Document Summaries for the Week of Oct. 17, 2016


Couple liable for penalties for treating personal payments as tax-deductible business expenses

The Tax Court held that a couple were not entitled to deductions claimed on their Schedule C, Profit or Loss From Business, for (1) educational expenses of their children, which the couple described as business expenses; (2) legal fees relating to the foreclosure of their former residence; and (3) homeowners insurance policy payments on the former residence, where the couple allegedly kept business-related equipment. The court also held that the couple were liable for accuracy-related penalties because they did not show reasonable cause, substantial authority, or any other basis for treating personal expenses as business expenses. Hicks, T.C. Summ. 2016-68 (10/17/16).

Social Security wage base issued for 2017

The Social Security Administration announced that the maximum amount of earnings subject to the Social Security tax will increase to $127,200 from $118,500, the rate in effect for 2015 and 2016. SSA Fact Sheet, “2017 Social Security Changes” (10/18/16) (see related news story).

Taxpayer wins limited litigation costs and attorneys’ fees after substantially prevailing in dependency deduction case

The Tax Court held that the taxpayer, who substantially prevailed in a case involving dependency exemptions, was not entitled to reasonable administrative costs beyond the $1,320 of costs that the IRS conceded and was not entitled to attorneys’ fees in excess of $800 based on the statutory rate of $200 per hour for reasonable litigation costs. St. Claire, T.C. Memo. 2016-192 (10/19/16).

Failure of attorney to inform couple of loss of authority to practice law was not a fraud on the court

On remand from the Seventh Circuit, the Tax Court found that an attorney’s failure to inform a couple that he was no longer authorized to practice law in Illinois because he did not pay Illinois State bar dues or comply with continuing education requirements did not negatively affect the outcome of the couple’s case and was not a fraud on the court because that attorney provided them competent, diligent, and effective representation. Thus, the couple failed in their attempt to have stipulations set aside that they now disagreed with. As for the couple’s second representative, the Tax Court said that while it believed he multiplied the proceedings on remand unreasonably and vexatiously, it would nonetheless not sanction him at this time, but reserved the right to do so in the future if he continued. Shamrock, T.C. Memo. 2016-193 (10/20/16).



IRS officer’s reliance solely on IRS certified mailing list was an abuse of discretion; NFTL not sustained

The Tax Court held that an IRS settlement officer’s determination to proceed with the collection of a taxpayer’s tax liabilities for three of the years at issue was an abuse of discretion where the settlement officer relied solely on the IRS certified mailing list to determine whether a deficiency notice was sent to the taxpayer’s last known address but the mailing list’s address was wrong. Thus, the Notice of Federal Tax Lien for those years was not sustained. Talbot, T.C. Memo. 2016-191 (10/17/16).

IRS gives expanded tax relief to victims of Hurricane Matthew

The IRS announced that Hurricane Matthew victims in much of North Carolina and parts of South Carolina, Georgia, and Florida have until March 15, 2017, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for those with valid extensions that ran out at midnight Oct. 17. The IRS is also offering this expanded relief to any area designated by the Federal Emergency Management Agency as qualifying for either individual assistance or public assistance; taxpayers in counties added later to the disaster area will automatically receive the same filing and payment relief. IR-2016-135 (10/17/16).

Low-income housing credit carryover allocations published

The IRS published the amounts of unused housing credit carryovers allocated to qualified states under Sec. 42(h)(3)(D) for calendar year 2016. Rev. Proc. 2016-52 (10/17/16).

November 2016 AFRs Issued

The IRS issued the applicable federal rates for November 2016. Rev. Rul. 2016-26 (10/19/16).

Disclosure of certified awardees under Secs. 48A and 48C should occur after IRS’s certification letter is issued

The Office of Chief Counsel responded to an inquiry concerning the timing of disclosures under Secs. 48A and 48C, which both require disclosure of certified awardees after the two- or one-year period for certification, recommending the public disclosure of the certified applicant’s identity and credit amount  after the IRS’s certification letter is issued. Sec. 48B credits, however, are awarded in a one-step process and can be disclosed when they are awarded. CCA 201643023 (10/21/16).

Inauguration Day is a legal holiday in the District of Columbia

The Office of Chief Counsel advised that because Inauguration Day is a legal holiday in the District of Columbia, any act for which the Code provides that the last day to perform that act is on Inauguration Day is considered timely if performed on the next succeeding day that is not a Saturday, Sunday, or a legal holiday. Therefore, any act the Code requires be performed by Friday, Jan. 20, 2017, will be timely if performed by Monday, Jan. 23, 2017. CCA 201643022 (10/21/16).

Advice given on what to include in an Issue Snapshot on Sec. 4962

The Office of Chief Counsel detailed what should be covered in an Issue Snapshot on Sec. 4962. Generally, the Chief Counsel’s Office said that inclusion of the following topics would be appropriate: (1) a short summary of the  private foundation provisions; (2) a description of the meaning of a “taxable event” under Sec. 4962(a)(1); (3) an explanation of  a reasonable cause defense to certain penalties  under Sec. 4962; and (4) possibly add a hypothetical example illustrating that the foundation will not qualify for a reasonable cause  defense if the managers or directors act willfully. CCA 201643021 (10/21/16). 

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