Document summaries for the week of Oct. 9, 2017

EMPLOYEE BENEFITS

IRS issues procedure granting automatic approval for certain defined benefit plan funding method changes

The IRS issued a revenue procedure that updates Rev. Proc. 2000-40 to take into account the provisions of Sec. 430, which was enacted as part of the Pension Protection Act of 2006, P.L.109-280. The revenue procedure provides automatic approval for certain changes in the funding method used for single-employer defined benefit plans for calculations described under Sec. 430. Rev. Proc. 2017-56 (10/10/17).

IRS issues new procedure for requesting approval for a defined benefit plan’s change in funding method

The IRS issued a revenue procedure that updates Rev. Proc. 2000-41 to take into account subsequently enacted legislation. The revenue procedure explains how to obtain the IRS’s approval of a change in the funding method used for a defined benefit plan, as provided by Sec. 412(d)(1) and Section 302(d)(1) of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. The revenue procedure also sets forth the procedure for obtaining the IRS’s approval to revoke an election relating to interest rates under Sec. 430(h)(2)(D)(ii) or Sec. 430(h)(2)(E) and the corresponding ERISA sections. Rev. Proc. 2017-57 (10/10/17).

Regulations provide moral exemptions from mandatory contraceptive coverage

The Treasury Department, the Labor Department, and the Department of Health and Human Services issued interim final and proposed regulations providing exemptions for moral convictions and accommodations for certain entities and individuals whose health coverage is subject to a mandate of contraceptive coverage under the Patient Protection and Affordable Care Act. T.D. 9828, REG-129631-17 (10/9/17).

IRS issues October 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 2017-63 (10/13/17).

 

EXEMPT ORGANIZATIONS

Revocation of entity’s tax-exempt status means interest accrued on date corporate return was due

The Tax Court held that the retroactive revocation of an entity’s tax-exempt status required restoring the IRS to the position it would have occupied if the entity had never enjoyed tax-exempt status during its 2002 tax year. As a result, the entity was liable for interest beginning on the date its 2002 corporate tax return would have been due and not, as the entity had argued, the date that its tax-exempt status was revoked. CreditGuard of America, Inc., 149 T.C. No. 17 (10/10/17).

 

INDIVIDUALS

Taxpayer’s failure to timely petition Tax Court precludes challenge to collection action

The Tax Court granted the IRS summary judgment, holding that an IRS settlement officer correctly declined to consider a taxpayer’s challenge to his underlying tax liabilities where the taxpayer, who had been imprisoned for tax evasion, had received, but failed to petition the Tax Court in response to, notices of deficiency for the years at issue. As a result, the court sustained the IRS’s collection action. Beam, T.C. Memo. 2017-200 (10/10/17).

Rebate to couple that is subsequently disallowed increases couple’s tax deficiency

With respect to a refund the IRS made to a couple for a subsequently disallowed education tax credit, the Tax Court held that when the IRS makes a rebate that exceeds the amount of tax shown on the taxpayer’s return, that excess increases the taxpayer’s “deficiency” under Sec. 6211(a). The court rejected the couple’s argument that their deficiency should be less, noting that the couple had received a refund of $7,500 more than they deserved. In addition, the total deficiency of $7,500 was included in determining whether they were subject to the penalty for understatement of tax. Galloway, 149 T.C. No. 19 (10/10/17).

Deficiency sustained against taxpayer claiming exemption from tax under the Emancipation Proclamation of 1862

The Tax Court granted the IRS’s motion for summary judgment and sustained a deficiency assessed against a taxpayer who, in an effort to generate a refund for the year at issue, had claimed a fictitious loss deduction on Schedule C, Profit or Loss From Business, based on his contention that he was exempt from federal income tax under the Emancipation Proclamation of 1862. However, while the court found that the taxpayer’s position was unquestionably frivolous, it refrained from imposing a frivolous return position penalty because it was the taxpayer’s first appearance before the Tax Court. Hawkbey, T.C. Memo. 2017-199 (10/10/17).

Social Security wage base issued for 2018

The Social Security Administration announced that the maximum amount of earnings subject to the Social Security tax in 2018 will increase to $128,700 from $127,200, the rate in effect for 2017. SSA Fact Sheet, “2018 Social Security Changes” (10/13/17) (see related news story).

IRS provides tax relief for wildfire victims

The IRS announced that Victims of wildfires in California now have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. The relief applies to taxpayers in Butte, Lake, Mendocino, Napa, Nevada, Sonoma, and Yuba counties. IR-2017-172 (10/13/17).

 

PARTNERSHIPS

Easement contribution deduction disallowed where easement deed failed to satisfy the ‘in perpetuity’ requirement

The Tax Court held that a partnership’s easement deed failed to satisfy the “in perpetuity” requirement of Sec. 170(h)(5) because, first, the mortgages on the building were not fully subordinated to the easement as required by Regs. Sec. 1.170A-14(g)(2), and, second, because the donee was not guaranteed to receive the share of proceeds mandated by Regs. Sec. 1.170A-14(g)(6)(ii) if the easement was extinguished and the donor subsequently conveyed the property and received proceeds for it. Thus, the court concluded that the facade easement contribution the partnership made was not a qualified conservation contribution under Sec. 170(h), and the partnership was not entitled to a charitable contribution deduction. Palmolive Building Investors, LLC, 149 T.C. No. 18 (10/10/17).

Partnership basis election regulations proposed

The IRS issued proposed regulations that would eliminate the requirement that a partnership’s Sec. 754 election must be signed by a partner to be valid. REG-116256-17 (10/11/17) (see related news story).

Allocations of joint venture’s losses should be consistent with partner’s interest in the partnership

The Office of Chief Counsel advised that, in a joint venture between a U.S. parent corporation and a foreign parent corporation, the allocation of the joint venture’s partnership losses to its foreign equity partners should be limited to the amount of their positive capital accounts and that any further losses should be reallocated to the U.S. partner and foreign parent, which bore the economic burden of the additional losses. CCA 201741018 (10/13/17).

Newsletter Articles

TECHNOLOGY

2018 tax software survey

Among CPA tax preparers, tax return preparation software generates often extensive and ardent discussion. To get through the rigors of tax season, they depend on their tax preparation software. Here’s how they rate the leading professional products.

DEDUCTIONS

Understanding the new Sec. 199A business income deduction

The new deduction allows certain business owners to keep pace with the significant corporate tax cut provided by the Tax Cuts and Jobs Act.