Document Summaries for the Week of June 5, 2017
Tax Court holds IRS properly rejected an installment agreement but remands case to reconsider balancing test
The Tax Court held that an IRS settlement officer did not abuse her discretion in rejecting a proposed installment agreement from a corporation that operated a nursing home facility and owed substantial employment taxes. However, after discovering a mathematical error in some of the officer’s calculations, the court remanded a portion of the case to the IRS Appeals Office for the limited purpose of reconsidering the balancing test under Sec. 6330(c)(3)(C). Seminole Nursing Home, Inc., T.C. Memo. 2017-102 (6/5/17).
Chief Counsel’s Office addresses ordering rules relating to deallocating investments
The Office of Chief Counsel was asked to address whether, for purposes of deallocating investments under the general ordering rule in Regs. Sec. 1.148-6(b)(2)(iv), the qualified mortgage loans that were financed with transferred proceeds of the bonds are investments allocable to replacement proceeds or investments allocable to transferred proceeds. The Chief Counsel’s Office concluded that the qualified mortgage loans financed with transferred proceeds of the bonds are investments allocable to transferred proceeds for purposes of the universal cap ordering rule. CCA 201723017 (6/9/17).
IRS issues guidance on corporate bond monthly yield curve
The IRS issued guidance 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). In addition, the IRS provided guidance as to 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). Notice 2017-34 (6/9/17).
ESTATES, TRUSTS & GIFTS
U.S. claims should be paid first when estate is not large enough to pay all of debtor’s debts
The Office of Chief Counsel advised that, in one particular case, the IRS’s claim was, under Sec. 6323, undisputedly superior to that of a competing creditor and the federal insolvency statute, 31 U.S.C. Section 3713, arguably applied. Therefore, under Section 3713(a)(1)(B), claims of the United States should be paid first when the deceased debtor’s estate is not large enough to pay all of the debtor’s debts. However, because the IRS participated in this probate case without objecting, it had probably waived its rights to object. In the future, the IRS should either not participate in a probate case or participate fully to preserve all the government’s rights CCA 201723018 (6/9/17).
IRS provides simplified late portability election procedures
The IRS issued guidance permitting certain estates to make a late portability election if they did not make a timely election. Rev. Proc. 2017-34 (6/9/17) (see related news story).
Tax Court dismisses case against IRS Whistleblower Office due to late filings
The Tax Court held that each of four letters sent to a plaintiff claiming a whistleblower award constituted an appealable determination, and each letter began the running of the 30-day period in which to file a petition with the Tax Court. However, the court also held that the plaintiff filed his petition significantly more than 30 days after receiving notice, making it untimely. The Tax Court thus dismissed the case for lack of jurisdiction. Myers, 148 T.C. No. 20 (6/5/17).
No whistleblower award due where IRS denied using whistleblower information
The Tax Court held that, because administrative actions the IRS took against certain taxpayers were not based on information a whistleblower who filed a whistleblower claim provided about those taxpayers, the whistleblower was not entitled to an award. The court noted that the IRS agent who was conducting the taxpayers’ exam denied using the whistleblowers information, and the record established that the information came from the taxpayers’ participation in the Offshore Voluntary Disclosure Program. Awad, T.C. Memo. 2017-108 (6/8/17).
Court hits taxpayer with $10,000 penalty for maintaining litigation primarily for delay
The Tax Court granted the IRS summary judgment after concluding that there were no disputed issues of material fact and that the IRS’s proposed collection action against a taxpayer was proper. The court also concluded that the taxpayer, a tax protester who had not filed a tax return since 1993 who had also made a large amount of money with her tax protester books and activities, had maintained the instant litigation “primarily for delay,” and ordered the taxpayer to pay a penalty of $10,000, with a warning that the penalty will be much larger if she engages in similar activities in the future. Gardner, T.C. Memo. 2017-107 (6/8/17).
Payments made to an indemnity fund for a bail bond business denied
The Tax Court held that a couple who ran a bail bond business could not deduct payments made to an indemnity fund maintained for that business. The court also held that the IRS properly changed the couple’s accounting method for the indemnity fund and that the couple had not substantiated various claimed deductions for their business. Wages, T.C. Memo. 2017-103 (6/7/17).
Tax Court clarifies calculation of whistleblower award
In a case of first impression, the Tax Court held that the “amounts in dispute” referenced in the Sec. 7623(b)(5)(B) threshold relating to a whistleblower award is the total amount of the liability that the IRS proposed for a taxpayer’s examination that was begun using the information provided by a whistleblower and is not limited to the part of the “collected proceeds” attributable to the whistleblower’s information or specific allegations. In the instant case, the Tax Court concluded that the $2 million threshold of Sec. 7623(b)(5)(B) was met, and the whistleblower award should be determined under Sec. 7623(b). Smith, 148 T.C. No. 21 (6/7/17).
Court rejects IRS motion to deny whistleblower award
The Tax Court denied the IRS’s motion for summary judgment for its denial of a whistleblower’s award. The IRS had not established the facts necessary to show that it was entitled to judgment as a matter of law because it did not prove that there were not additional records in other IRS departments and offices that were relevant to the question of whether the “amount in dispute” exceeded $2 million. Gonzalez, T.C. Memo. 2017-105 (6/7/17).
Taxpayer entitled to innocent spouse relief
The Tax Court held that a taxpayer was entitled to innocent spouse relief based on two factors—the taxpayer and her former spouse were divorced and the taxpayer received none of the refund her former spouse improperly claimed on the original return they filed. The court said those factors outweighed the factor weighing against relief—namely, whether the taxpayer knew or had reason to know her former spouse could not pay the balance of taxes due. The court concluded that requiring the taxpayer to, in effect, return to the IRS the refund that her former spouse improperly received would be inequitable considering all of the facts and circumstances. Mencias, T.C. Memo. 2017-109 (6/8/17).
