Document Summaries for the Week of Dec. 14, 2015


Transfer of insurance policies was taxable; 20% penalty applied

The Tax Court held that a couple was taxable under Sec. 402(b)(1) on the transfer of a life insurance policy and that Sec. 1035 did not  make the transaction nontaxable because there was no exchange of life insurance policies. Further, because the couple’s understatement of tax exceeded the thresholds for a substantial understatement of income tax, and they did not establish reasonable cause, they were liable for the 20% penalty under Sec. 6662. O’Connor, T.C. Memo. 2015-244 (12/16/15).

Guidance issued on health coverage

The IRS issued guidance on a wide variety of provisions affecting employer-provided health coverage under the Patient Protection and Affordable Care Act, P.L. 111-148. Notice 2015-87 (12/17/15) (see related news story).



Reconstructed logs showed that taxpayer materially participated in farming activity

The Tax Court held that the taxpayer materially participated in his farming activity and the deductions attributable to that activity were not limited by the passive activity loss rules of Sec. 469. The court found that the taxpayer’s reconstructed logs, his receipts and invoices related to farm expenses, and his credible testimony were all reasonable means of calculating time spent on the farming activity. Leland, T.C. Memo. 2015-240 (12/14/15).

Couple’s saddlebred horse activity was not operated for profit, but penalties did not apply

The Tax Court held that a couple did not operate their saddlebred horse activity for profit and could not deduct their losses from the activity. However, because the couple submitted complete and accurate records to their CPA to substantiate the expenses deducted and relied on their CPA to properly prepare the returns, they were not liable for accuracy-related penalties. Judah, T.C. Memo. 2015-243 (12/16/15).

Standard mileage rates issued for 2016

The standard mileage rate for business use of a car, van, pickup truck, or panel truck for 2016 will be 54 cents per mile. Driving for medical or moving purposes may be deducted at 19 cents per mile. Notice 2016-1 (12/17/15) (see related news story).



IRS tax assessment is valid, but taxpayer is not liable for Sec. 6673 penalty

The Tax Court held that a tax assessment upon the taxpayer by the IRS was valid and that the IRS Appeals Office did not abuse its discretion in concluding that it had verified that the assessment had been properly made. However, the court rejected the IRS’s request to impose a Sec. 6673 penalty on the taxpayer. Berglund, T.C. Memo. 2015-239 (12/14/15).

Lawyer who failed to report $450,000 in receipts and claimed the same labor costs multiple times is liable for penalties

The Tax Court held that a couple’s negligence in failing to report $450,000 of gross receipts from the husband’s law firm was not excused by their alleged reliance on their CPA’s advice in preparing the return. The court also noted that the couple claimed the same contract labor expenses multiple times on different parts of their return in concluding they were liable for the accuracy-related penalty under Sec. 6662(a). Ogden, T.C. Memo. 2015-241 (12/14/15).

Unsubstantiated expenses lead to penalties for shop owner

The Tax Court held that, because a small shop owner did not substantiate certain cost of goods sold or a state sales tax deduction, he had additional Schedule C, Profit or Loss From Business, income upon which taxes were owed. Because the taxpayer did not produce any credible evidence that he had acted with reasonable cause and in good faith with respect to the underpayment, the court found him liable for a Sec. 6662(a) penalty for an underpayment of tax attributable to negligence or disregard of rules or regulations. Omar, T.C. Memo. 2015-238 (12/14/15).

Trust fund recovery penalties sustained for failure to collect and pay over employment taxes

The Tax Court sustained a proposed levy by the IRS to collect Sec. 6672 trust fund recovery penalties assessed against the taxpayer for failing to collect and pay over employment taxes of a corporation. The court noted that, while the taxpayer requested consideration by the IRS of a partial payment installment agreement, she never submitted expense documentation requested by the IRS or made a specific proposal for an installment agreement. Raida, T.C. Memo. 2015-242 (12/15/15). 

Congress passes tax extenders

Congress passed a bill extending expired tax provisions and enacting other changes to the tax law. Consolidated Appropriations Act, H.R. 2029 (12/18/15) (see related news story).

Information return inflation adjustments for 2015

The IRS issued the inflation-adjusted amounts for various penalties applicable to information returns for 2015. Rev. Proc. 2016-11 (12/18/15) (see related news story).

January 2016 AFRs issued

The IRS issued the applicable federal rates for January 2016. Rev. Rul. 2016-1 (12/18/15).

IRS updates weighted average interest rates, yield curves, and segment rates for December

The IRS issued guidance 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) for December 2015. Notice 2015-85 (12/15/15).

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.