Document summaries for the week of Sept. 11, 2017

CORPORATIONS

IRS deficiency assessment barred by statute of limitation

The Tax Court held that the tax return of the successor corporation in what was supposed to be a tax-free Sec. 368(a)(1)(F) reorganization (but that the IRS considered invalid) contained enough information to calculate the tax liability for the old corporation’s short tax year, thus beginning the running of the statute of limitation period with respect to that tax year. As a result, the court concluded that the exception under Sec. 6501(c)(3) did not apply to extend the statute of limitation, and the IRS’s assessment against the old corporation was time-barred. New Capital Fire, Inc., T.C. Memo. 2017-177 (9/11/17).

EMPLOYEE BENEFITS

IRS issues September 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 2017-50 (9/13/17).

Guidance issued on leave-based donation programs to aid hurricane victims

The IRS issued guidance on the treatment of leave-based donation programs to aid victims of Hurricane Irma. Notice 2017-52 (9/14/17).

ESTATES, TRUSTS & GIFTS

IRS can examine estate return of predeceased spouse to determine DSUE

The Tax Court held that the IRS acted within the authority granted by Sec. 2010(c)(5)(B) when it examined the estate tax return of a predeceased spouse to determine the correct deceased spousal unused exclusion (DSUE) amount. In addition, the court found that a letter stating that the estate tax return of a predeceased spouse has been accepted as filed is not a closing agreement under Sec. 7121 and does not mean the IRS is estopped from examining that return. Estate of Sower, 149 T.C. No. 11 (9/11/17).

INDIVIDUALS

Physical symptoms caused by emotional distress do not make settlement nontaxable

The Tax Court held that a settlement the taxpayer received that was described in the settlement term sheet as for emotional distress was not excludable from his gross income because it was not received on account of personal physical injuries or personal sickness, as those terms are used in Sec. 104(a)(2). According to the court, the fact that a taxpayer suffers physical symptoms from emotional distress does not mean that damages received on account of the emotional distress qualify for exclusion from gross income under Sec. 104(a)(2). Collins, T.C. Summ. 2017-74 (9/11/17).

Failure to attach written declaration to return precludes claiming daughter as a dependent

The Tax Court held that a taxpayer was not entitled to a dependency exemption deduction and a child tax credit with respect to his minor daughter because he did not attach to his tax return the written declaration required by Sec. 152(e)(2) from the child’s mother, who was the custodial parent. Consequently, the court also held that the taxpayer did not qualify for head of household filing status. Seeliger, T.C. Memo. 2017-175 (9/11/17).

Tax Court dismisses taxpayers’ case for lack of prosecution

The Tax Court granted an IRS motion to dismiss a couple’s case for lack of prosecution. Based upon its examination of the entire case record, the court found that the couple did not have sufficient or justifiable reason for failing to appear for trial on the scheduled date. Patacsil, T.C. Memo. 2017-176 (9/11/17).

Court rejects taxpayer’s claim that plan distribution was used for MBA expenses; 10% additional tax imposed

The Tax Court held that, without some documentation to support the taxpayer’s vague testimony, it could not conclude that she used any portion of a $133,501 early distribution from a qualified retirement plan to pay MBA expenses or that the expenses, even if paid, were qualified higher education expenses under Sec. 72(t)(7)(A) and Sec. 529(e)(3). As a result, the court found the taxpayer liable for the Sec. 72(t) 10% additional tax on the early distribution. Cates, T.C. Memo. 2017-178 (9/13/17).

Taxpayer proves options were exercised in earlier year than IRS contended

The Tax Court held that a taxpayer exercised 4,000 options in December 2007, as he contended, and not on Jan. 17, 2008, as the IRS argued. The court found that, while there were no records relating to the exercise of the options in 2007, the taxpayer demonstrated, by showing the court an email thread and a Form 8919, Uncollected Social Security and Medicare Tax on Wages, filed for 2007, that the options were exercised in 2007 and, thus, he did not have unreported income in 2008. Powers, T.C. Memo. 2017-179 (9/14/17).

Tax Court grants IRS motion for summary judgment; IRS can collect unpaid taxes by levy

The Tax Court granted an IRS motion for summary judgment relating to an IRS determination to collect a taxpayer’s unpaid tax liability for 2011 by levy. The court found no abuse of discretion on the IRS’s part and noted that the taxpayer had not responded to the motion despite a court order instructing him to do so. Jones, T.C. Summ. 2017-75 (9/13/17). 

INTERNATIONAL

IRS withdraws FATCA proposed regs.

The IRS withdrew proposed regulations issued in 2014 (REG-130967-13) that dealt with verification and certification requirements for certain entities and reporting by foreign financial institutions under the Foreign Account Tax Compliance Act (FATCA) and tax withholding of certain U.S.-source income paid to foreign persons. REG-103477-14 and REG-134247-16 (corrected 9/15/17).

IRS PROCEDURE

Hurricane Irma victims get tax relief

The IRS provided tax relief to victims of Hurricane Irma that includes an extension of time to file certain individual and business tax returns and make certain tax payments; a waiver of the diesel fuel penalty for dyed diesel fuel sold for use or used on highways in Florida; and allowing Sec. 401(k) and similar employer-sponsored retirement plans to make loans and hardship distributions. IR-2017-150; IR-2017-149; Announcement 2017-13 (9/12/17) (see related news story).

IRS publishes average wellhead price for natural gas

The IRS published Treasury’s estimate of the annual average wellhead price per 1,000 cubic feet for all domestic natural gas. This estimate is the “reference price” for purposes of the Sec. 45I credit. Notice 2017-51 (9/12/17).  

PARTNERSHIPS

IRS updates partnership penalty relief for untimely filed returns

The IRS updated guidance, originally issued on Sept. 1, that provided penalty relief to certain partnerships that filed untimely returns or requests for extensions of time to file those returns. The updated notice now applies to both partnerships and real estate mortgage investment conduits (REMICs) that are treated as partnerships. Notice 2017-47 (updated 9/12/17).

TAX ACCOUNTING

No loss realized on transfer of hedge accounts to proprietary trading account

The Office of Chief Counsel advised that an individual did not realize losses under Sec. 1001 upon the transfer of securities from his personal brokerage hedge accounts to a proprietary trading account. However, the hedge fund did realize losses upon the transfer of those securities to the trading account, but those losses were permanently disallowed under Sec. 707(b) and Sec. 267(d)(1). TAM 201737011 (9/15/17).