Document Summaries for the Week of Oct. 12, 2015
Corporation cannot deduct unsubstantiated expenses and is liable for accuracy-related penalty
The Tax Court held that, due to lack of substantiation and evidence that suggested the expenses were personal, not business, a corporation was not entitled to an almost $40,000 deduction for advertising expenses or a deduction for depreciation in excess of the amount that the IRS had already allowed and was liable for a Sec. 6662(a) penalty. WSK & Sons, Inc., T.C. Memo. 2015-204 (10/15/15).
Joint return invalid without wife’s signature
The Tax Court held that a joint federal income tax return that included the signature of the husband but not that of his wife was not a valid tax return. The court also found that the couple were liable for the addition to tax under Sec. 6651(a)(1) for a delay in filing their federal income tax return for the year at issue. Reifler, T.C. Memo. 2015-199 (10/13/15).
Taxpayers cannot take a deduction for contributions to their ministry
The Tax Court held that a couple were not entitled to a charitable contribution deduction for certain amounts including those paid to a ministry they operated. The court also found them liable for the accuracy-related penalty. Wesley, T.C. Memo. 2015-200 (10/13/15).
Taxpayer liable as transferee for taxes owed to IRS
The Tax Court held that a transaction in which a business acquired the stock of the taxpayer’s C corporation was entered into for the sole purpose of tax avoidance. Under state law, the taxpayer was liable as a transferee under Sec. 6901 for taxes owed. Tricarichi, T.C. Memo. 2015-201 (10/14/15).
Tax Court allows rental losses because taxpayer materially participated
Since the taxpayer met the 500-hour test in Temp. Regs. Sec. 1.469-5T(a)(1) for the two years at issue, the Tax Court held that he materially participated in a rental activity. As a result, the court concluded that the taxpayer’s rental activity was not passive and the taxpayer was entitled to the rental real estate deductions taken on his return. Simmons-Brown, T.C. Summ. 2015-62 (10/15/15).
Taxpayers cannot deduct scrap metal business losses, but they avoid accuracy-related penalties
The Tax Court held that a couple were not entitled to a $359,000 loss deduction for the money they provided to a scrap metal business owned and operated by the taxpayer husband’s brother. However, the court also found that the taxpayers proved that they acted with reasonable cause and in good faith when they relied on their CPA, who told them they could deduct the amounts on Schedule C. Thus, they were not liable for accuracy-related penalties. Espaillat, T.C. Memo. 2015-202 (10/15/15).
No accuracy-related penalty because taxpayer did not substantially understate his taxes
The Tax Court held that the taxpayer was not entitled to a dependency exemption, child tax credit, earned income tax credit, or head-of-household filing status. However, the court also found that the taxpayer, contrary to the IRS’s argument, did not substantially understate his taxes and thus was not liable for the accuracy-related penalty. Gassoway, T.C. Memo. 2015-203 (10/15/15).
SSA announces no change in wage base
The Social Security Administration (SSA) announced that the maximum amount of wages subject to Social Security tax will remain at $118,500 for 2016. SSA press release (10/15/15) (see related news story).
IRS proposes updated Appeals procedures for docketed Tax Court cases
The IRS is proposing changes to its administrative appeals process for cases docketed in the Tax Court. Notice 2015-72 (10/15/15) (see related news story).
Allocation amounts of unused housing credit carryovers published
The IRS published the amounts of unused housing credit carryovers allocated to qualified states under Sec. 42(h)(3)(D) for calendar year 2015. Rev. Proc. 2015-49 (10/13/15).
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.