Document Summaries for the Week of Feb. 22, 2016


Portion of wages allocable to IT technician’s time may be deducted by corporation related to the corporation for which the technician worked

The Tax Court held that amounts paid by Key Carpets Inc., a company wholly owned by a husband and wife, to a computer technician who spent most of his time working on a voice-activated hand-washing monitoring system for Clean Hands Inc., a company owned only by the husband, were not ordinary and necessary business expenses of Key Carpets. However, because the computer technician spent some time providing information technology (IT) services to Key Carpets, a portion of the computer technician’s wages allocable to those IT services were deductible by Key Carpets. Key Carpets, Inc., T.C. Memo. 2016-30 (2/25/16). 



Self-directed IRA owner did not receive a distribution and thus was not liable for 10% additional tax

The Tax Court held that, where the custodian of a self-directed IRA, at the request of the IRA’s owner, issued a wire transfer directly to a corporation to obtain that corporation’s stock for the IRA, and more than 60 days later, the corporation issued the stock in the name of the IRA, no distribution to the IRA owner occurred. Thus, the IRA owner was not subject to the Sec. 72(t) 10% additional tax. McGaugh, T.C. Memo. 2016-28 (2/24/16).

Taxpayer’s scheme to shift value from S corporation to a Roth IRA fails

The Tax Court held that (1) the taxpayer was liable for excise taxes on excess contributions to a Roth IRA for 2004 and 2005, (2) the taxpayer’s wholly owned S corporation had additional gross receipts of $680,000 for 2004, and (3) the taxpayer was liable for multiple penalties, including an enhanced accuracy-related penalty under Sec. 6662A. According to the court, the underreporting of income by the S corporation was directly related to shifting value from the S corporation to a company owned by the taxpayer’s Roth IRA. Polowniak, T.C. Memo. 2016-31 (2/25/16).

Distribution from SEP-IRA is subject to 10% additional tax

The Tax Court held that the taxpayer received a $125,000 taxable distribution from his SEP-IRA and was liable for the 10% additional tax under Sec. 72(t). Further, the taxpayer and his wife were liable for an accuracy-related penalty for a substantial understatement of income tax. Vandenbosch, T.C. Memo. 2016-29 (2/24/16). 



Taxpayer with net worth over $2 million cannot get litigation costs

On a motion to reconsider its decision in Angle, T.C. Memo. 2015-92, in which the Tax Court had denied the taxpayer’s request for litigation costs based on a previous case that was later reversed by the Ninth Circuit, the Tax Court again held that the taxpayer was not entitled to litigation costs because the taxpayer’s net worth exceeded $2 million, and one of the requirements under Sec. 7430 is that the taxpayer’s net worth not exceed that amount. Angle, T.C. Memo. 2016-27 (2/22/16).

Proposed regulations clarify definition of political subdivision

The IRS issued proposed regulations providing guidance on the definition of “political subdivision” for tax-exempt bond purposes. REG-129067-15 (2/22/16).

IRS issues procedures for physical inspections of low-income housing units

The IRS issued a revenue procedure that sets forth, for purposes of Temp. Regs. Sec. 1.42-5T(c)(2)(iii)(B), the minimum number of low-income units in a low-income housing project for which a state or local housing credit agency must conduct physical inspections and low-income certification reviews. In Section 4 of the revenue procedure, the IRS provides that the minimum number of low-income units for which an agency must conduct on-site inspections and low-income certification reviews is the lesser of (1) 20% of the low-income units in the low-income housing project, rounded up to the nearest whole number, or (2) the minimum unit sample size in a reference chart provided in the procedure. Rev. Proc. 2016-15 (2/26/16).

More accounts affected by IRS “Get Transcript” breach

The IRS announced that last May’s breach of its “Get Transcript” application affected more accounts than originally reported—some 724,000 in total. IRS Statement on “Get Transcript” (2/26/16) (see related news story).

New LB&I audit procedures announced

The IRS’s Large Business and International Division announced a new examination process that will apply starting May 1, 2016. Large Business and International Examination Process; Publication 5125 (2/25/16) (see related news story).

Final regulations on reporting specified foreign financial assets

The IRS issued final regulations requiring specified domestic entities to report specified foreign financial assets in which they have interests. T.D. 9752 (2/22/16) (see related news story).



Tenth Circuit: Colorado’s use tax reporting requirement is constitutional

The Tenth Circuit held that Colorado’s law requiring out-of-state retailers to notify Colorado customers of Colorado’s sales and use tax requirement and to report tax-related information to those customers and the Colorado Department of Revenue is constitutional. (Direct Marketing Ass’n v. Brohl, No. 12-1175 (10th Cir. 2/22/16) (see related news story).

Tax Insider Articles


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.