Document Summaries for the Week of July 18, 2016
Company can deduct marine survey costs in connection with oil or gas exploration or development
The Tax Court held that a corporation that conducts marine surveys and licenses the resulting data to its oil and gas driller customers can deduct the survey costs as geological and geophysical expenses paid or incurred in connection with the exploration for, or development of, oil or gas. According to the court, geological and geophysical expenses deductible under Sec. 167(h) are not limited to those incurred by taxpayers that own oil and gas interests. CGG Americas, Inc., 147 T.C. No. 2 (7/21/16).
No Sec. 199 deduction for taxpayer that does not produce game broadcasts
The Office of Chief Counsel advised that, for purposes of Regs. Secs. 1.199-3(f)(1) and 1.199-3(k)(8), a television network produced certain sports broadcasts on its own behalf pursuant to the rights granted to it in a contract with a taxpayer for which it produced the broadcasts. Thus, the Chief Counsel’s Office concluded, the gross receipts that the taxpayer derived from the contract are not domestic production gross receipts, and the taxpayer is not entitled to a domestic production activities deduction under Sec. 199. CCA 201630015 (7/22/16).
Court puts newspaper’s intervention request on hold in Amazon cost-sharing case
In response to a newspaper’s motion to intervene in a case involving Amazon.com Inc., the Tax Court decided to hold the newspaper’s motion in abeyance until the parties have exercised their rights under a protective order in place, with a view to determining which portions of the trial record will be disclosed and which portions contain confidential information that must be sealed permanently. The case involves deficiencies arising from a cost-sharing arrangement that Amazon executed with Amazon Europe Holdings Technologies (AEHT) SCS, a Luxembourg affiliate, under which Amazon transferred preexisting intangible assets to AEHT, and the parties agreed to share future intangible development costs. Amazon.com, Inc., T.C. Memo. 2016-131 (7/18/16).
IRS issues monthly guidance on corporate bond yield curve and other rates
The IRS issued a notice 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). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2016-46 (7/19/16).
IRS amends determination letter program for qualified plans
The IRS set forth the procedures for the determination letter program for individually designed plans and the six-year remedial amendment cycle system for preapproved plans. Rev. Proc. 2016-37 (7/18/16).
Agencies propose changes to Form 5500
The IRS, Department of Labor, and Pension Benefit Guaranty Corp. issued proposed regulations that would make significant changes to the requirements for filing Form 5500, Annual Return/Report of Employee Benefit Plan, and Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. RIN 1210-AB63 (7/18/16) (see related news story).
Tax Court rejects IRS motion to reconsider earlier opinion regarding the application of collateral estoppel
In early 2016, the Tax Court declined, in Senyszyn, 146 T.C. No. 9 (2016), to apply the doctrine of collateral estoppel to uphold whatever minimum deficiency would be consistent with the taxpayers’ prior conviction for tax evasion because the evidence presented at trial showed that the taxpayers were not liable for any deficiency and the purposes of collateral estoppel did not support its application. Upon being asked by the IRS to reconsider its earlier holding, the Tax Court held that the discretion it then exercised not to apply collateral estoppel was squarely within applicable precedent and, thus, denied the IRS’s motion for reconsideration. Senyszyn, T.C. Memo. 2016-137 (7/21/16).
Page from Kelly Blue Book does not qualify as substantiation for vehicle contribution
The Tax Court held that a couple were not entitled to various expense deductions for lack of substantiation, including a $15,000 vehicle charitable deduction that required a qualified appraisal but for which they only attached a Kelly Blue Book webpage to their return. The court also held that the couple did not operate a lake resort, raise cattle, or operate a deer hunting preserve with the objective of making a profit because they spent little time on the activities, had no expertise in them, received little income compared to losses from the activities, and received personal benefits from them. Embroidery Express, LLC, T.C. Memo. 2016-136 (7/21/16).
Reimbursements to residents affected by natural gas leak in Southern California are not taxable
As part of a relocation plan for residents living near the Southern California Gas Co.’s Aliso Canyon storage field who were affected by a natural gas leak discovered at that storage field, Southern California Gas Co. was required to pay on behalf of, or reimburse, affected residents for certain relocation and cleaning expenses. The IRS has announced that it will not assert that these amounts are includible in gross income of those residents. Announcement 2016-25 (7/19/16).
Liability for pre-notice interest is determined under Sec. 6601 rather than state law
The Tax Court agreed with the IRS and held that a taxpayer’s liability for pre-notice interest had to be determined under federal law and computed under Sec. 6601. The court rejected the taxpayer’s contention that his liability for pre-notice interest had to be calculated under state law and that, under Ohio judicial decisions interpreting that state’s rules governing prejudgment interest, his liability for pre-notice interest was zero. Tricarichi, T.C. Memo. 2016-132 (7/18/16).
IRS can proceed with collection where taxpayer did not present alternative proposals
The Tax Court held that the IRS’s determination to proceed with the proposed collection action against the taxpayer was not an abuse of discretion where the taxpayer did not place a specific proposal on the table and neither provided the settlement officer with any collection alternatives nor entered into an installment agreement or an offer-in-compromise. West, T.C. Memo. 2016-134 (7/19/16).
Statute of limitation extended due to taxpayers’ fraudulent returns
The Tax Court held that (1) a taxpayer underpaid his tax liabilities for 1999–2001 and that some part of the underpayment for each year was due to fraud, and (2) that his wife was not eligible under Sec. 6015(b), (c), or (f) for relief from joint and several liability for those years. The court also concluded that, because the couple’s returns were fraudulent, the IRS was excepted from the general three-year statute of limitation period for assessment and, thus, the notices of deficiencies were timely. Durland, T.C. Memo. 2016-133 (7/19/16).
August 2016 AFRs issued
The IRS issued the applicable federal rates for August 2016. Rev. Rul. 2016-18 (7/18/16).
IRS publishes reference price under Sec. 45K
The IRS published the reference price under Sec. 45K(d)(2)(C) for calendar year 2015. The reference price applies in determining the amount of the enhanced oil recovery credit under Sec. 43, the marginal well production credit under Sec. 45I, and the percentage depletion in case of oil and natural gas produced from marginal properties under Sec. 613A. Notice 2016-43 (7/18/16).
Enhanced oil recovery credit inflation adjustment announced
The IRS announced the inflation adjustment factor and phaseout amount for the enhanced oil recovery credit for tax years beginning in the 2016 calendar year. Notice 2016-44 (7/18/16).
Applicable percentage for depletion on marginal properties released
The IRS announced that under Sec. 613A(c)(6)(C), the applicable percentage for purposes of determining percentage depletion on marginal properties for calendar year 2016 is 15%. Notice 2016-45 (7/18/16).
Guidance on income inclusion for lessees of investment credit property
Temporary regulations provide guidance regarding the income inclusion rules under Sec. 50(d)(5) that apply to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. T.D. 9776 (7/22/16).
Regs. provide arbitrage guidance for tax-exempt bonds
The IRS issued final regulations on the arbitrage restrictions under Sec. 148 applicable to tax-exempt bonds and other tax-advantaged bonds issued by state and local governments. T.D. 9777 (7/18/16).
Partner precluded from deducting partnership expenses himself
The Tax Court held that a partner in a partnership did not have any unreported partnership income for 2001 but did have $177,167 of unreported partnership income for 2002. The court also rejected the taxpayer’s deductions for expenditures made in conducting the partnership’s business, noting that such deductions were partnership expenses, and partners may not themselves deduct the expenses of a partnership even if they incurred the expenses in furtherance of partnership business. Probandt, T.C. Memo. 2016-135 (7/21/16).