Document Summaries for the Week of Nov. 28, 2016
IRS withdraws portions of 1988 proposed regulations under Secs. 304 and 956
The IRS withdrew portions of a notice of proposed rulemaking (REG-209001-86) published in the Federal Register on June 14, 1988. The withdrawn portions relate to stock redemptions through related corporations, the application of Sec. 956 to U.S. property indirectly held by a controlled foreign corporation, and certain related-party factoring transactions, as well as the definition of the term “obligation” for purposes of Sec. 956. REG-122387-16 (11/28/16)
IRS issues loss payment patterns and discount factors for 2016 accident year
The IRS issued a revenue procedure that prescribes the loss payment patterns and discount factors for the 2016 accident year. These factors are used to compute discounted unpaid losses under Sec. 846. Rev. Proc. 2016-58 (11/30/16).
IRS issues salvage discount factors for 2016 accident year
The IRS issued a revenue procedure that prescribes the salvage discount factors for the 2016 accident year. These factors are used to compute discounted estimated salvage recoverable under Sec. 832. Rev. Proc. 2016-59 (11/30/16).
IRS guidance addresses Sec. 45R credit for health insurance expenses of certain small employers
The IRS issued guidance on Sec. 45R for certain small employers that cannot offer a qualified health plan (QHP) through a Small Business Health Options Program (SHOP) Exchange because the employer’s principal business address is in a county in which a QHP through a SHOP Exchange will not be available for the 2016 calendar year (the counties, which are listed in the notice, are all in Wisconsin). The notice provides relief for those employers by allowing them to claim the credit by satisfying the pre-2014 rules. Notice 2016-75 (12/2/16).
ESTATES, TRUSTS & GIFTS
IRS finalizes transition rules for consistent basis reporting
The IRS issued final regulations providing transition rules allowing executors and others required to file or furnish a statement under Sec. 6035(a)(1) or (2) regarding the value of property included in a decedent’s gross estate for federal estate tax purposes before June 30, 2016, to not have done so until June 30, 2016. This is the transition date that was provided for in Notice 2016-27. T.D. 9797 (12/2/16).
IRS provides guidance relating to discharge of certain qualified principal residence debt
The IRS issued a notice providing guidance on whether qualified principal residence indebtedness is discharged subject to an arrangement that is entered into and evidenced in writing before Jan. 1, 2017, within the meaning of Sec. 108(a)(1)(E)(ii) if, before that date, a mortgage loan servicer sends a borrower-homeowner under the Federal Housing Finance Agency’s Principal Reduction Modification Program a notice in conjunction with a written Trial Period Plan (TPP) or, for a borrower-homeowner in an active TPP, a separate notice in a written opt-out letter outlining the terms and conditions of the permanent mortgage loan modification following completion of the active TPP. The guidance in the notice also applies to a TPP under the Home Affordable Modification Program. Notice 2016-72 (11/28/16).
Tax Court upholds NFTL against couple that did not pay taxes for three years
The Tax Court granted summary judgment and upheld an IRS notice of federal tax lien against a couple who did not pay their taxes for three years. According to the court, the couple did not show that there was any genuine dispute for trial, and their assertion that documents attached to an IRS settlement officer’s declaration did not constitute IRS “business records” was meritless. Fine, T.C. Memo. 2016-217 (11/29/16).
Taxpayer hit with tax deficiencies and penalties for failing to report income or substantiate deductions
The Tax Court upheld tax deficiencies assessed against a taxpayer after concluding that the IRS had met its burden in proving that the taxpayer, who operated multiple businesses, deducted expenses for which he lacked substantiation, accounted for business income using the accrual method of accounting when the business operated under the cash method, failed to report income, and failed to keep adequate records. The court also upheld the assessment of penalties because the taxpayer failed to show reasonable cause or that he acted in good faith. Ibidunni, T.C. Memo. 2016-218 (12/1/16).
Taxpayer relieved of tax liability associated with ex-husband’s rental real estate activity
The Tax Court held that a taxpayer was entitled to innocent spouse relief for deficiencies from erroneous rental property deductions taken on a joint tax return because those deficiencies were the result of a real estate activity solely operated by her ex-husband and she did not have actual knowledge that her husband did not qualify as a real estate professional. However, a deficiency for failing to include wage income on the return was attributable to the taxpayer because she had earned it. In addition, any penalties had to be allocated to the spouse who was responsible. McDonald, T.C. Summ. 2016-79 (12/1/16).
IRS announces modification of Sec. 367 and triangular reorganization rules
The IRS announced that it intends to issue regulations modifying the Sec. 367 that rules to address certain triangular reorganizations involving foreign corporations where a subsidiary acquires its parent’s stock for property and uses that stock to acquire a target corporation. The rules would also modify the “all earnings and profits” amount that must be included in income as a result of certain inbound asset acquisitions that repatriate “excess asset basis.” Notice 2016-73 (12/2/16).
IRS notice addresses Sec. 871(m) regulations
The IRS issued guidance providing for the phased-in application of the Sec. 871(m) dividend equivalent regulations that were finalized in September 2015. The notice provides that the Sec. 871(m) regulations (1) only apply to delta-one transactions in calendar year 2017 and (2) will apply to non-delta-one transactions beginning in calendar year 2018. Notice 2016-76 (12/2/16).
Procedural requirements of deficiency notice upheld
The Tax Court held that a notice of deficiency, issued by the IRS to a couple who had claimed a charitable deduction for an easement contribution that was subsequently disallowed, complied with Sec. 6751(a). The court also sustained the IRS’s assessment of an accuracy-related penalty for a substantial understatement of income tax and, because the IRS had not yet assessed under Sec. 6751(b) an alternative 20% penalty, the couple’s argument that the IRS failed to comply with Sec. 6751(b)(1) was premature. Graev, 147 T.C. No. 16 (11/30/16).
Online account information tool unveiled by IRS
The IRS launched an online tool to allow taxpayers to check their tax account balances online, including tax due, penalties, and interest, after they complete an online registration process called Secure Access. IRS website (12/1/16) (see related news story).
IRS starts e-Services re-registration process
The IRS is notifying e-Services users that they must re-register and validate their identities. IRS website (11/29/16) (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.