Document Summaries for the Week of May 2, 2016
IRS updates guidance on credits for renewable energy facilities
The IRS issued a notice updating prior guidance to reflect the recent extension and modification of the date by which facilities must begin construction for purposes of certain credits related to renewable energy facilities. The notice also extends the date by which taxpayers must place a facility in service to satisfy the continuity safe harbor in Notice 2013-60. Notice 2016-31 (5/5/16).
Guidance focuses on the diversification requirements under Sec. 817(h)
The IRS issued a notice on the diversification requirements under Sec. 817(h) for a segregated asset account that invests in a government money market fund. The notice provides an alternative diversification criterion by which a segregated asset account that invests in a government money market fund can meet the diversification requirement. Notice 2016-32 (5/5/16).
Rev. proc. provides temporary relief for certain money market funds to comply with SEC rules
The IRS issued a revenue procedure providing temporary relief for certain money market funds that receive contributions from their advisers as the money market funds comply with SEC rules on how certain money market fund shares are priced. The revenue procedure applies to a “top-up” contribution that is received by a money market fund as part of a transition to implement the floating-net-asset-value-per-share reform before the Oct. 14, 2016, compliance deadline. Rev. Proc. 2016-31 (5/5/16)
IRS proposes more anti-inversion rules
The IRS issued proposed regulations that address transactions that are structured to avoid the purposes of Secs. 7874 and 367 and certain post-inversion tax-avoidance transactions. REG-135734-14 (5/2/16).
Final regs. provide guidance on limitation on suspension of benefits
The IRS issued final regulations governing the suspension of benefits by multiemployer defined benefit plans that will have insufficient funds to pay full plan benefits. The regulations address the suspension of benefits under a plan that includes benefits directly attributable to a participant’s service with an employer that has withdrawn from the plan, paid its full withdrawal liability, and, pursuant to a collective bargaining agreement, assumed liability for providing benefits. T.D. 9767 (5/4/16).
Inflation adjustments issued for certain health care provisions
The IRS provided inflation adjustments for various provisions under Secs. 36B and 5000A. It updated for 2017 the applicable percentage table for calculating an individual’s premium tax credit. The revenue procedure also updated the required contribution percentage for plan years beginning after calendar year 2016, which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Sec. 36B. The revenue procedure also cross-references the Department of Health and Human Services’ guidance on the required contribution percentage under Sec. 5000A(e)(1)(A) for plan years beginning after calendar year 2016, which is used to determine whether an individual is eligible for an exemption from the individual shared responsibility payment because of a lack of affordable minimum essential coverage. Rev. Proc. 2016-24 (5/2/16).
IRS withdraws certain proposed nondiscrimination requirements
The IRS announced that it is withdrawing certain provisions of proposed regulations published on Jan. 29, 2016 (REG-125761-14) relating to nondiscrimination requirements applicable to qualified retirement plans under Sec. 401(a)(4), specifically, those that would modify Regs. Secs. 1.401(a)(4)-2(c) and 1.401(a)(4)-3(c). Announcement 2016-16 (5/2/16).
IRS issues corporate bond interest rates for April
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 April 2016. Notice 2016-29 (5/2/16).
Regulations define certified professional employer organization
The IRS issued temporary and proposed regulations providing the requirements an organization must meet to become a certified professional employer organization for federal employment tax purposes. T.D. 9768; REG-127561-15 (5/6/16).
Taxpayer entitled to education credit in year loan proceeds were used to pay tuition
The Tax Court held that, although a university charged a portion of the taxpayer’s spring 2011 semester tuition to her account in 2010, the loan proceeds that the taxpayer used to pay those tuition charges were not disbursed and credited to her account until 2011 and, thus, she was treated as having paid those expenses in 2011. Since the taxpayer was a cash-basis taxpayer, the court rejected the IRS’s position and concluded that it was proper for the taxpayer to claim a credit in 2011 for the tuition. Terrell, T.C. Memo. 2016-85 (5/2/16).
IRS can proceed with levy actions where taxpayer failed to challenge tax assessments
The Tax Court held that, where a taxpayer was given a reasonable opportunity to challenge assessments of tax due but did not do so, the IRS could proceed with a levy on the taxpayer. The court noted that because the taxpayer also did not raise his underlying liabilities during an administrative hearing and provided none of the information the IRS requested, it did not matter whether, as the taxpayer claimed, he did not receive the IRS’s notices of deficiencies. Therefore, the court said, he could not dispute the liabilities in Tax Court. Schlegel, T.C. Memo. 2016-90 (5/4/16).
IRS settlement officer did not abuse his discretion in proceeding with collection actions
The Tax Court held that an IRS settlement officer did not abuse his discretion by sustaining proposed collection actions against the taxpayer. The court noted that it had previously rejected the taxpayer’s arguments that a bankruptcy discharge relieved her of a duty to pay taxes in the future. Doose, T.C. Memo. 2016-89 (5/4/16).
Tax Court rejects IRS attempt to dismiss whistleblower case
The Tax Court rejected an IRS motion to dismiss a petition seeking a whistleblower award because the IRS could not show through direct evidence that the Whistleblower Office mailed a final determination letter more than 30 days before the petitioner filed the petition. The court rejected the IRS’s argument that a phone call established the date of mailing of a final determination letter and said it was aware of no authority for the notion that the running of the 30-day period under Sec. 7623(b)(4) begins as a result of a phone call. Allibone, T.C. Memo. 2016-91 (5/5/16).
