Document Summaries for the Week of Jan. 25, 2016
TARP status is a Sec. 381(c) attribute that carries over in a merger
The Office of Chief Counsel supplemented a field attorney advice issued in 2014 and advised that Troubled Asset Relief Program (TARP) status is a Sec. 381(c) attribute that carries over and becomes an attribute of an acquiring taxpayer in a merger. Therefore, it is as if the acquiring taxpayer received the TARP proceeds and that taxpayer is therefore prohibited from making an extended NOL carryback election under Sec. 172(b)(1)(H). CCA 201605018 (1/29/16).
Proposed regs. issued on normal retirement age for government plans
The IRS issued proposed regulations for determining whether the normal retirement age under a governmental pension plan within the meaning of Sec. 414(d) and payment of definitely determinable benefits that commence at that age satisfy the requirements of Sec. 401(a). REG-147310-12 (1/27/16).
IRS issues guidance on midyear changes in qualified safe-harbor plans
The IRS notice on midyear changes to a safe-harbor plan under Secs. 401(k) and 401(m) provides that a midyear change either to a safe-harbor plan or to a plan’s safe-harbor notice does not violate the safe-harbor rules merely because it is a midyear change, as long as the applicable notice and election opportunity conditions are satisfied and the midyear change is not a prohibited midyear change described in the notice. Notice 2016-16 (1/29/16).
Nondiscrimination relief proposed for closed defined benefit plans
The IRS issued proposed regulations providing nondiscrimination relief for certain closed defined benefit pension plans that provide additional benefits to a grandfathered group of employees. REG-125761-14 (1/29/16) (see related news story).
Guidance on the definition of expatriate health plans
Until regulations are issued for future years, the IRS issued guidance for the 2016 fee year on how expatriate health plans are defined under the Expatriate Health Coverage Clarification Act of 2014, P.L. 113-235, for purposes of the health insurance provider’s fee imposed by Section 9010 of the Patient Protection and Affordable Care Act, P.L. 111-148. Notice 2016-14 (1/29/16).
IRS waives incorrect TIN penalties for Form 1098-T
The IRS announced that it will not impose penalties under Sec. 6721 or 6722 on eligible educational institutions required to file Forms 1098-T, Tuition Statement, for the 2015 calendar year, solely because they fail to include a student’s correct taxpayer identification number (TIN) on Form 1098-T. This announcement is limited to 2015 Forms 1098-T, which eligible educational institutions must file by Feb. 29, 2016, or March 31, 2016 (if filed electronically). Announcement 2016-3 (1/25/16).
IRS provides tax relief for Missouri storm victims and relief workers
Missouri storm victims will have until May 16, 2016, to file their returns and pay any taxes due, under disaster relief announced by the IRS. The tax relief postpones various tax filing and payment deadlines on or after Dec. 23, 2015. Workers assisting the storm relief activities who are affiliated with a recognized government or philanthropic organization also qualify for tax relief. IR-2016-9 (1/22/16).
Not eligible for first-time homebuyers credit, but penalty does not apply
The Tax Court held that the taxpayers were not first-time homebuyers within the meaning of Sec. 36(c)(1) and therefore were not entitled to the first-time homebuyers credit. However, because the court concluded that the taxpayers acted in good faith and had reasonable cause for believing that they were first-time homebuyers, they were not liable for the Sec. 6662(a) accuracy-related penalty. Blackbourn, T.C. Summ. 2016-5 (1/28/16).
Ex-wife’s failure to sign Form 8332 precludes dependency exemption deductions
The Tax Court held that the taxpayer was not entitled to dependency exemption deductions for his children because his ex-wife refused to sign Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, releasing the exemption deductions. The court said that while it sympathized with the taxpayer’s circumstances, noting that the taxpayer was up to date on his child support and his ex-wife was obliged to sign Form 8332 and release the exemption deductions to him under their divorce decree, it was bound to follow the statute as written, which does not allow divorce decrees to serve as written declarations after July 2, 2008. He, T.C. Summ. 2016-4 (1/28/16).
Breeding Tennessee Walkers was not engaged in for profit
The Seventh Circuit affirmed a district court and held that a couple’s activity of breeding Tennessee Walking horses was not a business engaged in with the intent of making a profit under Sec. 183. Thus, losses from the activity were not deductible as business expenses. Estate of Stuller, No. 15-1545 (7th Cir. 1/26/16).
Aircraft exchanged in Sec. 1031 exchange is one property
The Office of Chief Counsel advised that, for purposes of determining whether Sec. 1031 applies to an airplane exchange, an airplane that was used for both personal purposes and for productive use in a trade or business or investment is considered one property. It must either be held for productive use in a trade or business or for investment, or be held for personal use. Further, while noting that additional facts should be considered, the Chief Counsel’s Office said that the low percentage of flights that were business- or investment-related in the tax year the relinquished aircraft was exchanged suggested that the aircraft did not qualify for a Sec. 1031 exchange. CCA 201605017 (1/29/16).
European Commission proposes anti-tax avoidance rules
The European Commission issued two proposed directives aimed at curbing corporate tax avoidance. The first provides rules for member countries to enact and the second provides for automatic exchange of information gathered in country-by-country reports. 2016/0011 (CNS), 2016/0010 (CNS) (1/28/16) (see related news story).
IRS updates adequate-disclosure standards
The IRS updated Rev. Proc. 2015-16 and identified circumstances under which the disclosure on a taxpayer’s income tax return with respect to an item or position is adequate to reduce an understatement of income tax under Sec. 6662(d) and avoid the tax return preparer penalty under Sec. 6694(a). The IRS also reduced the amount of information certain taxpayers must provide in addition to that on Schedule M-3, Net Income (Loss) Reconciliation for Corporations/Certain Partnerships With Total Assets of $10 Million or More, to meet the adequate-disclosure requirements. Rev. Proc. 2016-13 (1/25/16).
EA exam fee proposed to increased
The IRS is proposing to increase the user fee for the special enrollment examination to become an enrolled agent to $99 for each of the three parts of the exam (from the current $11 per part). The change would be effective when the regulations are finalized. REG-134122-15 (1/25/16).
Tax Court sustains levy where IRS officer attempted to accommodate taxpayers
The Tax Court sustained an IRS notice of intent to levy on the taxpayers. According to the Tax Court, the administrative record did not show that the IRS officer acted in a manner that was arbitrary, capricious, or without sound basis in fact or law; rather the record showed that the officer attempted to accommodate the taxpayers. McLeod, T.C. Memo. 2016-14 (1/28/16).
IRS will not penalize 529 plans for forms that do not reflect recent law change
The IRS announced it will not penalize Sec. 529 qualified tuition programs that timely file 2015 Forms 1099-Q, Payments From Qualified Education Programs (Under Sections 529 and 530), that do not reflect the December 2015 repeal of the Sec. 529(c)(3)(D) aggregation requirement applicable to distributions from qualified tuition programs. Notice 2016-13 (1/29/16).