Document summaries for the week of Sept. 4, 2017

CORPORATIONS

IRS issues safe harbor concerning normalization rules used by regulated public utilities

The IRS is providing a safe harbor for inadvertent or unintentional uses of a practice or procedure that is inconsistent with Sec. 50(d)(2) and Sec. 168(i)(9), which require that regulated public utilities use a special accounting system, referred to as “normalization,” to reconcile the tax treatment of the investment tax credit or accelerated depreciation of public utility assets with their regulatory treatment. If the safe harbor applies, the IRS will not assert that a taxpayer’s inadvertent or unintentional use of a practice or procedure that is inconsistent with Sec. 50(d)(2) and Sec. 168(i)(9) constitutes a violation of the normalization rules. Rev. Proc. 2017-47 (9/7/17). 

EMPLOYEE BENEFITS

IRS issues guidance on corporate bond monthly yield curve

The IRS issued a notice 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 on 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 2017-43 (9/5/17).

Chief Counsel’s Office discusses cure period for participants who fail to make installment payments on plan loans

The Office of Chief Counsel was asked how a cure period, as described in Regs. Sec. 1.72(p)-1, Q&A-10(a), is applied if a participant fails to make installment payments required under the terms of a plan loan. The Chief Counsel’s Office addressed the question by analyzing two different factual situations and concluded in each instance that there was no deemed distribution of the loan due to the missed installment payments because the missed payments were cured within the applicable cure period. CCA 201736022 (9/8/17). 

INDIVIDUALS

IRS addresses employer leave–based donation programs to assist Hurricane Harvey victims

The IRS advised 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 Hurricane and Tropical Storm Harvey and (2) paid to the organizations before Jan. 1, 2019. Similarly, the IRS said it will not assert that the opportunity to make such an election results in constructive receipt of gross income or wages by employees; however, electing employees may not claim a charitable contribution deduction under Sec. 170 with respect to the value of forgone leave excluded from compensation and wages. Notice 2017-48 (9/5/17).

Failure to timely contest deficiency notice precludes contesting associated tax liability

The Tax Court, citing its holding in Goza, 114 T.C. 176 (2000), held that an individual was precluded under Sec. 6330(c)(2)(B) from contesting his underlying tax liability before the IRS Appeals Office and the Tax Court because he received a notice of deficiency with respect to the liability and failed to timely contest it. The court also concluded that the IRS was entitled to summary judgment and that the IRS Appeals Office did not abuse its discretion in sustaining a final notice of intent to levy on the individual. Bruce, T.C. Memo. 2017-172 (9/5/17).

Taxpayer could not deduct $8.55 million as a partially worthless debt

The Tax Court held that the IRS did not abuse its discretion in determining that a taxpayer was not entitled to a deduction of $8.55 million for a partially worthless debt for 2009. The court concluded that, even if the taxpayer established that his advances were debt and that this debt was a business debt, he did not meet the requirements for deducting a partially worthless debt under Sec. 166(a)(2) and Regs. Sec. 1.166-3(a)(2)(iii). Rutter, T.C. Memo. 2017-174 (9/7/17).

Distributions from IRAs funded with tax-deductible contributions are includible in income

The Tax Court held that $9,260 of unreported distributions from IRAs belonging to the taxpayer were includible in his income since it was undisputed that the taxpayer funded those IRAs with tax-deductible contributions. The court also held that it had no jurisdiction to determine whether interest on the tax underpayment should be abated where the taxpayer could not prove that the IRS mailed a final determination not to abate interest. Harris, T.C. Summ. 2017-72 (9/7/17).

No education credit allowed where couple failed to prove daughter attended a qualified institution at least half-time

The Tax Court held that a couple were not entitled to an education credit for amounts paid for their daughter’s tuition where they produced no evidence showing that the daughter (1) was enrolled at Northern Virginia Community College (NVCC) at least half-time, (2) was enrolled at NVCC for at least one academic period, or (3) had not paid her tuition herself. The court also said the couple failed to show that they made any tuition payments for their daughter’s attendance at a trade school called “Canine Clippers” or that it was an eligible educational institution. Martin, T.C. Summ. 2017-73 (9/7/17).

Attorney who failed to properly substantiate business deductions is liable for negligence penalty

The Tax Court sustained the IRS’s disallowance of a couple’s business expenses due to a failure to adequately substantiate them. Further, because the husband was an attorney who was capable, the court said, of reading the  substantiation rules, the couple were liable for the negligence penalty under Sec. 6662(b)(1). Rodriguez, T.C. Memo. 2017-173 (9/6/17).

Taxpayer complied with substantiation rules

The Office of Chief Counsel was asked to advise whether, in a particular situation, a taxpayer complied with the requirement to obtain a contemporaneous written acknowledgment to substantiate its charitable deduction under the special requirements for contributions to donor-advised funds under Sec. 170(f). The Chief Counsel’s Office concluded that, in this  case, it believed the language in the sponsoring organization’s documentation met the requirements of both Sec. 170(f)(8)(C) and Sec. 170(f)(18)(b) for a contemporaneous written acknowledgment. CCA 201736023 (9/8/17). 

IRS PROCEDURE

IRS issues quarterly interest rates for tax overpayments and underpayments

The IRS issued the rates for interest on tax overpayments and underpayments for the fourth calendar quarter of 2017, beginning Oct. 1, 2017. The interest rates will be 4% for overpayments (3% in the case of a corporation), 4% for underpayments, 1.5% for the portion of a corporate overpayment exceeding $10,000, and 6% for large corporate underpayments. Rev. Rul. 2017-18 (9/8/17).

Specific return listed in POA is only return covered by the POA

The Office of Chief Counsel advised that a Form 2848, Power of Attorney and Declaration of Representative, which lists only a specific return, covers representation for penalties, payments, and interest related only to that specific tax return, and not to other returns, regardless of whether other returns are attached to the return specified in the Form 2848. Further, Forms 2848 that only list a specific return cover representation for penalties, payments, and interest related only to that specific tax return, and not to other returns that may be filed separately. CCA 201736021 (9/8/17). 

IRS files notice of appeal in PTIN fee case

The IRS filed notice that it is appealing to the U.S. Court of Appeals for the D.C. Circuit the final judgment and permanent injunction entered against it by the District Court for the District of Columbia that forbids it from charging a fee for preparer tax identification numbers. Steele, No. 1:14-cv-1523 (D.D.C. 9/6/17) (notice of appeal).