Document Summaries for the Week of Oct. 19, 2015
Costs to acquire domain names from secondary market must be capitalized
The Office of Chief Counsel advised that costs incurred by a taxpayer to acquire a generic domain name or a nongeneric domain name from the secondary market for use in the taxpayer’s trade or business must be capitalized as an intangible asset under Regs. Secs. 1.263(a)-4(b)(1)(i) and 1.263(a)-4(c)(1). CCA 201543014 (10/23/15).
Are amounts paid to exempt organizations deductible?
The Office of Chief Counsel advised on four issues regarding the deductibility of amounts a taxpayer paid to exempt organizations as well as to nonprofit and for-profit entities under a program it operates. CCA 201543013 (10/23/15).
Principal financial officer of smaller reporting company is a covered employee
The Office of Chief Counsel advised that the principal financial officer (PFO) of a smaller reporting company is a “covered employee” within the meaning of Sec. 162(m)(3) because the PFO is one of the two highest compensated executive officers (other than the principal executive officer) in the company. CCM 201543003 (10/23/15).
No deductions allowed for expenses incurred in marijuana business
The Tax Court held that a California corporation that bought and sold marijuana was not entitled to deductions for operating expenses for the sale of the marijuana, under Sec. 280E. The purchase and sale of marijuana constitutes trafficking, within the meaning of Sec. 280E, even when permitted by state law. Canna Care, Inc., T.C. Memo. 2015-206 (10/22/15).
Taxpayer not entitled to mark-to-market accounting method
The Tax Court held that the taxpayer was not entitled to use the mark-to-market accounting method under Sec. 475(f) for the 2007 tax year to report his securities and trading activity. Further, the court rejected the taxpayer’s argument that he was not liable for certain tax penalties where he claimed that he failed to timely file his federal income tax returns because he suffered from an autistic spectrum disorder previously known as Asperger’s syndrome. Poppe, T.C. Memo. 2015-205 (10/19/15).
Couple not entitled to business deductions, but wife is eligible for innocent spouse relief
The Tax Court held that a divorced couple were not entitled to certain business expense deductions and were liable for the Sec. 6662(a) accuracy-related penalty. However, the court also held that, despite the ex-husband’s objections, the wife was entitled to Sec. 6015(c) relief to the extent that the disallowed items were properly allocable to her husband. Huber, T.C. Summ. 2015-63 (10/22/15).
Prop. regs. amend definition of marriage
Proposed regulations issued by the IRS would amend the definitions of “spouse,” “husband,” and “wife” to reflect the Supreme Court’s decisions recognizing same-sex marriages. REG-148998-13 (10/21/15) (see related news story).
November AFRs issued
The IRS issued the applicable federal rates for November 2015. Rev. Rul. 2015-22 (10/19/15).
IRS issues specifications for substitute Forms W-2 and W-3
The IRS issued the specifications for the private printing of red-ink substitutes for the 2015 revisions of Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements, which will also be reproduced as the next revision of IRS Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3. Rev. Proc. 2014-58 is superseded. Rev. Proc. 2015-51 (10/19/15).
Security Summit reports progress against tax identity theft
New safeguards against stolen taxpayer identity refund fraud will soon be in place, a working group of the IRS, state taxing authorities, software providers, and the electronic tax industry announced. The Security Summit’s recommended measures will begin strengthening taxpayer authentication, fraud detection, and system security in time for the 2016 tax filing system, the IRS said. News release IR 2015-117 (10/20/15) (see related news story).
2016 inflation adjustments and tax tables issued
The IRS released its annual revenue procedure containing tax tables and inflation adjustments for 2016. Rev. Proc. 2015-53 (10/21/15) (see related news story).
IRS releases 2016 pension contribution limits
The IRS updated the annual pension contribution limits for 2016. IR-2015-118 (10/21/15) (see related news story).
IRS revokes notice that labeled basket option contract transactions and similar transactions as listed transactions
The IRS revoked Notice 2015-47, in which it identified the “basket option contract” and substantially similar transactions as listed transactions for purposes of Regs. Sec. 1.6011-4(b)(2) and Secs. 6111 and 6112. However, the IRS also provides additional details on the types of transactions that it considers as listed transactions and provides procedures for taxpayers to change their method of accounting for such transactions. Notice 2015-73 (10/21/15).
IRS revokes notice that had labeled basket contract transactions and similar transactions as transactions of interest
The IRS revoked Notice 2015-48, in which it identified the “basket contract” transaction and substantially similar transactions as transactions of interest for purposes of Regs. Sec. 1.6011-4(b)(6) and Secs. 6111 and 6112. While the IRS believes this type of transaction has a potential for tax avoidance or evasion, and has provided procedures for taxpayers to change their method of accounting for transactions of this type, the Service said it lacks enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction. Notice 2015-74 (10/21/15).
IRS field office must submit declaration with an initial request for technical advice
The Office of Chief Counsel advised that, while it was still awaiting an answer to an unidentified question, Rev. Proc. 2015-2 provides that the field office must submit a declaration with an initial request for technical advice. If no agreement regarding the facts is reached, the Chief Counsel’s Office stated, the Associate office may rely on facts the field office presented. CCA 201543017 (10/23/15).
Chief Counsel’s Office addresses how civil fraud penalty applies to overstatement of withholding
The Office of Chief Counsel advised that the Tax Court’s opinion in Rand, 141 T.C. 376 (2013), does not change the validity of the advice the office previously provided concerning the application of the Sec. 6663 civil fraud penalty to taxpayers who overstate withholding credits on a false Form 1099-OID, Original Issue Discount. CCA 201543016 (10/23/15).
IRS must select TMP where none had been properly designated
The Office of Chief Counsel advised that, in determining the tax matters partner (TMP) for a partnership in which the TMP either had not been properly designated or the properly designated partner had dissolved, the IRS was required to determine the TMP and then within 30 days of the selection, notify the partner selected, the partnership, and all notice partners of the selection of the TMP, effective as of the date specified in the notice. CCA 201543018 (10/23/15).
Overstated COGS does not result in unreported flowthrough income
The Office of Chief Counsel advised that an overstated cost of goods sold on a Form 1120S, U.S. Income Tax Return for an S Corporation, does not result in “unreported flow-through income,” because the amount of passthrough entity income that constitutes “omitted income” for the purpose of the six-year statute of limitation under Sec. 6501(e)(1)(A) is the amount of gross receipts omitted on Form 1120S, rather than the understatement of ordinary business income (overstatement of loss) on line 21. The Chief Counsel’s Office also advised that a shareholder’s gross income includes the shareholder’s pro rata share of S corporation gross income (as described in Sec. 6501(e)(1)(A)(i)), but 100% of the income was reported and therefore there was no omission from gross income. CCA 201543015 (10/23/15).
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.