Document summaries for the week of Dec. 11, 2017

EMPLOYEE BENEFITS

IRS issues updated mortality improvement rates and static mortality tables for defined benefit pension plans for 2019

The IRS issued updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans under Sec. 430(h)(3)(A) and Section 303(h)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. The IRS also issued a modified unisex version of the mortality tables for use in determining minimum present value under Sec. 417(e)(3) and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2019 calendar year. Notice 2018-02 (12/14/17).

INDIVIDUALS

Taxpayer’s refusal to produce evidence of income and expenses precludes court from ruling in his favor

The Tax Court held that, with respect to a taxpayer’s dispute about his underlying tax liability for 2005, the IRS Appeals Office had satisfied the verification requirements of Sec. 6330 and did not abuse its discretion in sustaining proposed collection actions against the taxpayer. The Tax Court noted that the taxpayer, who was represented by counsel, chose not to produce evidence of his income and deductions, even though his accountant testified that some supporting documentation existed and, thus, the taxpayer was responsible for the consequences of this choice. Hawver, T.C. Memo. 2017-244 (12/11/17).

Real estate broker failed to prove that rebated amounts were not included in other deductions

The Tax Court held that a real estate broker was not entitled to deduct a portion of commissions that he earned and that he rebated back to clients who performed most of the work in finding a property to purchase or showing a property for sale. The court denied the deduction because it said that the broker had not provided any evidence that the amount he deducted was not included as part of other claimed deductions and, thus, he had not satisfied his burden of proof that he was entitled to the deduction. Chen, T.C. Summ. 2017-90 (12/13/17).

IRS provides safe harbor for determining decrease in FMV of property damaged or destroyed by 2017 hurricanes

The IRS issued a revenue procedure that provides a method (the Cost Indexes Safe Harbor Method) individual taxpayers may use in determining the amount of their casualty losses under Sec. 165 for their personal-use residential real property damaged or destroyed as a result of Hurricane and Tropical Storm Harvey, Hurricane Irma, and Hurricane Maria (the “2017 Hurricanes”). Specifically, the revenue procedure provides a safe-harbor method that individuals may use to determine the decrease in fair market value (FMV) of their personal-use residential real property on their U.S. income tax returns and provides that the IRS will not challenge an individual’s determination of the decrease in FMV attributable to one of the 2017 Hurricanes if the individual qualifies for and uses the safe-harbor method described in the revenue procedure. Rev. Proc. 2018-09 (12/13/17).

IRS provides safe-harbor methods for determining casualty and theft losses

The IRS issued a revenue procedure that provides safe-harbor methods individual taxpayers may use in determining the amount of their casualty and theft losses pursuant to Sec. 165 for their personal-use residential real property and personal belongings. The revenue procedure provides additional safe-harbor methods that may be used in the case of casualty and theft losses occurring as a result of any federally declared disaster. Rev. Proc. 2018-08 (12/13/17).

IRS increases standard mileage rates for 2018

The IRS issued (1) the optional 2018 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes; (2) the amount taxpayers must use in calculating reductions to basis for depreciation taken under the business standard mileage rate; and (3) the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate plan. Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car, as well as vans, pickups, or panel trucks, will be: 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017; 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017; and 14 cents per mile, an amount which is fixed by statute, driven in service of charitable organizations. Notice 2018-03 (12/14/17) (see related news story).

INTERNATIONAL

Corporation entitled to foreign tax credit for Mexican tax liabilities that it sought to reduce

The Tax Court held that a U.S. corporation doing business in Mexico through a branch had calculated its Mexican tax liabilities in a manner consistent with a reasonable interpretation and application of the provisions of foreign law (including applicable tax treaties) and in such a way as to reduce, over time, its reasonably expected tax liability under foreign law. The court further held that the corporation had exhausted all effective and practical remedies, including invocation of competent authority procedures available under applicable tax treaties, to reduce, over time, its liability for foreign tax and that the Mexican taxes paid by the branch were compulsory levies for which the corporation was entitled to foreign tax credits under Sec. 901(a). The Coca-Cola Co., 149 T.C. No. 21 (12/14/17). 

PARTNERSHIPS

No charitable deduction allowed for conservation easement that could be replaced by an easement encumbering an adjacent property

The Tax Court upheld the IRS’s disallowance of a partnership’s $2,130,000 charitable contribution deduction for a conservation easement. According to the court, the conservation easement was not a “qualified conservation contribution” as defined in Sec. 170(h)(1), since the possibility that the easement could be replaced by an easement encumbering an adjacent property was more than negligible. Salt Point Timber, LLC, T.C. Memo. 2017-245 (12/11/17).

TAX ACCOUNTING

Mixtures of butane and gasoline are alternative fuel mixtures that do not qualify for the alternative fuel mixture credit

The IRS ruled that a mixture of butane (or other gasoline blendstock as defined in Regs. Sec. 48.4081-1(c)(3)(i)) and gasoline is a mixture of two taxable fuels. Therefore, the IRS concluded, it is not an alternative fuel mixture and does not qualify for the alternative fuel mixture credit under Sec. 6426(e). Rev. Rul. 2018-2 (12/14/17).