Document Summaries for the Week of March 20, 2017

CORPORATIONS

Nonindividual taxpayers might be eligible for relief of economic difficulty from collection action

The Tax Court denied in part a motion for summary judgment by a nursing home that argued (1) that the IRS abused its discretion when it did not consider whether a levy would cause the home economic hardship; and (2) that Regs. Sec. 301.6343-1(b)(4)(i), which defines economic hardship only with respect to individual taxpayers, was invalid. While the court ruled that the regulation is valid, it also said that its decision did not foreclose nonindividual taxpayers from relief where a collection action could cause them economic difficulty. Lindsay Manor Nursing Home, Inc., 148 T.C. No. 9 (3/23/17).

Remand is not a ‘do over’ for taxpayer’s missteps in a CDP hearing, court says

The Tax Court held that an IRS settlement officer did not abuse her discretion in rejecting a nursing home’s proposed installment agreement and sustaining a collection action. The court also refused to remand the case for additional consideration, saying that the purpose of a remand is not to afford a “do over” for a taxpayer whose missteps during a Collection Due Process (CDP) hearing resulted in its collection alternative’s being rejected. Lindsay Manor Nursing Home, Inc., T.C. Memo. 2017-50 (3/23/17). 

 

INDIVIDUALS

Tax Court sustains collection action against taxpayer liable for Sec. 6707A penalty

The Tax Court held that a taxpayer, who failed to disclose on his federal income tax returns his participation in a reportable transaction, was barred from raising at a collection due process hearing his liability for Sec. 6707A penalties because he had, and had availed himself of, a prior opportunity to challenge the penalties at an earlier conference with the IRS Appeals Office. As a result, the court sustained a proposed IRS collection action against the taxpayer. Bitter, T.C. Memo. 2017-46 (3/20/17).

Failure to supply IRS with required forms precludes abuse of discretion defense

The Tax Court held that a proposed IRS collection action against a taxpayer, who failed to file tax returns for several years, was proper as a matter of law. The court noted that, in rejecting the taxpayer’s offer in compromise (OIC), it has consistently held that it is not an abuse of the IRS’s discretion to reject collection alternatives and proceed with a collection action where a taxpayer has failed to supply the IRS with the required forms and financial information to support an OIC and has not complied with his current filing obligations. Martinez, T.C. Memo. 2017-47 (3/21/17).

Court dismisses case involving uncooperative taxpayer

The Tax Court granted an IRS motion to dismiss a case for lack of proper prosecution where a taxpayer failed to cooperate with the Service in preparing the case for trial and failed to respond to the Tax Court’s orders and comply with court rules. The issues in the case involved a lack of substantiation of deductions taken on the taxpayer’s return. Cancel, T.C. Summ. 2017-18 (3/23/17).

Couple who received unreported S corp. income are liable for penalties

The Tax Court held that a couple received unreported nonpassive income from an S corporation that was wholly owned by the husband but were entitled to the portion of the cost of goods sold for which they had claimed deductions. The court also concluded that the couple would be liable for penalties for underpayments attributable to substantial understatements of income tax if the understatements were confirmed in further computations consistent with the court’s holding. Ghazawi, T.C. Memo. 2017-48 (3/22/17).

Taxpayer cannot deduct or amortize mortgage points

The Tax Court held that a taxpayer was not entitled to deduct mortgage points of $4,000 where he did not introduce any evidence to demonstrate that his refinancing was in connection with the purchase or improvement of his personal residence. The court also concluded that the taxpayer was not entitled to amortize the points where the loan from the private lender was for an indefinite period. Singh, T.C. Summ. 2017-19 (3/23/17).

Whistleblower can continue to hide identity to avoid risk of retaliation or harm

The Tax Court held that a petitioner in a whistleblowing case who claimed that a taxpayer avoided a tax liability in excess of $3 billion could proceed anonymously unless and until the balance of factors in favor of anonymity shifts. The petitioner had argued that those factors included a risk of retaliation, physical harm, social and professional stigma, and economic distress. Whistleblower 12568-16W, 148 T.C. No. 7 (3/22/17).

Couple who failed to establish good-faith efforts at determining federal tax liability are liable for penalties

The Tax Court held that a dentist and her husband received unreported income, were not entitled to deduct expenses on Schedules C beyond those allowed by the IRS, could deduct only a portion of mortgage interest claimed beyond what the IRS had allowed, and were liable for late-filing and accuracy-related penalties. According to the court, the couple had “woefully failed to establish that they made a good-faith effort” to determine their federal income tax liabilities correctly and, even though they hired a tax return preparer for their returns, the court said they presented no credible evidence regarding what, if any, records they provided to that person and whether their return preparer was competent. Zolghadr, T.C. Memo. 2017-49 (3/22/17). 

 

INTERNATIONAL

Tax Court sides with Amazon on accounting for ‘buy-in payment’ in cost-sharing case

The Tax Court held that, with respect to a cost-sharing agreement entered into by Amazon.com and its Luxembourg subsidiary, a required upfront “buy-in payment” to compensate Amazon for the value of the intangible assets that were to be transferred to the subsidiary was best accounted for under the comparable-uncontrolled-transaction method, with certain upward adjustments. The court rejected the IRS’s position that the payment should be accounted for by applying a discounted-cash-flow methodology to expected cash flows from Amazon’s European business. Amazon.com, Inc., 148 T.C. No. 8 (3/23/17) (see related news story). 

 

IRS PROCEDURE

SB/SE Fast Track Settlement program made permanent

The IRS announced that it has made permanent its Fast Track Settlement program for taxpayers to resolve disputes in its Small Business/Self-Employed (SB/SE) division. Rev. Proc. 2017-25 (3/20/17) (see related news story).

IRS issues guidance on employee consents to employment tax refund claims

The IRS issued a revenue procedure that gives guidance to employers on the requirements for employee consents used by an employer to support a claim for refund of overpaid taxes under the Federal Insurance Contributions Act (FICA) and the Railroad Retirement Tax Act (RRTA). The procedure (1) clarifies the basic requirements for both a request for employee consent and for the employee consent and permits employee consents to be requested, furnished, and retained in an electronic format; and (2) contains guidance concerning what constitutes “reasonable efforts” if an employee consent is not secured to permit the employer to claim a refund of the employer’s share of overpaid FICA or RRTA taxes. Rev. Proc. 2017-28 (3/21/17).

 

TAX ACCOUNTING

2017 vehicle depreciation limits released

The IRS issued the 2017 inflation adjustments to the depreciation limitations and lease inclusion amounts for certain automobiles under Sec. 280F. Rev. Proc. 2017-29 (3/24/17) (see related news story). 

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.”