Document Summaries for the Week of May 16, 2016
Portions of proposed regs. on disregarded stock in inversion transactions are withdrawn
The IRS withdrew portions of 2009 proposed regulations relating to the application of Sec. 367(b) to transactions described in Sec. 304(a)(1) (stock purchases by related corporations). It also withdrew portions of proposed regulations issued in 2014 for determining surrogate foreign corporation status under Sec. 7874. REG-135734-14 (5/16/16).
IRS issues monthly guidance on corporate bond yield curve and other 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 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 2016-33 (5/17/16).
Regulations remove allocation rule for disbursements from Roth accounts
The IRS issued final regulations that eliminate the requirement that each disbursement from a designated Roth account that is directly rolled over to an eligible retirement plan be treated as a separate distribution from any amount paid directly to the employee and therefore separately subject to the rule in Sec. 72(e)(2). T.D. 9769 (5/18/16) (see related news story).
Final regulations issued on multiemployer plan benefit suspension
Final regulations provide guidance on the benefit suspension rules under Sec. 432(e)(9), which permit certain multiemployer defined benefit pension plans in critical and declining funded status to reduce the pension benefits payable to participants and beneficiaries if certain conditions are satisfied. T.D. 9765 (5/16/16).
ESTATES, TRUSTS & GIFTS
Chief Counsel’s Office advises on who can request estate tax return information
The Office of Chief Counsel advised that, under Secs. 6103(e)(1)(E) (estate tax returns) and (e)(3) (decedents’ returns), the only people other than the administrator, executor, or trustee of an estate who can request estate tax return information are heirs at law, next of kin, beneficiaries under the will, and, only in the case of decedents’ returns (not estate returns), donees of property. For all these categories, to be entitled to the return information, persons must establish that they have a material interest, usually financial in nature, that will be affected by the information requested. CCA 201621014 (5/20/16).
Gain from stock sales not exempt under U.S.–Israel tax treaty
The Tax Court held that the taxpayer, a U.S. citizen and a permanent resident of Israel, could not exclude from taxable income the proceeds from stock sales made while he was a permanent resident of Israel. The court rejected the taxpayer’s argument that he was exempt from tax under the United States–Israel tax treaty. Cole, T.C. Summ. 2016-22 (5/16/16).
Court rejects deduction for law school tuition and fees
The Tax Court held that the taxpayer, who was an enrolled agent and had a master’s degree in tax, was not entitled to deduct his law school tuition and fees of $20,275. In so holding, the court refused to reconsider the validity of Regs. Sec. 1.162-5(b)(1), which provides that expenses for education that is part of a program of study leading to a new trade or business are not deductible. Santos, T.C. Memo. 2016-100 (5/17/16).
Intent to levy upheld where taxpayer failed to appear for IRS hearing
The Tax Court granted summary judgment to the IRS and upheld an IRS notice of intent to levy on the taxpayer. The court said the IRS settlement officer did not abuse her discretion by making a determination based on the case file once the taxpayer was given a reasonable opportunity for a hearing but failed to avail himself of it. Norman, T.C. Memo. 2016-98 (5/16/16).
IRS did not abuse its discretion in rejecting $600 offer to settle over $1.6 million tax liability
The Tax Court held that the IRS did not abuse its discretion in rejecting a defunct corporation’s offer-in-compromise and sustaining the filing of the notice of federal tax lien. Citing the fact that the taxpayer had shown a pattern of moving or eliminating assets, the court said the IRS settlement officer did not abuse her discretion by rejecting an offer of $600 to compromise over $1.6 million of tax liability and by sustaining the filing of the notice of federal tax lien. Synergy Environmental, Inc., T.C. Memo. 2016-99 (5/16/16).
New method for determining applicable federal rates
Final regulations provide a new method for adjusting the applicable federal rates to determine the corresponding rates under Sec. 1288 for tax-exempt obligations and the method to determine the long-term tax-exempt rate and the adjusted federal long-term rate under Sec. 382. T.D. 9763 (5/16/16).
Underlying tax liability can be challenged in a suit to reduce the liability to judgment or foreclose a lien
The Office of Chief Counsel was asked about when an underlying tax liability can be challenged in a suit to reduce a liability/assessment to judgment or to foreclose a tax lien. In response, the Chief Counsel’s Office advised that, while few cases or other authority could be found that were directly on point regarding the raising of liability challenges, the analysis discussed in Bailey, 415 F. Supp. 1305 (D.N.J. 1976), supported the conclusion that the underlying liability can be at issue in either type of suit. CCA 201621013 (5/20/16).
Chief Counsel examines applicability of Sec. 7602 in an audit involving classified information
The Office of Chief Counsel commented on the applicability of Sec. 7602(c) (notice to taxpayer of contact with a third party) in a situation where the IRS is examining an organization that had a contract to provide services to a government agency and the contract itself was classified information. The Chief Counsel’s Office noted that no one can even acknowledge the existence of the contract in a nonsecure setting and that all meetings with the taxpayer in which classified information is discussed are held in a secure location. CCA 201621012 (5/20/16).
FOIA requests signed by POA should be rejected as invalid, Chief Counsel’s Office says
The Office of Chief Counsel advised that a Freedom of Information Act (FOIA) request signed by a taxpayer with an attached Form 2848, Power of Attorney and Declaration of Representative, that simply notes “FOIA” in the space designated for a description of the tax matters to which it applies should be treated as a valid request, but only for the documents described in the request. However, a FOIA request signed by a power of attorney with an identically completed Form 2848 should be rejected as invalid, the Chief Counsel’s Office said. CCA 201621011 (5/20/16).
IRS may credit an overpayment against any liability but is not required to do so in any particular manner
The Office of Chief Counsel advised that, while Sec. 6513(b) provides that amounts withheld are deemed paid by the taxpayer as of the due date of the return for that year, the fact that an amount was “paid” does not mean it would automatically be applied to the outstanding liability for the taxpayer’s 2000 tax year. Rather, the Chief Counsel’s Office said, the IRS may credit an overpayment against any liability but is not required to do so in any particular manner, and prepaid amounts for a given year are not deemed credited to a tax liability for another year until the return for the first year is processed and the credit is applied. CCA 201621010 (5/20/16).
IRS issues inflation factors and reference prices relating to Sec. 45 credits
The IRS published the inflation adjustment factor and reference prices for calendar year 2016 for the renewable electricity production, refined coal production, and Indian coal production credits under Sec. 45. The 2016 inflation adjustment factor and reference prices are used in determining the availability of the credits. Notice 2016-34 (5/20/16).
June 2016 AFRs Issued
The IRS issued the applicable federal rates for June 2016. Rev. Rul. 2016-13 (5/17/16).
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.