Document Summaries for the Week of April 25, 2016
Chief Counsel’s Office reconsiders Sec. 162(m)(6) application
The Office of Chief Counsel advised that the determination of whether Sec. 162(m)(6) applies to a risk-bearing entity providing services to Medicaid recipients requires application of the definitions of health insurance issuer and health insurance coverage to those arrangements and that the application set forth in prior Chief Counsel advice was not coordinated with the other agencies. Accordingly, the Chief Counsel’s Office concluded that, for purposes of Sec. 162(m)(6), the type of organizations identified in recently issued Chief Counsel advice not be identified as health insurance issuers and that the arrangements not be treated as providing health insurance coverage until the agency coordination has been completed, and that any treatment depends on the result of that coordination. CCA 201618010 (4/29/16).
IRS revises application procedures for suspending benefits under certain multiemployer plans
The IRS issued a revenue procedure revising procedures for applications for a suspension of benefits under a multiemployer defined benefit pension plan that is in critical and declining status under Sec. 432(e)(9). The procedures, which replace Rev. Proc. 2015-34, must be followed for applications submitted on or after April 26, 2016. Rev. Proc. 2016-27 (4/26/16).
IRS lists organizations failing to meet Sec. 501(c)(3) requirements
The IRS revoked the tax-exempt status of two organizations for failure to meet the requirements of Sec. 501(c)(3). Individual donors’ contributions to the organizations are no longer deductible under Sec. 170(b)(1)(A). Announcement 2016-15 (4/25/16).
Engineer’s income earned in international waters is not excludable foreign earned income
The Tax Court held that a taxpayer who worked as a ship’s engineer in the U.S. Merchant Marine was not entitled to foreign earned income exclusions taken on his 2009 and 2010 tax returns because his income was earned in international waters and thus was not excludable under Sec. 911(a). However, because the taxpayer relied on a qualified tax return preparer and his reporting position had been approved for prior years, he was not liable for penalties under Sec. 6662(a). Wilson, T.C. Summ. 2016-19 (4/25/16).
Ralph Lauren salesman cannot deduct amounts spent on Ralph Lauren clothes
The Tax Court held that a couple was not entitled to deductions for unreimbursed employee expenses for 2010 and 2011 for expenses the husband incurred to purchase Ralph Lauren clothing that he was required to wear in his job as a Ralph Lauren salesman because the clothing was suitable to be worn outside of work. Further, the couple was also not entitled to charitable deductions for clothing and other donations because they did not adequately substantiate the contributions. As a result, the court found the couple liable for Sec. 6662(a) accuracy-related penalties for both years. Barnes, T.C. Memo. 2016-79 (4/27/16).
Couple not entitled to charitable donation for easement contribution
The Tax Court held that, where a couple’s easement provided that the value of the easement contribution for purposes of determining the donees’ rights to extinguishment proceeds was the amount of the couple’s allowable deductions rather than the fair market value of the easement, the easement did not comply with the requirements of Regs. Sec. 1.170A-14(g)(6) and the conservation purpose of the easement was not protected in perpetuity as required by Sec. 170(h)(5)(A). The court concluded that the couple was not entitled to a charitable donation deduction and was liable for accuracy-related penalties under Sec. 6662(a). Carroll, 146 T.C. No. 13 (4/27/16).
IRS issues 2017 inflation-adjusted limits for health savings accounts
The IRS issued the inflation-adjusted figures for calendar year 2017 for the annual contribution limits for health savings accounts (HSAs) and the minimum deductible amounts and maximum out-of-pocket expense amounts for high-deductible health plans. Rev. Proc. 2016-28 (4/28/16) (see related news story).
Plaintiffs lack standing to challenge FATCA
The U.S. District Court for the Southern District of Ohio held that plaintiffs who had challenged various aspects of the Foreign Account Tax Compliance Act (FATCA) did not have standing to sue, and the court therefore dismissed their claims. Crawford, No. 3:15-CV-00250 (S.D. Ohio 4/26/16) (see related news story).
Taxpayer hit with multiple penalties for failing to file return and making frivolous arguments
The Tax Court held that a taxpayer who did not file his 2011 tax return was liable for the tax deficiency calculated by the IRS. In addition, he was liable for numerous penalties, including the underpayment of estimated tax penalty under Sec. 6654; the penalties for failure to timely file a return and pay the tax under Secs. 6651(a)(1) and (2), respectively; and a $10,000 penalty under Sec. 6673 for making frivolous arguments or using court proceedings primarily for purposes of delay. Nitschke, T.C. Memo. 2016-78 (4/26/16).
