Document summaries for the week of Oct. 30, 2017
IRS issues guidance on qualified small employer health reimbursement arrangements
The IRS issued guidance on the requirements for providing a qualified small employer health reimbursement arrangement (QSEHRA) under Sec. 9831(d), the tax consequences of the arrangement, and the requirements for providing written notice of the arrangement to eligible employees. To be an eligible employer that may provide a QSEHRA, the employer must not be an applicable large employer, as defined in Sec. 4980H(c)(2) (and, thus, may not be an employer that, generally, employed at least 50 full-time employees, including full-time-equivalent employees, in the prior calendar year), and must not offer a group health plan (as defined in Sec. 5000(b)) to any of its employees. Notice 2017-67 (10/31/17).
Taxpayer can change filing status from head of household to married filing jointly
The Tax Court held that a taxpayer, who had mistakenly filed her 2014 tax return with the filing status of “head of household,” could change her filing status to “married filing jointly” after the IRS issued a notice of deficiency denying her head of household status. The court cited its decision in Camara, 149 T.C. No. 13 (2017), and noted that the taxpayer qualified for the filing status “married filing jointly” but not the filing status “head of household.” Godsey, T.C. Memo. 2017-214 (10/31/17).
IRS announces additional relief for victims of Hurricane Maria and California wildfires
The IRS announced additional tax relief for victims of Hurricane Maria and the recent California wildfires in the form or hardship loans or distributions from qualified plans. The tax relief permits easier access to funds held in workplace retirement plans and in IRAs for the period beginning September or October 2017 and ending March 15, 2018. This relief is in addition to relief already provided by the IRS pursuant to News Releases CA-2017-06, VI-2017-02, and PR-2017-02. Announcement 2017-15 (10/31/17).
Court disallows deduction for exaggerated moving costs and unreimbursed business expenses
The Tax Court upheld the IRS's disallowance of a couple's moving expense deduction after the husband admitted that the expenses were exaggerated and the couple could not provide the court with persuasive evidence of the amount that had actually been paid. The court also denied deductions for unreimbursed business expenses after noting that both taxpayers' employers maintained employee reimbursement policies but neither taxpayer had requested reimbursement for the expenses at issue. Beckey, T.C. Summ. 2017-80 (11/1/17).
IRS issues guidance on the treatment under Sec. 956(c) of certain receivables following hurricanes
The IRS announced that obligations of a U.S. person received in exchange for certain property that was located in an area designated by FEMA as subject to damage from Hurricane Irma or Hurricane Maria will be considered to qualify for the exception from U.S. property in Sec. 956(c)(2)(C) and Regs. Sec. 1.956-2(b)(1)(v) if repaid by March 31, 2018. The IRS noted that, in response to the damage caused by Hurricane Irma and Hurricane Maria, certain controlled foreign corporations (within the meaning of Sec. 957(a)) may need to sell (or may have sold) substantial amounts of property located in affected areas to related U.S. persons and may do so (or have done so) in exchange for obligations of those persons. Notice 2017-68 (10/27/17).
IRS properly issued notice of deficiency; court sustains filing of federal tax lien
The Tax Court held that the IRS properly issued a notice of deficiency to a taxpayer who failed to file tax returns for 2006 through 2011. The court also concluded that the taxpayer failed to raise the issue of his underlying tax liability during a Collection Due Process (CDP) hearing and that the IRS Office of Appeals settlement officer who conducted the taxpayer’s initial and supplemental CDP hearings did not abuse her discretion in sustaining the filing of a federal tax lien for the 2009 tax year. Alamo, T.C. Memo. 2017-215 (10/31/17).
Appropriate TMP for an entity depends on whoever has authority to bind the entity under state law
The Office of Chief Counsel advised, with respect to who is considered an entity’s tax matters partner (TMP), that it is whoever has authority to bind the entity under state law. According to the Chief Counsel’s Office, this is going to depend on the type of entity, the state law, and any organization documents of the entity (if applicable). CCA 201744018 (11/3/17).
Couples do not have enough basis to deduct S corporation losses
The Tax Court held that the IRS properly disallowed deductions by two couples of certain passthrough losses from an S corporation, 80% of which was owned by those individuals. According to the court, the couples did not carry their burden of establishing that their bases in the S corporation’s debt to them was other than what the IRS determined. Messina, T.C. Memo. 2017-213 (10/30/17).