Document summaries for the week of Dec. 18, 2017


Package of films licensed to customers may be an “item” for purposes of Sec. 199

The IRS ruled that a package of films licensed to customers in the normal course of business may be an item under Regs. Sec. 1.199-3(d)(1)(i) for determining the domestic production activities deduction under Sec. 199. According to the IRS, this holding does not affect the characterization of the property at issue for any other purpose of the Code. Rev. Rul. 2018-03 (12/20/17). 



The IRS served notice to potential donors of various stipulated decisions by the Tax Court in declaratory judgment proceedings under Sec. 7428. Announcement 2017-19; Announcement 2017-20; Announcement 2017-21 (12/18/17).

Fees received from third-party vendors for allowing members of a nonprofit access to debt-collection services are subject to UBIT

The Tax Court held that fees received from third-party vendors, who were providing the members of a nonprofit with access to debt-collection services and group purchasing programs, constituted unrelated business taxable income subject to the unrelated business income tax under Secs. 511(a)(1) and 512(a). According to the Tax Court, the business activities that gave rise to the fees were not carried on primarily for the convenience of the nonprofit’s members within the meaning of Sec. 513(a)(2). New Jersey Council of Teaching Hospitals, 149 T.C. No. 22 (12/20/17).



Couple’s tax debt was not discharged in bankruptcy

The Tax Court sustained a determination by the IRS Appeals Office to proceed with a collection action against a couple who argued that their 2006 tax debt had been discharged in bankruptcy. The court noted that the couple had filed their tax return for 2006 more than four years after it was due and more than two months after they filed their bankruptcy petition. Thus, consistent with Section 523(a)(1)(B) of the Bankruptcy Code, their tax liability for 2006 was not discharged in bankruptcy, the court held. Faulk, T.C. Summ. 2017-92 (12/18/17).

Taxpayer cannot deduct expenses of obtaining degree, but education credit is allowed

The Tax Court held that a taxpayer could not deduct education expenses incurred in obtaining a bachelor’s jurisprudence degree because he had not met his burden of proving that the degree maintained or improved skills required by his employment as a tutor and test proctor. However, the court concluded that the taxpayer was entitled to a lifetime learning credit equal to 20% of the first $10,000 in eligible tuition and related expenses that he paid in 2013. Pemberton, T.C. Summ. 2017-91 (12/18/17).

Couple liable for deficiency on unreported Social Security benefits

The Tax Court held that a couple who did not report in gross income a $59,895 lump-sum Social Security payment they received in 2014 should have included $32,668 of it. The court noted that, while the couple could have made an election under Sec. 86(e) because a portion of the benefits were attributable to prior years, even if they had made the election, that would not have reduced their tax liability below what the IRS had calculated. Robbins, T.C. Memo. 2017-247 (12/18/17).

Guidance on individual mandate affordability exemption

The IRS provided guidance on computing the affordability exemption from the individual mandate under Sec. 5000A(e)(1) and Regs. Sec. 1.5000A-3(e) for taxpayers with a family member who is not eligible for coverage under an eligible employer-sponsored plan and who resides in an area where a Health Insurance Marketplace does not offer a bronze-level qualified health plan. Notice 2017-74 (12/18/17).



Transactions were controlled transactions but adjustment to pricing was not appropriate

The Office of Chief Counsel held that, with respect to a certain fact pattern, the details of which were largely redacted, the transactions involved in the fact pattern were controlled transactions. However, the Chief Counsel’s Office said, a Sec. 482 adjustment to pricing was not appropriate because amounts paid were determined at arm’s-length prices. CCA 201751014 (12/22/17).



IRS issues January 2018 applicable federal rates

The IRS issued a ruling prescribing the applicable federal rates for January 2018, including the applicable federal interest rates, adjusted applicable federal interest rates, adjusted federal long-term rate, and adjusted federal long-term tax-exempt rate, all as determined under Sec. 1274. Rev. Rul. 2018-01 (12/18/17).

OPR announces disciplinary sanctions

The IRS Office of Professional Responsibility (OPR) announced recent disciplinary sanctions involving attorneys, CPAs, and enrolled agents. Announcement 2017-16 (12/18/17).

Tax Court partially overrules prior decision involving IRS’s duty under Sec. 6751

On remand from the Second Circuit, and as a result of the Second Circuit’s holding in Chai, 541 F.3d 190 (2d Cir. 2017), the Tax Court partially overturned its prior decision in Graev, 147 T.C. No. 16 (2016), which related to the IRS’s duty under Sec. 6751(b)(1). The Tax Court adopted the Chai court’s reasoning that Sec. 6751(b)(1) requires written approval of an initial penalty determination by the IRS no later than the date the IRS issues the notice of deficiency (or files an answer or amended answer) asserting such penalty. Graev, 149 T.C. No. 23 (12/20/17).

IRS extends due date for furnishing statements relating to health insurance coverage

The IRS is extending the due date for certain 2017 information-reporting requirements for insurers, self-insuring employers, and certain other providers of minimum essential coverage under Sec. 6055 and for applicable large employers under Sec. 6056. Specifically, the IRS is (1) extending the due date for furnishing to individuals the 2017 Form 1095-B, Health Coverage, and the 2017 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from Jan. 31, 2018, to March 2, 2018, and (2) extending good-faith transition relief from the Sec. 6721 and Sec. 6722 penalties to the 2017 information-reporting requirements under Sec. 6055 and Sec. 6056. Notice 2018-06 (12/22/17).

IRS will permit withholding agents to apply transition rule of Notice 2010-46 for 2018 and 2019

The IRS advised that it will permit withholding agents to apply the transition rules from Notice 2010-46 in calendar years 2018 and 2019. Notice 2010-46 addresses potential overwithholding in the context of securities lending and sale repurchase agreements. Notice 2018-05 (12/21/17). 



Congress passes tax reform bill

The Senate and House of Representatives passed a bill, popularly known as the Tax Cuts and Jobs Act, overhauling many parts of the Internal Revenue Code. An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018, H.R. 1 (12/20/17) (see related news story).



International tax rules for partnership audit regime proposed

The IRS issued proposed regulations addressing how certain international rules operate in the context of the centralized partnership audit regime, including rules relating to the withholding of tax on foreign persons, withholding of tax to enforce reporting on certain foreign accounts, and the treatment of creditable foreign tax expenditures of a partnership. REG-119337-17 (12/18/17).

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