Document summaries for the week of April 10, 2017

CORPORATIONS

IRS acquiesces to result in case on payment of expenses as wages

The IRS announced its acquiescence in result only to the holding in Scott Singer Installations, Inc., T.C. Memo. 2016-161, that the taxpayer’s payment of personal expenses on behalf of its sole shareholder/corporate officer were not wages subject to federal employment taxes. Action on Decision 2017-04 (4/10/17).

 

EMPLOYEE BENEFITS

IRS issues guidance on corporate bond monthly yield curve

The IRS issued a notice 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 April 2017. In addition, the notice provides guidance on 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) for March 2017. Notice 2017-27 (4/12/17).

Taxpayer exceeds qualified plan limits; contributions to separate plans must be combined

The IRS National Office advised in a technical advice memorandum (TAM) that two separate entities in which the taxpayer had an interest were related by being in a controlled group and are treated as a single employer under Sec. 414(c). The application of Sec. 414(c), the National Office said, requires contributions the taxpayer made to two qualified plans operated by the two entities to be combined. As a result, the taxpayer exceeded the plan contribution limits. TAM 201715001 (4/14/17). 

 

INDIVIDUALS

IRS rejection of taxpayer’s OIC was reasonable in light of her collection potential

The Tax Court held that the IRS did not abuse its discretion in rejecting a taxpayer’s offer in compromise of $3,000 to settle a $100,000 trust fund liability because it was less than the taxpayer’s reasonable collection potential (RCP)  as calculated by the IRS . The court agreed that the taxpayer’s reported monthly expenses, of almost $7,000 per month for housing and $1,600 a month to lease a Lexus, exceeded the applicable local standards by more than $1,000 per month and that the taxpayer was not entitled to deviate from those standards. Lloyd, T.C. Memo. 2017-60 (4/10/17).

Amounts paid to disbarred lawyer were compensation and not a gift

The Tax Court held that amounts received by a disbarred lawyer for assisting an attorney with a legal case was nonemployee compensation and not a nontaxable gift and that the lawyer also excluded taxable Social Security disability benefits from his return. The court also upheld the IRS’s assessment of accuracy-related penalties even though the taxpayers had their return prepared by their long-time CPA because they did not disclose any of the excluded payments to him. Alexander, T.C. Summ. 2017-23 (4/10/17).

 

PARTNERSHIPS

Distributive shares of professional LLC are subject to self-employment tax

The Tax Court held that three lawyers who were member-managers of a professional limited liability company could not exclude from self-employment income the amounts of partnership distributive shares they received in excess of their guaranteed payments because they were all, in essence, general partners and thus did not qualify for the limited partner exception in Sec. 1402(a)(13). However, the lawyers did not have to recognize as income undistributed funds held in a trust account because they had no right to the funds. Castigliola, T.C. Memo. 2017-62 (4/12/17). 

 

S CORPORATIONS

Taxpayer cannot use legal judgments to increase her basis in an S corporation

The Tax Court held that a taxpayer could not increase her basis in an S corporation by the amount of legal judgments against her that resulted from guarantees she made to finance the S corporation’s real estate development projects. The court noted that the taxpayer could have increased her basis in the S corporation if she had made an actual payment toward the judgments. Phillips, T.C. Memo. 2017-61 (4/10/17).

 

TAX ACCOUNTING

IRS does not acquiesce to decision on when retail stores are placed in service

The IRS announced its nonacquiescence to the holding in Stine, LLC, No. 13–03224 (W.D. La. 1/27/15), that buildings built to operate as retail stores are placed in service for depreciation purposes when substantially completed to house and secure racks, shelving, and merchandise. Action on Decision 2017-02 (4/10/17).

IRS does not acquiesce to decision on completed contract method

The IRS announced its nonacquiescence to the holding in Shea Homes, Inc., 834 F.3d 1061 (9th Cir. 2016), aff’g 142 T.C. 60 (2014), that, under the completed contract method of accounting, the taxpayer completed a home construction contract when it incurred 95% of the estimated cost of constructing an entire development. Action on Decision 2017-03 (4/10/17).

Newsletter Articles

SPONSORED REPORT

CPEOs provide peace of mind around payroll services

The creation of these new IRS-certified service providers for small businesses clarifies some issues around traditional professional employer organizations.

PRACTICE MANAGEMENT

2016 Best Article Award

The winners of The Tax Adviser’s 2016 Best Article Award are Edward Schnee, CPA, Ph.D., and W. Eugene Seago, J.D., Ph.D., for their article, “Taxation of Worthless and Abandoned Partnership Interests.”