Document Summaries for the Week of Oct. 26, 2015
Court rejects arguments by business owner liable for trust fund recovery taxes
Although a business owner who was liable for trust fund recovery taxes under Sec. 6672 had little income, she had up to $500,000 in assets and, therefore, the IRS’s refusal to treat her liability as currently not collectible was not an abuse of discretion. Further, the court found the owner’s testimony that her business had paid its employment taxes incredible in light of facts including that the testimony was unsupported by any documentary evidence and her testimony was inconsistent with various other facts in the record. Clues, T.C. Memo. 2015-209 (10/27/15).
ESTATES, TRUSTS & GIFTS
Decedent’s estate not liable for gift tax on 1972 transfer of stock in trust for his children
The Tax Court held that a decedent’s 1972 transfer of stock in trust for his children was made for an adequate and full consideration in money or money’s worth, pursuant to Sec. 2512(b). Thus, the court rejected the IRS’s contention that the transfer was a gift on which the decedent’s estate owed gift tax. Estate of Redstone, 145 T.C. No. 11 (10/26/15).
IRS required to release letter and report revoking an organization’s tax-exempt status
The Tax Court held that, where the IRS issued a final adverse determination letter and accompanying examination report that revoked a taxpayer’s tax-exempt status, and subsequently withdrew that letter and issued a second letter based on a new application by the taxpayer for exempt status, the original letter and examination report were subject to public inspection under Sec. 6110(a). Further, the court rejected the taxpayer’s attempt to restrain the IRS from disclosing the part of the examination report that discussed private inurement. Anonymous, 145 T.C. No. 10 (10/26/15).
Weekly event to raise money is not substantially related to organization’s exempt purpose
The National Office advised that the operation of a weekly event in the parking lot of a community college by a Sec. 501(c)(3) organization, organized for the specific purpose of developing and maintaining an alumni association for the college and providing financial and civic support for the college, is not substantially related to the organization’s exempt purpose under Sec. 513. The National Office further ruled that the fees paid by vendors at the event do not constitute rents from real property excludable from unrelated business taxable income. TAM 201544025 (10/30/15).
Tax lawyer cannot carry forward disallowed IRA contribution as an excess contribution
The Tax Court held that a tax lawyer whose IRA contribution for 2008 was disallowed because he was an active participant in a qualified retirement plan during that year could not carry forward the 2008 disallowed contribution as an “excess contribution” or, alternatively, have the 2008 contribution deemed to have been made for 2009, with the supposed result that the taxpayer’s 2009 IRA contribution would be “bumped” to 2010. The court found the taxpayer liable for an accuracy-related penalty, noting that there was no support for the taxpayer’s positions and that the taxpayer never notified the financial institution where the IRAs were held about redesignating the years to which his IRA contributions applied. Dunn, T.C. Memo. 2015-208 (10/26/15).
Lack of substantiation of alleged business expenses precludes any deduction
The Tax Court sustained the IRS’s disallowance of numerous business deductions because the taxpayers lacked business records substantiating the deductions despite their claim that they made their records available on a computer. The Tax Court also held that the taxpayers failed to report more than $30,000 from a settlement in 2012 and upheld the IRS’s assessment of accuracy-related penalties and a penalty for late filing. Lawson, T.C. Memo. 2015-211 (10/28/15).
Court refuses taxpayers’ request to impose sanctions on IRS
The Tax Court held that, because the taxpayers’ tax liabilities were discharged in bankruptcy, the issue of whether the IRS abused its discretion in deciding to sustain a lien filing against the taxpayers was moot. The court further refused to impose sanctions on the IRS pursuant to Sec. 6673(a)(2) as requested by the taxpayers. Trumbly, T.C. Memo. 2015-207 (10/26/15).
No abuse of discretion where IRS officer did not offer a collection alternative
An IRS settlement officer did not abuse her discretion by declining to offer a taxpayer a collection alternative when he did not put any specific proposal on the table, did not submit the necessary financial information, and did not call in for or seek to reschedule the telephone conference during which collection alternatives were supposed to have been discussed. Powers, T.C. Memo. 2015-210 (10/27/15).
Power of attorney invalid for representative who does not sign form
The Office of Chief Counsel advised that a Form 2848, Power of Attorney and Declaration of Representative, should be rejected for one representative who did not personally sign the form because he is often not in the office and relies on others to sign on his behalf. The form is invalid without the signer’s declaration that he is signing under penalties of perjury and is subject to Circular 230, among other representations, The Chief Counsel’s Office also concluded that the IRS should correct the Centralized Authorization File to reflect the removal of the third representative as authorized. CCM 201544024 (10/30/15).
IRS announces reduced PTIN fee
The IRS issued temporary regulations to lower the user fee for preparer tax identification numbers (PTINs), effective Nov. 1, 2015. T.D. 9742 (10/29/15) (see related news story).
IRS asks for comments on frequent flier miles
The IRS asked for comments on a methodology for exempting frequent flier miles that are redeemed for anything other than taxable air transportation from the Sec. 4261 excise tax on air transportation. Notice 2015-76 (10/29/15) (see related news story).
Regulations simplify bond allocation rules
The IRS issued final regulations providing a simplified method for allocating bond proceeds for projects that are financed partly by tax-exempt bonds proceeds and partly by other funds. The IRS also partially withdrew 2006 proposed regulations. T.D. 9741; REG-140379-02 (10/26/15).
Revenue Procedure contains 2015 loss payment patterns and discount factors for insurance businesses
The IRS issued the loss payment patterns and discount factors for the 2015 accident year for any property and casualty insurance company required to discount unpaid losses under Sec. 846. Rev. Proc. 2015-52 (10/29/15).
2015 salvage discount factors and payment patterns for insurance companies are issued
The IRS issued the salvage discount factors and payment patterns for each property and casualty line of business under Sec. 832 for the 2015 accident year. These factors are used by property and casualty insurance companies to discount estimated salvage recoverable. Rev. Proc. 2015-54 (10/29/15).
Congress makes major changes to partnership audit rules
The recently enacted federal budget deal includes major changes in how the IRS will audit large partnerships. In addition, when audit adjustments result in tax underpayments, the law allows the IRS to collect the tax directly from the partnership, instead of from the individual partners. Bipartisan Budget Act of 2015, H.R. 1314 (10/30/15) (see related news story).
Fifth Circuit affirms long-term construction contracts are not eligible for completed contract method
The Fifth Circuit affirmed the Tax Court and held that the taxpayer’s long-term construction contracts did not qualify as home construction contracts eligible for the completed contract method of accounting. Thus, the taxpayer was required to compute gains from the sales of property using the percentage-of-completion method of accounting. Howard Hughes Co., LLC, No. 14-60915 (5th Cir. 10/27/15).
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.