Document summaries for the week of April 30, 2018
IRS revises rules and specifications for substitute Form 941
The IRS issued as a revenue procedure the latest revision of IRS Publication 4436, General Rules and Specifications for Substitute Form 941, Schedule B (Form 941), Schedule D (Form 941), Schedule R (Form 941), and Form 8974, Qualified Small Business Credit for Increasing Research Activities, superseding Rev. Proc. 2017-32. Rev. Proc. 2018-24 (4/30/18).
Court denies 501(c)(3) status to entity operating as a façade for doctor’s consulting activities
The Tax Court upheld a final adverse determination letter from the IRS denying Sec. 501(c)(3) status to an entity organized by a doctor where the court found that the entity was a façade for the doctor’s consulting activities, and the entity’s benefits would inure to the doctor, who was the entity’s sole employee, service provider, and primary source of funding. The court concluded that, because the entity would be operated for commercial purposes and for the doctor’s benefit, it did not qualify for tax exemption. Abovo Foundation, Inc., T.C. Memo. 2018-57 (4/30/18).
Couple cannot deduct over $50K in contributions to Goodwill; penalties upheld
The Tax Court held that a couple could not deduct losses relating to the wife’s teaching activity because they were unsubstantiated and the wife testified she did not have a profit motive for her teaching activity and could not deduct noncash charitable contributions of more than $50,000 for items contributed to Goodwill Industries over a three-year period because they failed to substantiate those contributions. The court also upheld the negligence penalties assessed by the IRS after concluding that the couple had not adequately explained their failure to properly substantiate their Schedule C expenses and noncash charitable contributions. Moore, T.C. Memo. 2018-58 (4/30/18).
Taxpayer’s refund claim dismissed for lack of jurisdiction
The Court of Federal Claims dismissed a tax protestor’s refund suit because it lacked jurisdiction to hear the suit. The taxpayer had not paid his tax liability in full, as required to give the court jurisdiction, and he had already filed suit in other courts for the same tax years. Maehr, No. 17-1000 T (Fed. Cl. 4/30/18).
Taxpayer lacks standing to request rescission of penalty
The Court of Federal Claims dismissed a taxpayer’s suit challenging the IRS’s refusal to rescind a penalty for failure to report a listed transaction. The court held that the taxpayer lacked standing to sue because he never requested rescission under Sec. 6707A(d) and the IRS never made a rescission determination about the penalty. Barzillai, No. 17-354 (Fed. Cl. 4/30/18).
Court rejects couple’s request to be relieved of stipulation
In a case remanded from the Ninth Circuit, the Tax Court rejected a couple’s motion to be relieved of a portion of their binding stipulation to apply a Sec. 6662(a) penalty in the same manner as in Curcio, T.C. Memo. 2010-115, aff’d, 689 F.3d 217 (2d Cir. 2012). According to the court, the couple’s defense to the penalty was no better than that of the taxpayers in the Curcio group of cases (other participants in the Benistar purported welfare benefit plan), and there was no injustice in denying the couple’s motion. Keenan, T.C. Memo. 2018-60 (5/3/18).
IRS issues inflation-adjusted foreign housing amounts; revokes earlier incorrect guidance
The IRS advised that Notice 2018-33 used an incorrect amount for the maximum foreign earned income exclusion to calculate the housing cost amount for 2018. As a result, the IRS revoked Notice 2018-33, issued revised maximum housing expenses and base housing amounts for 2018, and updated the table of adjusted limitations on housing expenses. Notice 2018-44 (5/1/18).
Taxpayers can continue to rely on prop. regs. excluding certain obligations from the definition of U.S. property
The IRS said that taxpayers may continue to rely on the exception in Temp. Regs. Sec. 1.956-2T(b)(1)(xi) to the definition of U.S. property for certain obligations relating to notional principal contracts past its May 7, 2018, sunset date. The IRS also announced its intention to publish regulations that will provide, similar to the rule in Sec. 956(c)(2)(J), an exception from the definition of U.S. property for an obligation of a U.S. person to the extent the principal amount of the obligation does not exceed the fair market value of cash and readily marketable securities posted or received as margin or collateral for the obligation in the ordinary course of its business by a U.S. or foreign person that is a dealer in securities or commodities. Notice 2018-46 (5/4/18).