IRS could not prove that not more than $2 million was in dispute in whistleblower case
The Tax Court denied an IRS motion for summary judgment, finding that the IRS did not prove that a taxpayer was not entitled to a whistleblower award under Sec. 7623(b) because the taxpayer did not meet the $2 million requirement in Sec. 7623(b)(5). The court found that the facts the IRS alleged did not preclude the existence of other records showing that the amount in dispute exceeded $2 million. Lippolis, T.C. Memo. 2017-104 (6/7/17).
Taxpayer cannot avoid deficiencies and penalties by pleading ignorance
The Tax Court rejected the taxpayer-lawyer’s position that she was not required to file a return until advised to do so by the IRS, noting that the taxpayer’s legal position was expressly contradicted by Sec. 6012(a)(1)(A), which requires that individuals file returns if their income exceeds the exemption amount plus the standard deduction. The Tax Court upheld the IRS’s deficiency and penalty assessments after commenting that courts long have held that ignorance of the law is no excuse, and saying it would not make an exception in this case. Riggins, T.C. Memo. 2017-106 (6/8/17).
Federal court upholds PTINs but strikes down fee
The U.S. District Court for the District of Columbia held that the IRS has the authority to require tax return preparers to obtain preparer tax identification numbers (PTINs) but that it cannot charge a user fee for issuing them. Steele, No. 14-cv-1523-RCL (D.D.C. 6/1/17) (see related news story).
IRS issues third quarter interest rates for tax overpayments and underpayments
The IRS issued the interest rates on tax overpayments and underpayments for the third calendar quarter of 2017, beginning July 1, 2017. 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. 2017-13 (6/9/17).
Chief Counsel’s Office offers guidance on Form 870-PT
The Office of Chief Counsel addressed an IRS request for assistance on determining who may sign a Form 870-PT, Agreement for Partnership Items and Partnership Level Determinations as to Penalties, Additions to Tax, and Additional Amounts, on behalf of a terminated trust that is a notice partner in a TEFRA partnership. According to the Chief Counsel’s Office, each notice partner must individually sign a Form 870-PT to agree to adjustments proposed to partnership items, and the Chief Counsel’s Office recommended that the IRS first verify whether the trust has terminated under state law. If it has, and the IRS cannot identify someone who can act for the trust under state law, then it should either secure a Form 870-PT from each beneficiary or issue a Final Partnership Administrative Adjustment. CCA 201723024 (6/9/17).
Failure to pay taxes before due date precludes disaster relief under Sec. 7508A
The Office of Chief Counsel addressed questions involving disaster relief and the abatement of penalties and interest. The Chief Counsel’s Office advised that taxpayers who did not pay before the due date do not get the benefit of Sec. 7508A for the failure to pay penalties and interest that began accruing before a particular disaster hits. CCA 201723023 (6/9/17).
IRS does not have interest abatement authority for restitution payments
The Office of Chief Counsel was asked whether, under Sec. 6404(e), the IRS had the authority to abate interest that had accrued on a restitution-based assessment (RBA) made under Sec. 6201(a)(4). According to the Chief Counsel’s Office, Sec. 6404(e) does not apply to any interest on an RBA because an RBA is not a deficiency or a tax described in Sec. 6212(a). CCA 201723022 (6/9/17).
Chief Counsel’s Office advises on interest-free adjustments and submissions of Form 2504-AD
The Office of Chief Counsel was asked to advise about interest-free adjustments when Form 2504-AD, Excise or Employment Tax Offer or Agreement to Assessment and Collection of Additional Tax and Offer of Acceptance of Overassessment,[PN1] is submitted. The Chief Counsel’s Office replied with the relevant text from Rev. Rul. 2009-39 and Regs. Sec. 31.6205-1 and concluded that, if the taxpayer submits a signed Form 2504-AD but does not pay the tax at that time so that notice and demand for payment is issued, the taxpayer is still entitled to an interest-free adjustment, but interest will be due from the date the Form 2504-AD was submitted until full payment is made. CCA 201723021 (6/9/17).
Decision in Mescalero on disclosure of worker return information is limited
The Office of Chief Counsel advised that the decision in Mescalero, 148 T.C. No. 11 (2017), may not be relied upon by taxpayers or their representatives to require the IRS to provide worker return information during the conduct of employment tax audits, either during the examination process or during Appeals. According to the Chief Counsel’s Office, the Mescalero decision is limited to worker return information requested during the discovery process in a Tax Court proceeding, when the Tax Court has (1) determined that the requested information is disclosable in the judicial proceeding; (2) determined that the requested information is relevant to an issue in the Tax Court proceeding; and (3) balanced the relevancy of the requested information against the burden placed on the government in producing the information in accordance with Tax Court Rules 70(b) and 70(c). CCA 201723020 (6/9/17).
In termination assessments, no notification is required by the jeopardy provisions
The Office of Chief Counsel advised that, for a termination assessment, there is no notification required by the jeopardy provisions despite any Chief Counsel Directives Manual provision suggesting otherwise. According to the Chief Counsel’s Office, the notice to the court in a jeopardy assessment alerts the court when the amount of the assessment made after the statutory notices of deficiency (SNOD) was issued is different from the amount of the deficiency in the SNOD, and no comparable provision exists for termination assessments because the amount of the deficiency in the SNOD should be accurate given that it is issued after the assessment. CCA 201723019 (6/9/17).
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.