Document summaries for the week of April 16, 2018
Guidance addresses tax reform changes for fiscal-year corporations
The IRS issued guidance on the changes made by P.L. 115-97, known as the Tax Cuts and Jobs Act, to federal income tax rates for corporations under Sec. 11(b) and to the alternative minimum tax (AMT) for corporations under Sec. 55 and on the application of Sec. 15 in determining the federal income tax (including the AMT) of a corporation. The guidance applies to tax years of corporations that begin before Jan. 1, 2018, and end after Dec. 31, 2017. Notice 2018-38 (4/16/18).
IRS intends to issue proposed regs. on new business interest deduction rules
The IRS announced that it intends to issue proposed regulations under new Sec. 163(j), which limits the deduction of business interest expense for tax years beginning after Dec. 31, 2017. Notice 2018-28 (4/16/18).
Rules issued on allocating research credit
Final regulations provide rules addressing the allocation of the credit for increasing research activities to corporations and trades or businesses under common control. T.D. 9832 (4/16/18).
IRS issues monthly corporate yield curve and segment rates
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 IRS provided 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 2018-34 (4/16/18).
IRS announces revocations of tax-exempt status
The IRS announced that it has revoked its determination that certain organizations qualified as organizations described in Secs. 501(c)(3) and 170(c)(2). Announcement 2018-07 (4/16/18).
Court denies taxpayer’s deductions but rejects penalty assessment
The Tax Court held that a taxpayer was not entitled to deductions for travel, car and truck expenses, depreciation, Sec. 179 expensing, and commissions relating to his business because he did not properly substantiate them. The court concluded, however, that the taxpayer made a good-faith effort to assess his proper tax liability and reasonably relied on the advice of his return preparer and thus was not liable for the accuracy-related penalties assessed by the IRS. Cai, T.C. Memo. 2018-52 (4/16/18).
After allowing gambling loss deduction, taxpayer’s penalty drops to zero
The Tax Court held that a taxpayer was entitled to a gambling loss deduction under Secs. 165(a) and (d) of $21,194, which was the amount conceded by the IRS. In addition, the court concluded that, with the conceded gambling deduction, the taxpayer’s Sec. 6662(a) penalty dropped to $0. Henley, T.C. Summ. 2018-22 (4/16/18).
Couple had unreported income and unsubstantiated deductions
The Tax Court held that a couple were not entitled to expenses they had deducted on their tax returns, including a portion of deducted legal fees that the court found had no business purpose, were personal, or were inadequately substantiated. The court also found that the couple did not adequately report certain items of income from the husband’s business and that the wife was not entitled to innocent-spouse relief under Sec. 6015(b) or (f). Rogers, T.C. Memo. 2018-53 (4/17/18).
Vague testimony of abuse does not sway court to grant innocent-spouse status
The Tax Court held that a taxpayer failed to carry her burden of establishing that it would be inequitable to hold her liable for an understatement of tax for 2011 and an underpayment of tax for 2012 and thus denied the taxpayer innocent-spouse relief for those years. The court rejected the taxpayer’s allegations of abuse, noting that the only evidence she presented was vague testimony and a letter to the IRS examiner by the taxpayer’s sister, who was not called as a witness at trial. Suwareh, T.C. Summ. 2018-23 (4/16/18).
SIFL cents-per-mile rates issued
The IRS issued the Standard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect for the first half of 2018 for purposes of Regs. Sec. 1.61-21(g), relating to the rule for valuing noncommercial flights provided as an employee fringe benefit on employer-provided aircraft. Rev. Rul. 2018-10 (4/16/18).
IRS did not abuse discretion in rejecting taxpayer’s offer in compromise
The Tax Court held that an IRS settlement officer (SO) did not abuse her discretion in rejecting a taxpayer’s offer in compromise after noting that the SO concluded that the taxpayer’s reasonable collection potential (RCP) exceeded the amount he proposed to pay. The court noted that a taxpayer bears the burden of providing sufficient information to justify a deviation from local standards used in the RCP calculation and that the taxpayer had submitted no evidence that the amounts used by the SO were inadequate to provide for his basic living expenses. Mack, T.C. Memo. 2018-54 (4/18/18).
Taxpayer cannot deduct expenses for dining and entertaining his children; reliance on TurboTax does not preclude penalty
The Tax Court allowed a partial deduction for amounts a taxpayer paid that were attributable to his music activities but denied deductions for dining and entertainment expenses incurred while engaging in recreational pursuits with his children that he testified helped him be creative and enhanced his artistic creativity and productivity. The court upheld an accuracy-related penalty imposed on the taxpayer after noting that the taxpayer did not offer a meaningful defense to the imposition of the penalty other than to assert that he relied on TurboTax to prepare his tax returns. Nicholson, T.C. Summ. 2018-24 (4/18/18).
Country-by-country reporting rules modified for national security purposes
The IRS made modifications to the country-by-country reporting requirement under Regs. Sec. 1.6038-4 with respect to certain U.S. multinational enterprise groups to address national security interests. Notice 2018-31 (4/16/18).
Guidance issued on deemed repatriation
The IRS issued guidance regarding the implementation of the deemed repatriation rule of Sec. 965. Notice 2018-26 (4/16/18).
Tax return deadline extended by one day
Due to issues with its Modernized e-Filing and Direct Pay systems, the IRS extended the tax filing and payment deadline through April 18. IR-2018-100 (4/17/18) (see related news story).
IRS to issue regs. on partnership interest dispositions
The IRS announced that it intends to issue regulations under new Sec. 1446(f) regarding the disposition of a partnership interest that is not publicly traded. Notice 2018-29 (4/16/18).
Cash distributed from ‘tip boxes’ are tips and are subject to Sec. 3121(q) notice and demand procedures
The Office of Chief Counsel advised that cash amounts distributed from “tip boxes” to individuals, who a taxpayer engages to perform services but does not directly pay any compensation, are properly classified as tips under Rev. Rul. 2012-183 and are wages subject to FICA tax. Additionally, the Chief Counsel’s Office stated that the cash amounts distributed to individuals from “tip boxes” are subject to notice and demand procedures under Sec. 3121(q). CCA 201816010 (4/20/18).
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.