Document Summaries for the Week of Oct. 10, 2016


IRS issues earnings-stripping rules under Sec. 385

The IRS issued final and temporary regulations under Sec. 385 to recharacterize certain loans between related parties. T.D. 9790 (10/14/16) (see related news story).

Insurance company is not entitled to loss for uncollectible deductibles using its current methodology

The Office of Chief Counsel advised that a taxpayer who writes high deductible insurance policies is not entitled to a loss incurred for uncollectible deductibles using its current methodology. However, under Sec. 832(c)(10), the taxpayer is entitled to a deduction for a bad debt within the scope of Sec. 166 for an uncollectible deductible, to the extent consistent with Sec. 832(d). CCA 201642034 (10/14/16).

Loss on sale of property will not reduce taxpayer’s qualified production activities income

The Office of Chief Counsel advised that, under Regs. Sec. 1.199-4(b)(1), the adjusted basis of purchased equipment used to produce qualifying production property is considered cost of goods sold (CGS) when that equipment is sold. The Chief Counsel’s Office stated that the CGS will be allocated solely to the taxpayer’s non-domestic production gross receipts received on the sale of the equipment and, therefore, the loss would not reduce the taxpayer’s qualified production activities income. CCA 201642033 (10/14/16).

Life insurance company must amortize excess of ceding commission over acquisition expenses

The Office of Chief Counsel advised that a life insurance company entered an assumption reinsurance arrangement with a seller when it acquired the seller’s life reinsurance business. As a result, the life insurance company must amortize the excess of the ceding commission over the Sec. 848 specified policy acquisition expenses. CCA 201642032 (10/14/16).

Chief Counsel’s Office addresses calculation of gain or loss on stock acquisition

The Office of Chief Counsel was asked to address the calculation of gain or loss by a taxpayer who incurs expenses investigating an acquisition of stock and also receives a fee for terminating an agreement between the taxpayer and a target corporation to acquire the target corporation’s stock. The Chief Counsel’s Office advised that Sec. 1234A applies to the gain or loss and that the gain or loss is determined by reducing any fee received for the termination of the agreement by any costs incurred in the process of investigating and pursuing the transaction that were properly capitalized under Regs. Sec. 1.263(a)-5(e). CCA 201642035 (10/14/16). 


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) for October 2016. 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 2016-61 (10/14/16).


Contributions by trust not made under governing instrument were not deductible

The Tax Court held that because a decedent’s will provided that no charitable contributions were to be made until after the death of the last beneficiary, charitable contributions made by the trust during 2009 when beneficiaries were still receiving payments were not made under the will, the governing instrument. As a result, the court concluded that the charitable contributions were not deductible under Sec. 642(c). Harvey C. Hubbell Trust, T.C. Summ. 2016-67 (10/13/16).



Taxpayer cannot claim unsubstantiated employee business expenses and certain vehicle-related deductions

The Tax Court held that a taxpayer was not entitled to deduct unreimbursed business expenses where the taxpayer’s employer had a reimbursement policy and had in fact reimbursed the taxpayer for thousands of dollars of employee business expenses for the year, and where the employee’s only substantiation of the unreimbursed expenses was his testimony. The court also denied deductions for certain vehicle-related expenses because the taxpayer could not properly substantiate those deductions and upheld the IRS’s assessment of penalties. Martin, T.C. Memo. 2016-189 (10/11/16).

Taxpayers get more time to elect to deduct disaster loss in prior year

Temporary regulations allow more time for taxpayers to elect to deduct a disaster loss in the tax year preceding the year in which the disaster actually occurred. T.D. 9789 (10/13/16) (see related news story).



North Carolina victims of Hurricane Matthew get tax relief

The IRS postponed until March 15, 2017, the deadline to file certain individual and business tax returns and make certain tax payments for taxpayers in North Carolina counties that FEMA has declared to be disaster areas following Hurricane Matthew. IR-2016-131 (10/11/16).

IRS proposes raising offer-in-compromise fee

The IRS issued proposed regulations that would raise the fee for making an offer in compromise from $186 to $300. The new fee would apply to offers submitted on or after Feb. 27, 2017. REG-108934-16 (10/13/16).



On remand, Tax Court agrees with taxpayer’s valuation of real property

The Tax Court, in a valuation case on remand from the Eleventh Circuit, was asked to determine whether there should be an adjustment to the taxpayer’s expert valuation of real property that related to a charitable contribution deduction. The Tax Court, agreeing with the Eleventh Circuit, adopted the taxpayer’s expert’s position and sustained the value that the taxpayer claimed at trial. Palmer Ranch Holdings Ltd., T.C. Memo. 2016-190 (10/13/16).

Tax Insider Articles


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.