IRS settlement officer’s denial of OIC is not an abuse of discretion
The Tax Court held that an IRS settlement officer did not abuse her discretion by failing to properly consider a taxpayer’s exceptional circumstances in denying his offer in compromise (OIC). The court thus sustained a proposed levy action concerning the taxpayer’s 2006 tax liability. Walker, T.C. Memo. 2016-75 (4/25/16).
Trust is subject to levy procedures under Sec. 6331
The Tax Court held that, under Sec. 6331(a), a trust is a person liable to pay any tax and thus is covered by the levy procedures under Sec. 6331. The court found no abuse of discretion by an IRS settlement officer and sustained the IRS’s determination to proceed with collection actions against the taxpayer. Wilson Heirs Trust, T.C. Memo. 2016-76 (4/25/16).
Taxpayer can challenge tax liability after estranged wife failed to timely forward levy notice
The Tax Court held that the taxpayer neither deliberately refused delivery nor deliberately failed to learn of a levy notice mailed to his estranged wife’s residence that the wife neglected to forward to him or to tell him about until approximately three months later. According to the court, that was insufficient grounds for the IRS to conclude that the taxpayer should be deemed to have received the levy notice and, thus, the court said the taxpayer could challenge his underlying tax liability. Yasgur, T.C. Memo. 2016-77 (4/25/16).
List of countries appropriate for automatic exchange of bank deposit information updated
The IRS updated the list of countries with which it has determined it is appropriate to have an automatic exchange relationship with respect to the bank deposit interest information collected under Regs. Secs. 1.6049-4(b)(5) and 1.6049-8. Rev. Proc. 2016-18 (4/25/16).
IRS settlement officer did not abuse his discretion
The Tax Court held that, because a couple kept financial information, imperative for discerning their current financial status, from an IRS settlement officer, the settlement officer did not abuse his discretion in sustaining collection actions to collect the couple’s unpaid tax using jeopardy assessments. Brown, T.C. Memo. 2016-82 (4/28/16).
Couple presented no evidence that IRS abused its discretion in proceeding with collection actions
The Tax Court upheld an assessment against a couple, concluding that the IRS’s determination to sustain a collection action against the taxpayers was not arbitrary, capricious, or without sound basis in fact or otherwise an abuse of discretion. The couple claimed that the stipulated decision they entered into with the IRS extinguished their other tax liability for the same years, but the court found that the couple still owed additional unpaid amounts they reported on their returns. Singh, T.C. Memo. 2016-83 (4/28/16).
Notice of deficiency was valid where taxpayer failed to notify IRS of address change
The Tax Court granted the IRS’s motion to dismiss the taxpayer’s suit for lack of jurisdiction because the taxpayer’s petition was not filed within the time prescribed by Sec. 6213(a) or Sec. 7502. Nothing in the record suggested, the court said, that the taxpayer gave the IRS clear and concise notice of his change of address or that the IRS knew about that the taxpayer’s change of address; thus, the notice of deficiency mailed to the taxpayer’s last known address was valid. Taylor, T.C. Memo. 2016-81 (4/28/16).
Educational organizations are exempt from penalties for 2016 Forms 1098-T
The IRS announced that it will not impose penalties under Sec. 6721 or Sec. 6722 on eligible educational institutions for Forms 1098-T, Tuition Statement, required to be filed and furnished for the 2016 calendar year under Sec. 6050S if the institution reports the aggregate amount billed for qualified tuition and related expenses on Form 1098-T instead of the aggregate amount of payments received, which is now required as a result of Section 212 of the Protecting Americans from Tax Hikes Act of 2015, P.L. 114-113. The penalty relief is limited to 2016 Forms 1098-T required to be filed by eligible educational institutions by Feb. 28, 2017 (or March 31, 2017, if filed electronically), and furnished to recipients by Jan. 31, 2017. Announcement 2016-17 (4/27/16).
Final regs. issued on material adviser penalties
The IRS issued final rules for the Sec. 6708 penalty imposed on material advisers who fail to provide the IRS a list of advisees with respect to reportable transactions. T.D. 9764 (4/27/16) (see related news story).
No conservation easement deduction allowed where easement could have been extinguished by foreclosure
The Tax Court upheld the IRS’s denial of a partnership’s $16.4 million charitable deduction for a conservation easement on real property operating as a golf course. According to the court, the property was subject to preexisting, unsubordinated mortgages on the date of the grant of the easement and, because the easement could have been extinguished by foreclosure between Dec. 29, 2003, and April 15, 2004, it was not protected in perpetuity and, therefore, was not a qualified conservation contribution. RP Golf, LLC, T.C. Memo. 2016-80 (4/28/16).
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.