Chief Counsel’s Office advises IRS to wait to pursue collection against taxpayer
The Office of Chief Counsel advised that related cases with separate docket numbers should be treated as a single consolidated case for purposes of 18 U.S.C. Section 3664(i) and IRM Section 22.214.171.124.3. Further, the Chief Counsel’s Office advised that the safe course of action was to assume that 18 U.S.C. Section 3664(i) (and IRM Section 126.96.36.199.3, which was modeled from 18 U.S.C. Section 3664(i)) prevents the IRS from recovering until third-party, nonfederal victims have been fully compensated and, thus, the IRS should not pursue collection from the taxpayer at this time. CCA 201818016 (5/4/18).
Internet domain name is intangible personal property for purposes of levy rules
The Office of Chief Counsel advised that an internet domain name is intangible personal property for purposes of Secs. 6334(a)(13)(B)(ii) and 6334(e)(2). The provisions provide rules for, respectively, exempting or in certain circumstances allowing levies on principal residences and certain business assets. CCA 201818015 (5/4/18).
Exam teams can disclose information and documents among themselves to the extent needed to perform their duties
The Office of Chief Counsel advised that, under Sec. 6103(h)(1), exam teams can disclose information and documents among themselves to the extent needed by a recipient exam team for its tax administration duties. CCA 201818014 (5/4/18).
IRS advised to consider whether ‘item’ test applies to disclosing third-party return information
In response to a query about disclosing third-party return information, the Office of Chief Counsel advised that unless an exception in Sec. 6103 applies, such information cannot be disclosed. The Chief Counsel’s Office suggested that the “item” test exception in Sec. 6103(h)(4)(B) could permit disclosure to resolve an issue in a judicial or administrative tax proceeding. CCA 201818013 (5/4/18).
Chief Counsel’s Office to determine if case can be closed by returning a request unanswered
In response to a request involving a variable annuity technical advice, the Office of Chief Counsel responded that, according to an unspecified revenue procedure, withdrawal must be done by a director after notifying the taxpayer, but that Section 11.03 of the procedure allows the associate office to return a request unanswered after consultation with field counsel and the requesting field office. The Chief Counsel’s Office said it would find out whether the case at issue could be closed by returning the request unanswered. CCA 201818012 (5/4/18).
Extended limitation period does not apply to taxpayers’ refund suit
The Fifth Circuit affirmed a district court’s dismissal of the taxpayers’ lawsuit, holding that the extended 10-year limitation period under Sec. 6511(d)(3)(A) did not apply to their refund claim. The court found that the refund claim was not attributable to foreign taxes for which a credit was allowed. Schaeffler, No. 17-10719 (5th Cir. 5/3/18).
Eleventh Circuit affirms permanent injunction against return preparer
The Eleventh Circuit affirmed the judgment of a district court, which had issued a permanent injunction preventing the defendant from preparing federal tax returns and had ordered him to disgorge almost $950,000. Stinson, No. 17-11412 (11th Cir. 5/1/18).
Guidance explains extensions of deemed termination dates designated in state and local empowerment zone nominations
The IRS issued guidance explaining how state and local governments are deemed to extend the termination date designated in their empowerment zone nominations. According to the IRS, the termination dates are deemed extended until Dec. 31, 2017, and the extension in the guidance follows similar extensions in past guidance, such as Notice 2013-38, Notice 2015-26, and Notice 2016-28. Notice 2018-47 (5/4/18).
Court rejects partnerships’ DAD tax shelter investment loss
In a case involving two partnerships, their partners, and investors in what the Tax Court called “cookie cutter” distressed asset debt (DAD) tax shelters, the Tax Court found that the taxpayers failed to adequately substantiate payments for consumer receivables. Thus, the court held, the partnerships’ tax bases in the receivables should be zero, and the consumer receivables at issue could not generate the claimed $4,850,000 Sec. 166 bad debt DAD deduction, which was disallowed. Derringer Trading, LLC, T.C. Memo. 2018-59 (5/3/18).
2018 vehicle depreciation limits released
The IRS issued the 2018 inflation adjustments to the depreciation limitations and lease inclusion amounts for certain automobiles under Sec. 280F. Rev. Proc. 2018-25 (4/30/18).
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.