Document Summaries for the Week of Dec. 7, 2015
IRS addresses application of Supreme Court’s decision on same-sex spouses
The IRS issued guidance on the effect of the decision in Obergefell v. Hodges, 135 S. Ct. 2584 (2015), to retirement plans qualified under Sec. 401(a) and to health and welfare plans, including cafeteria plans under Sec. 125. Notice 2015-86 (12/9/15) (see related news story).
ESTATES, TRUSTS & GIFTS
Stock transferred to children over 40 years ago is subject to gift tax
The Tax Court held that a father’s transfer of stock to his children in 1972 was a gift for federal gift tax purposes rather than a transfer for an adequate and full consideration in money or money’s worth and that the statute of limitations had not run because no gift return had been filed. However, the father was not liable for the fraud penalty nor was he liable for penalties for negligence or for failing to file a gift tax return because he relied on competent tax advisers on the tax consequences of transferring the stock. Redstone, T.C. Memo. 2015-237 (12/9/15).
Organizations file declaratory judgment suits
The IRS gave notice to potential donors that organizations listed in the announcement recently filed timely declaratory judgment suits under Sec. 7428 challenging revocation of their status as an eligible donee under Sec. 170(c)(2). Sec. 7428(c) protects donors for up to $1,000 in donations during the period between the date the revocation notice is published in the Internal Revenue Bulletin and the date a court first determines the organization is not described in Sec. 170(c)(2). Announcement 2015-32 (12/7/15).
IRS announces organization to which deductible contributions may not be made
The IRS revoked its determination that a listed organization qualifies as an organization contributions to which are deductible under Sec. 170. Announcement 2015-33 (12/7/15).
Use of pesticides on easement property kills charitable contribution deduction
The Tax Court held that conservation easements donated by the taxpayers did not comply with the “conservation purpose” requirement of Sec. 170(h), in part because of the use of pesticides on the golf course property subject to the easement meant it was not “relatively natural.” Thus, the taxpayers were not entitled to a charitable contribution deduction. However, the court agreed with the taxpayers that they acted with reasonable cause and in good faith in relying on the experts they had consulted and thus were not liable for penalties the IRS assessed. Atkinson, T.C. Memo. 2015-236 (12/9/15).
Personal expenses paid by closely held corporation were constructive dividends
The Tax Court held that amounts that a corporation, wholly owned by the taxpayers, paid for the construction of the taxpayers’ new home were properly categorized as constructive dividends rather than deductible compensation. The taxpayers were also liable for the Sec. 6662(a) accuracy-related penalty for substantial understatements of income tax, or, in the alternative, negligence. Schank, T.C. Memo. 2015-235 (12/9/15).
Tax attorney has unreported gross receipts and unsubstantiated expenses; wife eligible for innocent spouse relief
The Tax Court held that a tax attorney had unreported income and was not entitled to unsubstantiated business expense deductions. In addition, penalties applied to his tax underpayments. However, the court concluded it would be inequitable to hold the attorney’s wife liable for her husband’s tax deficiencies because she satisfied all the requirements for innocent spouse relief under Sec. 6015(b). Hoffman, T.C. Summ. 2015-73 (12/10/15).
Taxpayers liable for 40% penalty for gross-valuation misstatement on conservation easement
The Tax Court upheld the IRS’s assessment of a 40% penalty for a gross-valuation misstatement that resulted when a couple’s conservation easement deduction was substantially reduced upon audit. According to the court, the IRS’s assessment of the Sec. 6662(h) penalty was proper because its examination report was an “initial determination” as required by Sec. 6751(b). Legg, 145 T.C. No. 13 (12/7/15).
Corrections issued on Form W-2 specifications
The IRS issued corrections to Rev. Proc. 2015-51 on certain specifications for check boxes on Form W-2, Wage and Tax Statement, and the address to send sample substitute forms to receive approval from the Social Security Administration. Announcement 2015-31 (12/7/15).
