Document Summaries for the Week of March 14, 2016
Church-affiliated organizations are not exempt from ERISA’s reach
The Seventh Circuit held that a plan established by a church-affiliated organization, such as a hospital, is not exempt from the reach of the Employee Retirement Income Security Act (ERISA). According to the court, while church plans are specifically exempt from ERISA provisions that protect employees from unexpected losses in their retirement plans by setting forth specific safeguards for those employee plans, that exemption does not extend to church-affiliated organizations. Stapleton v. Advocate Health Care Network, No. 15-1368 (7th Cir. 3/17/16).
ESTATES, TRUSTS & GIFTS
Estate’s executor not liable for unpaid federal estate tax
The Tax Court held that the executor of an estate was not liable for unpaid federal estate tax. According to the court, the IRS did not meet its burden of proving that the estate was insolvent on the date the executor distributed the estate’s assets, and, therefore, one of the elements for fiduciary liability was lacking. Singer, T.C. Memo. 2016-48 (3/14/16).
Assets transferred to limited partnership were includible in decedent’s gross estate
The Tax Court held that the value of assets a decedent transferred to a limited partnership was includible in her gross estate because there was an implied agreement that she would retain the right to the possession or enjoyment of, or the right to the income from, the property transferred. The court also concluded that the decedent did not have a legitimate and significant nontax reason for transferring the assets to the limited partnership. Estate of Holliday, T.C. Memo. 2016-51 (3/17/16).
Payments before divorce was final were deductible as alimony
The taxpayer’s payments to his wife from whom he had separated were made pursuant to a pretrial order to maintain the financial status quo of the parties until a judgment of divorce was entered. Therefore, the payments were made under a written instrument incident to a decree of divorce or separate maintenance, as required under Sec. 71. In addition, under Alabama law, the payments would have ended upon the death of either spouse and thus met the requirement of Sec. 71(b)(1)(D) and were deductible as alimony. Anderson, T.C. Memo. 2016-47 (3/14/16).
Income from personal transaction is not subject to self-employment tax
The Tax Court held that income the taxpayer received from a company owned by his brother-in-law that was related to his home purchase was received in connection with a personal transaction, not in connection with a trade or business. Thus, the income was not includible in the net profit from the taxpayer’s trades or businesses and was not subject to self-employment tax. On a separate issue, the taxpayer was not entitled to be treated as a real estate professional for purposes of the passive loss rules because his mortgage broker business was not considered a real property trade or business under Sec. 469(c)(7)(C). Guarino, T.C. Summ. 2016-12 (3/14/16).
Couple liable for taxes on unreported income and fraud penalties
The Tax Court held that a couple were liable for taxes on unreported income where, among other fraudulent activities, the couple freely took money from companies of which the husband was president to pay personal expenses. Further, because the couple engaged in a pattern of conduct that indicated an intent to mislead, including the husband’s pleading guilty to filing a false tax return for two of the tax years at issue, they were liable for fraud penalties under Sec. 6663. O’Neal, T.C. Memo. 2016-49 (3/14/16).
Lack of adequate substantiation precludes vehicle mileage expense deduction
The Tax Court held that, while it did not doubt that the taxpayer drove to certain worksites, he failed to satisfy the adequate record requirements of Sec. 274(d) and thus could not deduct his vehicle mileage expenses. The court also said it did not find the taxpayer’s testimony credible and upheld the IRS’s penalty assessment under Code Sec. 6662. Avery, T.C. Memo. 2016-50 (3/17/16).
Burundi residents qualify for relief from Sec. 911(d)(1) eligibility requirements
The IRS issued its annual revenue procedure listing countries for which the eligibility requirements of Sec. 911(d)(1), relating to individuals whose foreign earned income and housing cost amounts are exempt from tax, are waived for the 2015 tax year. The only country identified in the procedure is Burundi. Accordingly, for purposes of Sec. 911, an individual who left Burundi on or after May 14, 2015, will be treated as a qualified individual with respect to the period during which he or she was present in, or was a bona fide resident of, Burundi if he or she establishes a reasonable expectation of otherwise meeting the requirements of Sec. 911(d). Rev. Proc. 2016-21 (3/17/16).
IRS issues monthly corporate bond interest rates
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). 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 2016-25 (3/14/16).
Quarterly interest rates on tax overpayments and underpayments issued for second quarter
The IRS announced the interest rates that will apply for the calendar quarter beginning April 1, 2016. The rates will be: (1) 4% for overpayments (3% in the case of a corporation); (2) 1.5% for the portion of a corporate overpayment exceeding $10,000; (3) 4% for underpayments; and (4) 6% for large corporate underpayments. Rev. Rul. 2016-06 (3/14/16).
Tax Court clarifies definition of “additional amounts” for determining whether whistleblower qualifies for award
The Tax Court held that the term “additional amounts” as used in Sec. 7623(b)(5)(B), when determining if a whistleblower is eligible for a nondiscretionary whistleblower award, applies to civil penalties, but that the term does not include foreign bank account report (FBAR) civil penalties. Thus, FBAR payments are excluded in determining whether the requirement that the “amount in dispute” exceed $2 million to qualify for a nondiscretionary whistleblower reward under Sec. 7623(b) has been satisfied. Whistleblower 22716-13W, 146 T.C. No. 6 (3/14/16).
Regulations issued on compliance monitoring for low-income housing credit
Temporary and proposed regulations revise and clarify the requirements to conduct physical inspections and review low-income certifications and other documentation with respect to the compliance-monitoring duties of a state or local housing credit agency under Sec. 42. T.D. 9753; REG-150349-12 (3/14/16).
IRS asks for comments on priority guidance list
The IRS requested recommendations for items that should be included on its 2016–2017 Priority Guidance List. Notice 2016-26 (3/18/16).
April 2016 AFRs Issued
The IRS issued the applicable federal rates for April 2016. Rev. Rul. 2016-9 (3/17/16).
Liability for payments relating to storage of spent nuclear fuel does not arise until plant is operating
The Office of Chief Counsel advised that a yearly liability to make payments imposed by state law for the storage of spent nuclear fuel at a nuclear power plant located in the state, that is contingent on the plant’s being in operation for that year, does not arise until the plant is operating for that year. The issue involved the proper timing of deductions for specified liability losses under Sec. 172(f)(1)(B). CCA 201612013 (3/18/16).
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.