Document Summaries for the Week of Nov. 14, 2016
Exchange of properties between related parties not a Sec. 1031 exchange
The Tax Court held that a real estate exchange transaction between related parties was structured to avoid the anti-abuse provisions of the Sec. 1031(f) related person rules and the taxpayer was thus not entitled to defer recognition of the gain on the transaction because it failed to demonstrate that the avoidance of federal income tax was not one of the principal purposes of the exchange. The Malulani Group, Ltd., T.C. Memo. 2016-209 (11/16/16).
Video programming distributed to customers does not qualify for Sec. 199
The IRS National Office advised that where a multichannel video programming distributor regulated by the Federal Communications Commission as a telecommunications service provider distributes a package of multiple channels of video programming or related signals, the package is not a qualified film within the meaning of Sec. 199(c)(6) or Regs. Sec. 1.199-3(k)(1) because it is not property described in Sec. 168(f)(3) or live or delayed television programming within the meaning of Regs. Sec. 1.199-3(k)(1). However, the gross receipts that the taxpayer derived from any individual film included in that package that is a qualified film produced by the taxpayer may qualify as domestic production gross receipts. TAM 201647007 (11/18/16).
Fifth Circuit overrules Tax Court definition of "deposits" and "loans"
The Fifth Circuit Court of Appeals held that the Tax Court's definitions of "deposits" and "loans" were too restrictive because it required deposits and loans to be "for an extended period of time." The case was remanded to the Tax Court. Moneygram International, Inc., No. 15-60527 (5th Cir. 11/15/16).
By setting retirement age at 45, corporation’s retirement plan runs afoul of Sec. 415
The IRS held that portions of a corporation’s contributions to a retirement plan that covered only the corporation’s president and set the normal retirement age at 45, were nondeductible because the plan’s funding did not properly account for the reductions imposed by Sec. 415(b)(2)(C) for benefits beginning before age 62. Further, the court held that the IRS applied the correct method to reduce the maximum benefits payable before age 62 and the plan was liable for Sec. 4972 excise taxes for nondeductible contributions, which were not time-barred because the taxpayer had not filed the required returns Pizza Pro Equip. Leasing, Inc., 147 T.C. No. 14 (11/17/16).
Single sheet of paper noting vehicle mileage did not meet substantiation requirements
The Tax Court held that a taxpayer’s vehicle log, which consisted of a sheet of paper showing the mileage for a vehicle at the beginning of the year and at the end of the year, did not meet the strict substantiation rules for deducting vehicle expenses. Similarly, the court denied the taxpayer’s deductions for legal expenses where the taxpayer had not shown that his legal expenses were related to his trade or business, and rejected the taxpayer’s argument that the expenses were covered by attorney-client privilege or any other privilege or that any special circumstances prevented him from substantiating them. Roy, T.C. Summ. 2016-77 (11/15/16).
No constructive distribution occurred where IRS contradicted reason for making adjustment
The Tax Court held that the sole owner of an S corporation did not recognize income as a result of a constructive distribution from his S corporation, noting that the IRS, in its pretrial memorandum, contradicted a critical portion of the explanation for that adjustment. The court also concluded that the S corporation owner had gross income from unexplained bank deposits, had failed to report discharge-of-indebtedness income, and was liable for various penalties. Franklin, T.C. Memo. 2016-207 (11/14/16).
Tax return preparer liable for tax deficiencies and fraud penalties
The Tax Court upheld the IRS’s motion for summary judgment, concluding that the taxpayer, who was in the business of preparing returns and providing immigration and justice of the peace services, was liable for tax deficiencies resulting from unreported income and overstated business expenses and was also liable for fraud penalties. Pena, T.C. Memo. 2016-208 (9/16/16).
IRS may proceed with collection action; settlement officer did not abuse discretion
The Tax Court granted summary judgment to the IRS, finding that the determination to proceed with collection actions against a taxpayer was not an abuse of discretion. The court noted that the taxpayer did not file his 2005 federal income tax return until 2015, after the IRS prepared a substitute return, and that the taxpayer did not submit any of the information needed for the IRS to consider a collection alternative. MacInnis, T.C. Summ. 2016-78 (11/16/16).
Court rejects taxpayer’s argument that an IRA had been rolled over
The Tax Court held that an individual’s withdrawal of money from his wife’s IRA during their divorce did not qualify as a tax-free rollover. The court rejected the taxpayer’s allegations that the money was rolled over into a trust account for his daughter’s benefit, noting that there was no money in the daughter’s account from the rollover and the money seemed to have disappeared. Skog, T.C. Memo. 2016-210 (11/17/16).
IRS updates guidance on per capita payments received by Indian tribes
The IRS issued a notice that updates the Appendix of Notice 2013-1 to list additional settlement agreements with Indian tribes. Notice 2013-1, which is modified and superseded by this notice, provides guidance on the federal tax treatment of per capita payments that members of Indian tribes receive from proceeds of certain settlements of tribal trust cases between the United States and those Indian tribes. Notice 2016-65 (11/18/16).
IRS extends relief from penalties for Form 1098-T reporting
In response to requests from educational institutions, the IRS announced that it will not impose penalties under Sec. 6721 or Sec. 6722 for Forms 1098-T, Tuition Statement, required to be filed and furnished for the 2017 calendar year under Sec. 6050S if the institutions report the aggregate amount billed for qualified tuition and related expenses on Form 1098-T instead of the aggregate amount of payments received as required by Section 212 of the Protecting Americans From Tax Hikes Act of 2015. Eligible educational institutions, therefore, will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received in Box 1 of Form 1098-T or the amount of qualified tuition and related expenses billed in Box 2 of Form 1098-T for the 2017 calendar year without being subject to penalties. Announcement 2016-42 (11/17/16).
IRS creates new SB/SE fast-track mediation program
The IRS announced the creation of a new fast track mediation program, SB/SE Fast Track Mediation—Collection (FTMC), to allow taxpayers with cases in the Small Business/Self-Employed (SB/SE) division an opportunity to resolve certain offer-in-compromise and trust fund recovery penalty disputes on an expedited basis with an Office of Appeals mediator serving as a neutral party. Rev. Proc. 2016-57 (11/18/16).
December 2016 AFRs Issued
The IRS issued the applicable federal rates for December 2016. Rev. Rul. 2016-27 (11/17/16).
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.