IRS revises rules and specifications for substitute forms and schedules
The IRS issued a revised version of Publication 1167, General Rules and Specifications for Substitute Forms and Schedules. Rev. Proc. 2015-55 (12/7/15).
IRS releases base-period T-bill rate for DISCs
The IRS issued the base-period Treasury bill rate for determining domestic international sales corporations’ interest payments under Sec. 995(f)(1) for the period ending Sept. 30, 2015. Rev. Rul. 2015-26 (12/7/15).
Attribute reduction amount must be computed using amount realized on sale of subsidiary’s stock
The Office of Chief Counsel advised that when a sale of subsidiary stock is a transfer subject to Regs. Sec. 1.1502-36 (i.e., the unified loss rule or ULR) and there is an amount realized on the sale, the attribute reduction amount under Regs. Sec. 1.1502-36(d) cannot be computed by reference to a purported “fair market value” of the subsidiary’s stock. CCA 201550034 (12/11/15).
IRS will consider informal abatement claims despite Sec. 6404(b) limitation
The Office of Chief Counsel advised that, as a policy, the IRS will consider informal abatement claims despite the Sec. 6404(b) limitation that states no claim for abatement can be filed by a taxpayer for any income, estate, or gift tax assessment. There is no period of limitation on an abatement of an assessment (and Sec. 6404(a)(2) explicitly authorizes abatements to be made after the assessment statute expiration date (ASED) expires). However, special care should be taken with claims made after the ASED because the tax cannot be reassessed if it is determined that the decrease in tax is erroneous. CCA 201550042 (12/11/15).
Disclosure of unredacted copy of letter ruling to Treasury attorney or revenue agent is allowed
The Office of Chief Counsel advised that it was permissible to provide an unredacted copy of a letter ruling to a Treasury attorney or revenue agent under Sec. 6103(h)(1) for tax administration purposes. However, Sec. 6103(h)(1) does not allow an unredacted copy to be passed along to a promoter or a taxpayer. CCA 201550038 (12/11/15).
Levy does not reach payments not yet due to the taxpayer
The Chief Counsel’s Office advised that CCA 199930003 properly states the Chief Counsel’s position and that the IRS should concede that the levy at issue does not reach payments not yet due to the taxpayer under a third-party contract. CCA 201550037 (12/11/15).
Guidance to answer employment tax question provided
The Office of Chief Counsel provided copies of Temp. Regs. Sec. 31.3501(a)-1T, Q&A-5, and Announcement 85-113 and said it believed that Regs. Sec. 31.3401(d)-1(f) and the last sentence of Regs. Sec. 31.3401(d)-1(g) may be helpful. CCA 201550036 (12/11/15).
IRS Statute Handbook to be clarified regarding Rev. Rul. 85-67
The Office of Chief Counsel advised that Rev. Rul. 85-67 does not apply where a credit elect was not applied to the subsequent year with the unassessed liability until after the assessment statute expiration date. The Chief Counsel’s Office said it plans on clarifying the Statute Handbook (IRM 25.6) in this regard. CCA 201550035 (12/11/15).
All partners have a right to participate in an administrative audit at the partnership level
The Office of Chief Counsel advised that, under Sec. 6224(a), all partners have a right to participate in an administrative audit at the partnership level and all partners are parties to the proceeding. Therefore, an indirect partner may receive the Form 886-A, Explanation of Items, even if it refers to things that may not ultimately impact that specific partner, because they are a party to the proceeding under Sec. 6103(h)(1)(A). CCA 201550041 (12/11/15).
If partnership files Form 1065 listing a flowthrough entity as a partner, TEFRA applies
In response to a question about a redacted situation, the Office of Chief Counsel advised that it believed TEFRA applied to the situation. The Chief Counsel’s Office noted that if a partnership files a Form 1065, U.S. Return of Partnership Income, for the entire year listing a flowthrough entity as one of its partners, TEFRA applies and the IRS may reasonably rely on the return filed by the partnership for the year in applying the TEFRA procedures even if the IRS subsequently discovers that the partnership should not have filed the return the way it did. CCA 201550040 (12/11/15).