liable for tax shelter promoter penalties

The Tax Court held that, on the basis of the findings of a district court, the taxpayers were collaterally estopped from disputing that they engaged in activities in violation of Sec. 6700. Because the IRS established that the taxpayers marketed abusive tax shelters known as corporations sole to no fewer than 47 individuals, the taxpayers were liable for Sec. 6700 penalties. Gardner, 145 T.C. No. 6 (8/26/15)

Prop. regs. on penalty for failure to disclose reportable transactions

Proposed regulations were issued regarding the amount of the penalty under Sec. 6707A for failure to include on any return or statement any information required to be disclosed under Sec. 6011 about a reportable transaction. REG-103033-11 (8/27/15) (see related news story)

IRS did not abuse its discretion in proceeding with collection action

The Tax Court held that the IRS’s determination to reject the taxpayers’ proposed installment agreement and proceed with collection action by levy was not an abuse of discretion. Specifically, the court agreed that the IRS agent did not abuse his discretion when he determined that (1) the taxpayers’ balance due could have been fully satisfied by liquidating assets; (2) the taxpayers provided no collection alternatives; and (3) the taxpayers had a history of noncompliance with the tax laws despite an ability to pay in full. Tillery, T.C. Memo. 2015-170 (8/27/15)

Period expired for IRS to recover erroneously paid overpayment interest

The Office of Chief Counsel advised that, to recover an excessive refund of overpayment interest, the IRS could collect the excess by (1) a voluntary payment, (2) an offset of the same type of tax from the same tax period, or (3) filing suit to recover the erroneous refund. In this case, the taxpayer was not willing to make a voluntary payment and no tax could be offset, so the only option was to file suit. Because the suit would need to be instituted within two years of the refund, the time period for recovering the erroneously paid overpayment interest had expired. (The five-year assessment period did not apply in this case because the refund was not induced by fraud or misrepresentation of a material fact.) CCA 201535016 (8/28/15)

IRS should not withdraw deficiency notice issued before ascertaining taxpayer was entitled to Sec. 7508(a) benefits

The Office of Chief Counsel advised that the IRS should not withdraw a notice of deficiency or in any way undo an exam of the taxpayer where the notice of deficiency was issued before the IRS ascertained that the taxpayer was entitled to Sec. 7508(a) benefits, which postpones certain tax deadlines for taxpayers serving in combat zones. Those benefits should instead be provided going forward from the date the IRS ascertained that the taxpayer was entitled to them. CCA 201535017 (8/28/15)

IRS is exempt from paying county documentary transfer tax on the sale of seized property

The Office of Chief Counsel advised that the IRS is exempt from paying a county documentary transfer tax upon the sale of seized real property. To implement this exemption, the IRS should put the following statement on the deed: “The Internal Revenue Service, as an agency of the United States government, is exempt from the county documentary transfer tax.” CCA 201535018 (8/28/15)

Penalties waived for failure to provide correct TINs on tuition statements

The IRS announced that for tax years 2012, 2013, and 2014 it is waiving penalties assessed against any college, university, or other educational institution for Forms 1098-T, Tuition Statement, that were filed with an incorrect or missing taxpayer identification number (TIN) if the institution certifies under penalty of perjury that it properly requested TINs from students as required under Treasury regulations. IRS website (8/28/15)



Untimely notice of beginning of administrative proceedings does not preclude timely FPAA

The Tax Court held that a final partnership administrative adjustment (FPAA) relating to a partnership’s claim of a nonconventional source fuel credit was valid and that the Tax Court had jurisdiction over the case before it. The court noted that, while the notice of beginning of administrative proceeding (NBAP) regarding the partnership’s tax year was indeed untimely, the issuance of an FPAA shortly after an untimely NBAP does not invalidate the FPAA. Green Gas Delaware Statutory Trust, T.C. Memo. 2015-168 (8/24/15)

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