Document summaries for the week of Dec. 4, 2017

EMPLOYEE BENEFITS

IRS identifies changes in plan qualification requirements for 2017

The IRS issued the 2017 Required Amendments List for individually designed qualified retirement plans. The list identifies certain changes in qualification requirements that became effective in 2017 that may require a retirement plan to be amended to remain qualified, and establishes the date by which any necessary amendment must be made. Notice 2017-72 (12/5/17).

EXEMPT ORGANIZATIONS

IRS requests comments on donor-advised funds

The IRS issued guidance describing approaches that it and the Department of the Treasury are considering to address certain issues regarding donor-advised funds (DAFs) of sponsoring organizations and requested comments on those approaches. Specifically, Treasury and the IRS are considering developing proposed regulations under Sec. 4967 that would, if finalized, provide that (1) certain distributions from a DAF that pay for the purchase of tickets that enable a donor, donor adviser, or related person under Sec. 4958(f)(7) to attend or participate in a charity-sponsored event result in a more-than-incidental benefit to such person under Sec. 4967; and (2) certain distributions from a DAF that the distributee charity treats as fulfilling a pledge made by a donor, donor adviser, or related person do not result in a more-than-incidental benefit under Sec. 4967 if certain requirements are met. Notice 2017-73 (12/4/17).

INDIVIDUALS

Employment-related bonus payments to ex-wife are not deductible alimony

The Tax Court held that payments by a taxpayer to his ex-wife of an amount equal to a portion of an employment-related bonus that the taxpayer received in 2012 did not constitute deductible alimony. In reaching its conclusion, the court found no evidence that the obligation to make the payments, which were required under a marital dissolution agreement, would have ceased if the taxpayer’s ex-wife had died. Koester, T.C. Summ. 2017-88 (12/4/17).

Taxpayer cannot recognize a capital loss on the sale of property to his ex-wife

The Tax Court held that Sec. 1041(a) barred a taxpayer from recognizing a capital loss that he realized on a sale of property to his ex-wife. In rejecting the taxpayer’s argument that a transfer of property between former spouses relates to the cessation of the marriage only where the transfer is made as consideration for an outstanding marital obligation, the court concluded that neither Sec. 1041(c), the temporary regulation under that provision, nor the legislative history imposes such a restriction. Stapleton, T.C. Summ. 2017-87 (12/4/17).

Couple who deducted passive activity real estate losses are liable for accuracy-related penalty

The Tax Court held that a couple who owed an additional $53,000 in tax because their deduction of approximately $147,000 of real estate losses was disallowed under the passive activity loss rules were liable for an accuracy-related penalty of $10,710. The court reached this conclusion after finding that the couple failed to show substantial authority for their erroneous deduction and failed to show they had reasonable cause or had acted in good faith with respect to any portion of their underpayment of tax. Planty, T.C. Memo. 2017-240 (12/5/17).

Taxpayer cannot rely on divorce judge’s statement ‘awarding’ him tax benefits for his child

The Tax Court held that a divorced father was not entitled to head-of-household filing status and an earned income tax credit with respect to one of his children because he did not meet the applicable requirements. The court rejected the taxpayer’s contention that, in his divorce proceedings, a Washington state court judge “awarded” him all tax benefits associated with the child and that he was entitled to rely on that statement to claim the benefits. Shvetsov, T.C. Summ. 2017-89 (12/5/17).

Couple lacked ‘ticket’ to Tax Court

The Tax Court granted an IRS motion to dismiss for lack of jurisdiction on the ground that no notice of deficiency or notice of determination had been issued that would permit a couple to invoke the Tax Court’s jurisdiction. The court noted that while the couple had filed a Form 843, Claim for Refund and Request for Abatement, the IRS had failed to act on the claim, which precluded the couple from obtaining a “ticket” to the Tax Court. Bennett, T.C. Memo. 2017-243 (12/6/17).

Sandwich shop owner cannot challenge TFRP in a CDP case

The Tax Court held that (1) a part owner of a company that operated a sandwich shop in the U.S. Virgin Islands could not challenge in a Collection Due Process (CDP) case her underlying liability for trust fund recovery penalties (TFRP); (2) an IRS settlement officer (SO) did not abuse her discretion in sustaining a proposed collection action against the taxpayer; and (3) the IRS’s receipt of payments from other parties toward the company’s tax liabilities did not prevent the IRS from collecting TFRPs from the taxpayer. In reaching its conclusion, the Tax Court noted that the taxpayer explicitly declined the SO’s conditional offer of an installment agreement, proposed no other collection alternative, and failed to comply with her ongoing tax obligations. Woodley, T.C. Memo. 2017-242 (12/6/17). 

INTERNATIONAL

IRS issues DISC base period T-bill rate

The IRS set forth the base period T-bill rate for determining the interest charge payable by shareholders of a domestic international sales corporation (DISC) for the one-year period ending Sept. 30, 2017, and provided a table of factors compounded daily for taxpayers with short or alternative tax years. Rev. Rul. 2017-23 (12/4/17).

IRS PROCEDURE

Appeals officer abused his discretion in sustaining a levy

The Tax Court held that an IRS Appeals officer abused his discretion in sustaining a levy notice regarding a taxpayer’s Federal Insurance Contributions Act (FICA) tax liabilities relating to periods in the mid- to late 1990s, and, thus, the levy notice was not sustained. The court found that the administrative record belied the IRS’s contention that the officer applied all of certain stipulated credits to the taxpayer’s accounts and that the officer’s determination lacked a sound basis in law and fact. Credex, Inc., T.C. Memo. 2017-241 (12/5/17).

IRS issues quarterly interest rates for tax overpayments and underpayments

The IRS issued the rates for interest on tax overpayments and underpayments for the first calendar quarter of 2018. The interest rates will be 4% for overpayments (3% in the case of a corporation), 4% for underpayments, 1.5% for the portion of a corporate overpayment exceeding $10,000, and 6% for large corporate underpayments. Rev. Rul. 2017-25 (12/5/17).