LB&I prefiling agreement program expanded
The IRS expanded its existing prefiling agreement program for taxpayers that fall under the jurisdiction of its Large Business and International (LB&I) division. Rev. Proc. 2016-30 (5/4/16) (see related news story).
IRS to impose reporting rules on foreign-owned disregarded entities
Proposed regulations would treat U.S. disregarded entities owned by foreign persons as domestic corporations for purposes of the reporting, record maintenance, and other compliance requirements that apply to 25% foreign-owned domestic corporations under Sec. 6038A. REG-127199-15 (5/6/16) (see related news story).
IRS did not abuse its discretion by refusing to consider collection alternative
The Tax Court held that an IRS settlement officer did not abuse her discretion by refusing to consider a collection alternative where the taxpayer failed to respond to an offer the officer put forth or to place a counteroffer on the table. Thus, the IRS was entitled to a judgment against the taxpayer. Terry, T.C. Memo. 2016-88 (5/3/16).
IRS can include unexplained monthly deposits in taxpayer’s future income
The Tax Court agreed with an IRS decision not to settle a $200,000 tax bill for $2,400 and held that the IRS could proceed with collection activities against the taxpayer. The court noted that the taxpayer had more than $6,000 in unexplained monthly deposits and, thus, the IRS settlement officer did not abuse his discretion in including such amounts in the taxpayer’s future income. Alphson, T.C. Memo. 2016-84 (5/2/16).
Trust that escaped transferee liability isn’t eligible for administrative and litigation costs
The Tax Court held that a trust that had previously established that it was not liable for transferee tax liability under Sec. 6901 was not eligible for an award of administrative and litigation costs under Sec. 7430 because it had a net worth of more than $2 million. Sec. 7430(c)(4)(D)(i)(II) requires that a trust’s net worth must be determined as of the last day of the tax year involved in the proceeding, the court held. In this case, the trust’s net worth exceeded $2 million as of that date. Bryan S. Alterman Trust, 146 T.C. No. 14 (5/2/16).
Taxpayer misled by spouse’s actions is not liable for unpaid tax penalties
The Tax Court held that, because the taxpayer was misled by his spouse’s actions, he reasonably believed that his return had been filed and his tax paid. Thus, the Tax Court concluded that it would be inequitable to hold the taxpayer liable for unpaid Sec. 6651(a)(1) and (2) penalties on the unpaid taxes and related interest. Boyle, T.C. Memo. 2016-87 (5/2/16).
Court assesses additional penalty of $3,000 against tax protesters
The Tax Court granted an IRS motion for summary judgment and sustained its tax deficiency and penalty assessments against a couple that the court labeled “tax protesters.” In addition, the court assessed a Sec. 6673(a)(1) penalty of $3,000 against the couple for advancing frivolous positions in the proceedings. Briggs, T.C. Memo. 2016-86 (5/2/16).
Area and nationwide average purchase prices for residences issued
The IRS provided issuers of qualified mortgage bonds and qualified mortgage credit certificates with average area purchase price safe harbors for statistical areas in the United States and with a nationwide average purchase price for residences in the United States, for purposes of the Sec. 143 qualified mortgage bond rules and the Sec. 25 qualified mortgage credit certificate rules. Rev. Proc. 2015-31 was obsoleted in part. Rev. Proc. 2016-25 (5/2/16).
Regulations clarify that partners cannot be employees
The IRS issued temporary regulations intended to halt the practice of treating partners as employees of a disregarded entity owned by the partnership so that they can be included in employee benefit plans and receive other benefits. The IRS asked for comments on when it might be appropriate to allow partners to also be employees of a partnership. T.D. 9766 (5/3/16) (see related news story).
Chief Counsel’s Office advises on recognition of deferred revenue when business is acquired
The Office of Chief Counsel advised that a taxpayer that (1) has deferred recognizing into income revenue from an advance payment for services under Rev. Proc. 2004-34, and (2) subsequently has all of its stock acquired by an unrelated corporation that, for financial accounting purposes, writes down the associated deferred revenue liability to its fair value as of the date of the acquisition, must include the advance payment in its gross income for federal income tax purposes in the year of receipt to the extent the payment is recognized in revenues in its applicable financial statement for that tax year. The taxpayer must include the remaining amount of the advance payment in its gross income in the next succeeding tax year, irrespective of any write-down of the deferred revenue liability for financial accounting purposes. CCA 201619009 (5/6/16).
No deduction allowed for disgorgement payments for violating Foreign Corrupt Practices Act
The Office of Chief Counsel advised that Sec. 162(f) prohibits a deduction for an amount paid as disgorgement to the SEC for violating the U.S. Foreign Corrupt Practices Act. The Chief Counsel’s Office noted that, if a payment serves both a nondeductible purpose and a deductible purpose, it is necessary to determine which purpose the payment primarily serves, and a payment imposed primarily for purposes of deterrence and punishment is not deductible under Sec. 162(f). CCA 201619008 (5/6/16).
IRS updates list of automatic accounting method changes
The IRS updated the list of automatic changes in accounting procedure to which the automatic change procedures in Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as modified by Rev. Proc. 2016-1, apply. Rev. Proc. 2016-29 (5/5/16) (see related news story).
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.