Document summaries for the week of Nov. 13, 2017
Final regs. clarify tax treatment of federal aid to banks
Final regulations amended the existing regulations that address the federal income tax treatment by banks and domestic building and loan associations of federal financial assistance they receive. T.D. 9825 (11/13/17).
IRS provides 15-year Sec. 481 adjustment period for Sec. 404A elections
The IRS modified Rev. Proc. 2015-13 to specify that the Sec. 481(a) adjustment period with respect to an election under Sec. 404A, relating to a deduction for certain foreign deferred compensation plans, is 15 tax years. This revenue procedure is effective for Forms 3115, Application for Change in Accounting Method, filed under Rev. Proc. 2015-13 on or after Nov. 13, 2017. Rev. Proc. 2017-59 (11/13/17).
IRS updates compensation tables
The IRS issued the tables of covered compensation under Sec. 401(l)(5)(E) for the 2018 plan year, for which the taxable wage base is $128,700. Rev. Rul. 2017-22 (11/13/17).
IRS issues November interest rate notice
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 notice provides 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 2017-69 (11/14/17).
IRS lists organizations with revoked exempt status
The IRS issued a list of organizations for which it has revoked its determination that they qualify as organizations described under Secs. 501(c)(3) and 170(c)(2). Announcement 2017-17 (11/13/17).
IRS issues guidance on treatment of leave-based donations for California wildfire victims
The IRS issued a notice providing guidance on the treatment of leave-based donation programs to aid victims of the California wildfires that began on Oct. 8, 2017. The IRS said that it will not assert that cash payments an employer makes to Sec. 170(c) organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are: (1) made to the Sec. 170(c) organizations for the relief of victims of the 2017 California wildfires; and (2) paid to the Sec. 170(c) organizations before Jan. 1, 2019. Notice 2017-70 (11/9/17).
Poor relationship with other S shareholders not reason to exclude S corporation’s income
The Tax Court held that a taxpayer was a shareholder of an S corporation and therefore was required to include her pro rata share of the S corporation’s income in her income, despite her poor relationship with the other shareholders. The taxpayer and her husband also did not qualify for a theft loss deduction, a net operating loss deduction, or a deduction for a loss from a partnership they invested in. Finally, the Tax Court held that the taxpayer and her husband were liable for late filing penalties because their reliance on a tax return preparer who became ill and their transition to another return preparer did not constitute reasonable cause. Enis, T.C. Memo. 2017-222 (11/15/17).
IRS officer did not abuse discretion in sustaining a proposed levy against taxpayer
The Tax Court held that a taxpayer who did not file his 2010 tax return was provided a collection due process (CDP) hearing that complied with all applicable requirements and the IRS Appeals officer assigned to his case did not abuse his discretion in sustaining a proposed levy against the taxpayer. Nor, the Tax Court said, did the taxpayer show any irregularity in the IRS’s assessment procedure or that any applicable law or administrative procedure had not been met. Muir, T.C. Memo. 2017-224 (11/16/17).
Expectation of refund does not excuse late filing of return
The Tax Court held that a couple were liable for late filing penalties because they did not establish a reasonable cause for filing their 2012 tax return 15 months late. The court noted that the couple had a history of filing their income tax returns late and that the couple seemed to believe the filing deadlines were not important because they were expecting a refund. Parekh, T.C. Memo. 2017-227 (11/16/17).
Taxpayer liable for tax on imputed income from employer’s purchase of life insurance policy on taxpayer
The Tax Court held that a taxpayer’s taxable income included imputed income of $891 from a former employer’s purchase of a life insurance policy on the taxpayer. The court also held that it did not have jurisdiction to determine the amount of the taxpayer’s liability for interest on the deficiency. Ramsay, T.C. Memo. 2017-223 (11/15/17).
Rental real estate losses were nondeductible passive activity losses
The Tax Court held that a couple could not deduct losses from a rental real estate activity for 2009–2011 because they were not real estate professionals, did not materially participate in the rental activities, and the losses were thus passive activity losses, deductible only against passive income. The court also held that the couple could not deduct losses from operating a ranch because they did not materially participate in its operation and were liable for negligence penalties because they failed to establish that they made a good-faith effort to determine their federal income tax liabilities correctly. Syed, T.C. Memo. 2017-226 (11/16/17).
Court affirms proposed collection action against taxpayer
The Tax Court granted summary judgment to the IRS and affirmed a proposed collection action against a taxpayer who had not filed a federal income tax return since 2001. The court noted that it has consistently held that it is not an abuse of discretion for an IRS Appeals officer to reject collection alternatives and sustain a collection action where a taxpayer has failed, after being given sufficient opportunities, to supply the required forms and supporting financial information. Weber, T.C. Memo. 2017-225 (11/16/17).
Sign language interpreters should not have to sign nondisclosure agreement
The Office of Chief Counsel advised that a contract under which sign language interpreters operate, which holds them to all the criminal and civil penalties that apply to the unauthorized disclosure of tax data, was sufficient assurance to taxpayers that their confidential tax data are being adequately protected. According to the Chief Counsel’s Office, not only is there no basis for an interpreter to be required to sign a nondisclosure agreement furnished by a taxpayer, using one could conflict with the requirements of Sec. 6103. CCA 201746025 (11/17/17).
Form 668-D should be used for a partial release of a levy
The Office of Chief Counsel responded to a question regarding the abatement of a deficiency assessment that was considered excessive and what the IRS should do since it had issued a levy reflecting the excessive amount. The Chief Counsel’s Office noted that Form 668-D, Release of Levy/Release of Property from Levy, has a section for doing a partial release and could be used in that situation. CCA 201746024 (11/17/17).
Person with an approved Form 2678 is referred to as a Sec. 3504 agent by Chief Counsel’s Office
The Office of Chief Counsel advised that it tries to be very precise with terminology and thus it refers to a person with an approved Form 2678, Employer/Payer Appointment of Agent, as a Sec. 3504 agent or as an agent with an approved Form 2678, but not a payroll service provider (PSP). A PSP, the Chief Counsel’s Office noted, files employment tax returns using the employer identification number (EIN) of the employer (not its own EIN) and, thus, if a PSP had 1,000 clients, it would prepare 1,000 Forms 941 — one for each of its clients whereas a Sec. 3504 agent with 1,000 clients files one Form 941 and a Schedule R, Allocation Schedule for Aggregate Form 941 Filers, listing each client and amount. CCA 201746023 (11/17/16).
IRS issues December 2017 applicable federal rates
The IRS issued a ruling that prescribes the applicable federal rates for December 2017. This guidance provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate and are determined as prescribed by Sec. 1274. Rev. Rul. 2017-24 (11/17/17).
House of Representatives passes tax reform bill
The House of Representatives passed tax reform legislation by a vote of 227–205. Tax Cuts and Jobs Act, H.R. 1 (11/16/17) (see related news story).
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.