Document Summaries for the Week of April 4, 2016
Corporation could pay employment tax liabilities but did not; penalties imposed
The Tax Court held that documents presented by a corporation did not support its claims that problems including its accountant’s embezzlement prevented it from timely paying its employment taxes for the tax periods at issue. In fact, the documents showed that the corporation’s losses resulted from depreciation and that the corporation had enough cash flow to timely pay its liabilities, the court held. As a result, the court sustained the IRS’s determination to proceed with collection actions against the corporation. Nutrition Formulators, Inc., T.C. Memo. 2016-60 (4/4/16).
IRS issues corporate inversion regulations
The IRS issued proposed and temporary regulations designed to reduce the tax benefits and incentives for corporate inversions. The new rules aim to curtail an inverted company’s ability to access foreign subsidiaries’ earnings without paying U.S. tax. T.D. 9761, REG-108060-15 (4/4/16) (see related news story).
Final regs. issued on Type III supporting organization distribution requirement
The IRS issued final regulations regarding the distribution requirement for nonfunctionally integrated Type III supporting organizations. The regulations reflect changes to the law made by the Pension Protection Act of 2006, P.L. 109-280. T.D. 9746 (4/4/16).
Taxpayer cannot deduct portion of salary not paid by startup partnership
The Tax Court held that a taxpayer could not deduct a loss of $39,142, which represented a percentage of an agreed salary that was not paid to him by a startup partnership, because the taxpayer had no basis in the partnership. However, the court rejected the IRS’s argument that the taxpayer was not an employee of the partnership and allowed the taxpayer to deduct various unreimbursed business expenses and allowed the taxpayer’s wife to deduct expenses related to her home office. Hastings, T.C. Memo. 2016-61 (4/5/16).
American opportunity tax credit is available only in year tuition was paid
The Tax Court held that a taxpayer could take an American opportunity tax credit in 2011 and not 2012 with respect to a tuition payment made in December 2011 for a college semester beginning in 2012. The court noted that neither Sec. 25A nor the regulations thereunder permit a cash-basis taxpayer to claim an American opportunity tax credit for a year other than the tax year in which the payment was actually made. McCarville, T.C. Summ. 2016-14 (4/4/16).
IRS can proceed with proposed levy against taxpayer to collect taxes due
The Tax Court held that a determination by the IRS Appeals Office to proceed with an action to collect income tax that the taxpayer owed for 2011 was not an abuse of discretion. The court thus sustained a proposed levy by the IRS. Crown, T.C. Summ. 2016-15 (4/4/16).
Tax Court lacks jurisdiction over taxpayer’s petition where Form SS-8 determination was not issued as part of taxpayer’s audit
The Tax Court granted the IRS’s motion to dismiss the taxpayer’s petition for lack of jurisdiction. According to the court, because no determination had been made pursuant to a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, as part of the taxpayer’s audit, the Tax Court did not have jurisdiction pursuant to Sec. 7436. B G Painting, Inc., T.C. Memo. 2016-62 (4/5/16).
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.