Document Summaries for the Week of Feb. 8, 2016
Guidance on RIC refunds of foreign taxes
The IRS issued guidance on alternative methods of compliance with the rules under Secs. 853 and 905(c) when a regulated investment company (RIC) receives a refund of a foreign tax that, when paid by the RIC, was treated as paid by the RIC’s shareholders under Secs. 853(a) and (b)(2). The IRS intends to issue regulations to allow a netting procedure. The notice also provides guidelines for RICs wishing to obtain closing agreements relating to tax consequences arising from the receipt of such refunds. Notice 2016-10 (2/8/16).
Indian coal production credit inflation adjustment
The IRS published the inflation-adjustment factor for calendar year 2015 for the Sec. 45 Indian coal production credit. Notice 2016-11 (2/8/16).
Retroactive claims of extended fuel credits
The IRS provided rules for making one-time claims for the retroactively extended 2015 biodiesel mixture and alternative fuel excise tax credits. It also provided guidance for claiming the other retroactively extended fuel credits for 2015, including the alternative fuel mixture excise tax credit. Notice 2016-5 (2/8/16).
Law firm that mischaracterized dividends as compensation is liable for accuracy-related penalties
The Tax Court held that a law firm was liable for accuracy-related penalties for mischaracterizing, as compensation for services, dividends paid to shareholder-attorneys. After examining all the relevant authorities, the court concluded that the law firm lacked substantial authority for its treatment of the payments and failed to show reasonable cause and good faith when it relied on its accounting firm for the treatment of the payments because it had not discussed the issue to the accounting firm when it was preparing the law firm’s tax returns. Brinks Gilson & Lione, P.C., T.C. Memo. 2016-20 (2/10/16).
2016 inflation-adjusted amounts for personal use of employer-provided vehicles
The IRS released the 2016 inflation-adjusted amounts for the maximum vehicle values for purposes of determining the amount that is included in employees’ income for personal use of an employer-provided vehicle. Notice 2016-12 (2/8/16) (see related news story).
IRS updates weighted average interest rates, yield curves, and segment rates for February
The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2) for February 2016. Notice 2016-18 (2/12/16).
IRS revokes tax-exempt status
The IRS posted a list of organizations for which it has revoked its determination that they qualify as organizations described in Secs. 501(c)(3) and 170(c)(2). Announcement 2016-4 (2/8/16).
ESTATES, TRUSTS & GIFTS
Estate basis reporting postponed for one month
The IRS postponed the due date for statements required under Sec. 6035(a)(3)(A) reporting the value of an estate’s assets from Feb. 29, 2016, to March 31, 2016. Notice 2016-19 (2/11/16) (see related news story).
State court judge can deduct unreimbursed employee business expenses only below the line
The Tax Court held that, under Sec. 62(a)(2)(C), a “fee based” public official is an official who receives fees directly from members of the public in compensation for services provided. The court found that a state court judge was not so compensated. Although his salary was funded in part by fees, he was not paid the fees personally and did not retain any of them. Therefore, he could deduct his unreimbursed employee business expenses only below the line. Jones, 146 T.C. No. 3 (2/9/16).
Tax Court fines protester $3,500 for advancing frivolous positions
The Tax Court held that a taxpayer who had not filed tax returns in a decade was liable for tax deficiencies and penalties assessed by the IRS for his 2011 tax year. In addition, the Tax Court fined the taxpayer $3,500 for advancing frivolous positions and maintaining court proceedings primarily for delay. Bruhwiler, T.C. Memo. 2016-18 (2/8/16).
Timeshare sales associate can deduct referral fees as unreimbursed employee business expenses
The Tax Court held that a sales associate who marketed timeshares and was paid on a commission basis could deduct as unreimbursed employee business expenses amounts paid for referrals of potential timeshare customers. The court also allowed some miscellaneous expenses for air travel and shipping costs but denied many other deductions for lack of substantiation or failure to show he was entitled to them. Henao, T.C. Summ. 2016-7 (2/8/16).
Mechanical engineer’s income from State Department did not qualify for Sec. 911 exclusion from income
The Tax Court held that a mechanical engineer’s income from working overseas with the U.S. Department of State, Office of Overseas Buildings Operations (OBO), did not qualify for the Sec. 911 foreign earned income exclusion because the taxpayer was properly classified as an employee of OBO, and not an independent contractor. The court noted that OBO dictated the taxpayer’s hours, pay, leave, and duties and supervised his performance. Co, T.C. Memo. 2016-19 (2/8/16).
Case remanded to Appeals to verify notice of deficiency was properly mailed
The Tax Court held that it was not clear from the administrative record that the IRS mailed a notice of deficiency to the taxpayer. Thus, the court remanded the case to Appeals for it to verify that a notice of deficiency was properly mailed to the taxpayer. Peterson, T.C. Memo. 2016-17 (2/8/16).
Tax Court petition filing period did not start until taxpayer received remailed Notice of Determination
The Tax Court held that a notice of determination denying relief to the taxpayer after a collection due process hearing was invalid because it was returned to the IRS as undeliverable even though it was mailed to his last known address; thus, the 30-day period to petition the Tax Court did not start with the mailing of that notice. The court also held, in disagreeing with the IRS that it lacked jurisdiction to hear the case, that the notice, which was subsequently remailed to the taxpayer at a different address, was valid. The critical date for filing the Tax Court petition for the running of the 30-day period was not the date listed on the original notice but the date on which the remailed notice was actually mailed to or received by the taxpayer. Bongam, 146 T.C. No. 4 (2/11/16).
Amendment to Sec. 6664 by PATH Act of 2015 rendered statute of limitation question moot
The Office of Chief Counsel advised that a question it received concerning the appropriate form to extend the statute of limitation on assessment of the Sec. 6676 penalty in situations where the penalty is subject to deficiency procedures was rendered moot by an intervening statutory change. The Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113, amended Sec. 6664, and that change eliminates situations where determination of the Sec. 6676 penalty is dependent on the determination of a deficiency. CCA 201607027 (2/12/16).
IRS e-filing PIN system suffers data breach
The IRS announced that it discovered and stopped an automated cyberattack on its e-filing personal identification number (PIN) system in January. The cybercriminals succeeded in using 101,000 Social Security numbers to access e-file PINs. IRS Statement on E-Filing PIN (2/9/16) (see related news story ).
STATE & LOCAL
Congress passes permanent ban on internet access taxes
Congress passed legislation that makes permanent the Internet Tax Freedom Act’s moratorium on state and local taxes on internet access. Trade Facilitation and Trade Enforcement Act of 2015, H.R. 644 (2/11/16) (see related news story).
IRS provides Qualified Zone Academy Bond allocations for 2015 and 2016
The IRS set forth the maximum face amount of Qualified Zone Academy Bonds that may be issued for each state, the District of Columbia, and the possessions of the United States for the calendar years 2015 and 2016 under Sec. 54E(c)(2). Notice 2016-10 (2/12/16).
Income from Medicare Shared Savings Program is fixed and determinable when taxpayer is notified of shared savings
The Office of Chief Counsel advised that the amount of income that a taxpayer will receive from Medicare under the Medicare Shared Savings Program regulations is not fixed at the end of the tax year in which patient services are provided, but instead is fixed and determinable with reasonable accuracy when the taxpayer is notified of shared savings, which is approximately seven to ten months after the close of the tax year in which patient services were provided. CCA 201607026 (2/12/16).