Document Summaries for the Week of Aug. 29, 2016
Static mortality tables issued for defined benefit plans
The IRS provided updated static mortality tables to be used for defined benefit pension plans under Sec. 430(h)(3)(A) and Section 303(h)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA). The updated tables apply for calculating the funding target and other items for valuation dates occurring during calendar year 2017. The notice also includes a modified unisex version of the mortality tables for use in determining minimum present value under Sec. 417(e)(3) and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2017 calendar year. Notice 2016-50 (9/2/16).
ESTATES, TRUSTS & GIFTS
Interest rates for special-use value of farm real property
The IRS issued the 2016 interest rates to be used in computing the special-use value of farm real property for which an election is made under Sec. 2032A. Rev. Rul. 2016-19 (8/29/16).
Mapquest directions are inadequate to substantiate business mileage deductions
The Tax Court held that a CPA was not entitled to numerous alleged business expense deductions for his CPA business due to either lack of substantiation or the fact that some of the expenses were deemed personal expenses. With respect to vehicle expenses the taxpayer sought to deduct, the court noted that even though the taxpayer opted to rely on the standard mileage rate, he still had to substantiate the amount of business mileage for each business use of the vehicle. The court held that the taxpayer’s printouts of directions generated by the website MapQuest, printed at least two years after the claimed travel, were not adequate substantiation. Kilpatrick, T.C. Memo. 2016-166 (8/29/16).
Canadian citizen not entitled to education credits
The Tax Court held that a Canadian citizen who worked in the United States in 2012 was not entitled to education credits under Sec. 25A for the year because he was considered a nonresident alien for a portion of it. The court also said that the taxpayer’s reliance on the instructions for Form 8863, Education Credits, was misplaced. Li, T.C. Summ. 2016-49 (8/29/16).
IRS grants relief to victims of Louisiana storms
The IRS announced that it is providing relief to taxpayers who have been adversely affected by storms and flooding in Louisiana that began Aug. 11, 2016, and who have retirement assets in qualified employer plans that they would like to use to alleviate hardships caused by the storms and flooding. In addition, the announcement provides relief from certain verification procedures that may be required under retirement plans with respect to loans and hardship distributions. Announcement 2016-30 (8/30/16).
Taxpayer fails to prove entitlement to dependency exemption deduction
Because the taxpayer did not prove that she provided more than half of her child’s support or how many days her child stayed with her during the 2012 tax year, the child was not a qualifying child or relative for that year. In addition, the taxpayer did not file a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a signed declaration from the custodial parent of her minor child, with her return and was therefore not entitled to a dependency exemption deduction, head-of-household filing status, a child tax credit, or an earned income tax credit. McSweeney, T.C. Summ. 2016-51 (8/31/16).
Court denies deductions for unsubstantiated expenses and upholds negligence penalties
The Tax Court held that a taxpayer was not entitled to alleged business-related deductions for unreimbursed expenses, travel, meal, and entertainment expenses, as well as other expenses, because she failed to substantiate them. The court also concluded that the taxpayer was liable for underpayment-of-tax penalties for negligence or disregard of rules or regulations. Nawrot, T.C. Summ. 2016-50 (8/31/16).
Taxpayers liable for tax on income from a surrendered annuity contract
The Tax Court held that taxpayer and his wife were liable for tax on taxable retirement income from a surrendered annuity contract because it had no basis and, since the taxpayer was an investment adviser who should have consulted his accountant about the tax implications, he was liable for an accuracy-related penalty on the underpayment. Peterson, T.C. Summ. 2016-52 (9/1/16).
Final regs. amend definitions of marriage
The IRS issued final regulations amending the definitions of “spouse” and “husband and wife” in the regulations to reflect the U.S. Supreme Court’s decisions that the federal government must recognize and states must allow same-sex marriages. T.D. 9785 (9/1/16) (see related news story).
IRS amends Rev. Proc. 2016-44
The IRS amended the second sentence of Section 7 of Rev. Proc. 2016-44 (initially released Aug. 22, 2016) to replace “February 18, 2017” with “August 18, 2017.” Rev. Proc. 2016-44 (rev. 9/2/16).
Final regs. adopt lower PTIN fee
The IRS issued final regulations to reduce the user fee to obtain or renew a preparer tax identification number (PTIN) from $50 to $33. (The lower fee was already in effect under temporary regulations issued in T.D. 9742.) T.D. 9781 (9/29/16).
Foreign insurance company asset/liability percentages and domestic investment yields
The IRS provided the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Sec. 842(b) for tax years beginning after Dec. 31, 2014. Rev. Proc. 2016-46 (9/1/16).
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.