Document Summaries for the Week of Oct. 24, 2016


Proposed regulations issued on RIC requirements

The IRS issued proposed regulations to provide guidance on the income test and the asset diversification requirements that are used to determine whether a corporation qualifies as a regulated investment company (RIC) for federal income tax purposes. REG-123600-16 (10/24/16).



2017 pension inflation adjustments

The IRS issued the annual cost-of-living adjusted amounts for various retirement account limits. Rev. Proc. 2016-62 (10/27/16) (see related news story).



IRS revokes several exemption determinations

The IRS announced that it has revoked its determination that several organizations qualify as organizations described in Secs. 501(c)(3) and 170(c)(2). Announcement 2016-38 (10/24/16).



Church’s “love offerings” are taxable income to pastor

The Tax Court held that amounts transferred by a church to one of its pastors and labeled as “love offerings” were properly reported as nonemployee compensation on Form 1099-MISC, Miscellaneous Income. According to the court, the amounts received by the pastor represented taxable compensation for services rendered on a regular basis. Jackson, T.C. Summ. 2016-69 (10/24/16).

Deductions denied for insufficient substantiation

The Tax Court held that bank records established that a couple received unreported income from a vehicle repossession operation and a cosmetics sales business. The court further rejected deductions for contract labor beyond those conceded by the IRS, noting that the couple provided no substantiation such as the filings of Forms 1099-MISC. The court also denied claimed car and truck expenses for lack of substantiation and upheld penalties assessed by the IRS. Parker, T.C. Memo. 2016-194 (10/25/16).

Taxpayer subject to multiple penalties for overstated partnership cattle-breeding losses

The Tax Court held that a taxpayer was subject to various penalties for understatements of tax from  cattle-breeding partnership losses. According to the court, the taxpayer did not act with reasonable cause or in good faith  and could not escape the negligence penalty by claiming he relied on the advice of the tax shelter promoters or those closely affiliated with the promoters, who also prepared his tax returns. Also, the taxpayer’s claim that the IRS had agreed to waive the penalties if he settled the case was unavailing because he never signed the settlement agreement or returned it to the IRS. Arashiro, T.C. Summ. 2016-70 (10/26/16).

Taxpayer failed to convince court that his writing and cartoonist activities were for profit

The Tax Court held that a taxpayer was liable for tax deficiencies and penalties for deductions he claimed were related to his business as a substitute teacher, a writer, and a cartoonist. The court noted that the taxpayer failed to satisfy the Sec. 274(d) substantiation requirements for his vehicle expenses, and that, while the taxpayer presented a general narrative about his writing and cartoonist activities, his testimony lacked the requisite specificity, coherence, and corroboration to convince the court that those activities  constituted a trade or business. Rangen, T.C. Memo. 2016-195 (10/26/16).

Proceeds received by taxpayer were bona fide loans, but deductions for personal interest were denied

The Tax Court rejected the IRS’s arguments that amounts a taxpayer received were taxable income, not loans, noting that the taxpayer’s records generally supported loan characterization. However, the taxpayer was liable for tax deficiencies and penalties for interest deductions relating to loans used to pay personal expenses rather than business expenses and for other omitted income that were not loans. Stanley, T.C. Memo. 2016-196 (10/26/16). 



2017 inflation adjustments released

The IRS issued the annual inflation adjustments for 2017 for more than 50 tax provisions as well as the 2017 tax rate tables for individuals and estates and trusts. Rev. Proc. 2016-55 (10/25/16) (see related news story).

IRS makes new proposal for higher EA exam fees

The IRS proposed raising the fee for taking the enrolled agent exam to $81 per part (from the current $11 per part), starting May 1, 2017. The IRS also withdrew an earlier proposal to increase the fee to $99 per part. REG-134122-15 (10/25/16).

Suspension of statute applies where proceeding is docketed in Tax Court even if IRS did not issue a deficiency notice

The Office of Chief Counsel advised that the statute of limitation is suspended under Sec. 6503(a) when a deficiency proceeding is docketed in the Tax Court, even if the IRS did not issue a statutory notice of deficiency (SND) under Sec. 6212(a). According to the Chief Counsel’s Office, Sec. 6503(a) provides that the statute of limitation on assessment is suspended if a proceeding is placed on the  Tax Court’s docket, until 60 days after the decision of the Tax Court becomes final, and this suspension applies regardless of whether an SND was issued to the taxpayer for that deficiency. CCA 201644020 (10/28/16).

TIGTA: IRS missing billions in backup withholding

The Treasury Inspector General for Tax Administration (TIGTA) issued a report concluding that the IRS’s lax enforcement of backup withholding requirements is potentially causing billions of dollars in lost revenue. TIGTA Rep’t No. 2016-40-078 (10/26/16) (see related news story)

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.