Document summaries for the week of Dec. 10, 2018

CORPORATIONS

IRS issues new procedure for obtaining consent for a change in computing insurance reserves

The IRS issued a revenue procedure modifying Rev. Proc. 2018-31 to provide procedures for an insurance company to obtain automatic IRS consent to change its method of accounting to comply with Sec. 807(f), as amended by P.L. 115-97, known as the Tax Cuts and Jobs Act.  The revenue procedure also modifies Rev. Rul. 94-74 and Rev. Rul. 2002-6. Rev. Proc. 2019-10 (12/13/18).

 

EMPLOYEE BENEFITS

Interim guidance addresses qualified transportation fringes that are nondeductible or increase UBTI

The IRS issued interim guidance for taxpayers on determining the amount of parking expenses for qualified transportation fringes (QTFs) that is nondeductible under Sec. 274(a)(4) and for tax-exempt organizations to determine the corresponding increase in the amount of unrelated business taxable income (UBTI) under Sec. 512(a)(7). The Tax Cuts and Jobs Act (TCJA) enacted Sec. 274(a)(4), which generally disallows a deduction for expenses with respect to QTFs provided by taxpayers to their employees, and Sec. 512(a)(7), which generally provides that a tax-exempt organization's UBTI is increased by the amount of the QTF expense that is nondeductible under Sec. 274. However, it did not address how to determine the amount of the QTF expense that is nondeductible or treated as an increase in UBTI. Notice 2018-99 (12/10/18) (see related news story).

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 2019-03 (12/14/18).

 

EXEMPT ORGANIZATIONS

IRS waives estimated tax penalties for certain tax-exempt entities that provide qualified transportation fringes

The IRS is waiving penalties for certain tax-exempt organizations for underpayment of estimated income tax payments required to be made on or before Dec. 17, 2018, to the extent the underpayment of estimated income tax results from changes to the tax treatment of qualified transportation fringes under the Tax Cuts and Jobs Act (TCJA). This relief applies to a tax-exempt organization that (1) provides qualified transportation fringes to an employee for which estimated income tax payments, affected by changes to Sec. 274 and Sec. 512 under the TCJA, would otherwise be required to be made on or before Dec. 17, 2018, and (2) was not required to file a Form 990-T, Exempt Organization Business Income Tax Return, for the tax year preceding the organization's first tax year ending after Dec. 31, 2017. Notice 2018-100 (12/10/18).


INDIVIDUAL

Couple cannot deduct expenses relating to wife’s business for which zero income was reported

The Tax Court held that a couple was not entitled to deduct expenses from the wife’s education consulting business for which she reported no income but deducted more than $28,000 on Schedule C, Profit or Loss From Business. The court also concluded that the couple was liable for the 10% tax on early distributions the husband received from qualified retirement plans because the couple did not prove the money was used to pay education expenses and will be liable for an accuracy-related penalty if the couple had an understatement of tax once their liability was recalculated. Dasent, T.C. Memo. 2018-202 (12/13/18).

Taxpayer received DISC commissions, not dividends

The Second Circuit reversed and remanded a Tax Court decision and held that it was improper for the IRS to recharacterize a corporation’s tax-deductible domestic international sales commissions (DISC)  as nondeductible constructive dividends to the corporation’s shareholders. Benenson, No. 16-2953-ag (2d Cir. 12/14/18).

 

INTERNATIONAL

DISC base period T-bill rate published

The IRS published a "base period T-bill rate" of 2.06% for determining the interest charge payable by shareholders of a domestic international sales corporation (DISC) for the one-year period ending Sept. 30, 2018. Rev. Rul. 2018-31 (12/10/18).

Prop. regs. issued on base-erosion anti-abuse tax

The IRS issued proposed regulations on the Sec. 59A base-erosion anti-abuse tax (BEAT) and its related reporting requirements. REG-104259-18 (12/13/18) (see related news story).

IRS intends to issue regulations on previously taxed earnings and profits of foreign corporations

The IRS announced its intention to issue regulations addressing certain issues arising from the enactment of P.L. 115-97, known as the Tax Cuts and Jobs Act, with respect to foreign corporations with previously taxed earnings and profits (PTEP).  The regulations will include (1) rules relating to the maintenance of PTEP in annual accounts and within certain groups; (2) rules relating to the ordering of PTEP upon distribution and reclassification; and (3) rules relating to the adjustment required when an income inclusion exceeds the earnings and profits of a foreign corporation. Notice 2019-01 (12/14/18).

 

IRS PROCEDURE

OPR announces disciplinary sanctions

The Office of Professional Responsibility announced recent disciplinary sanctions against attorneys, CPAs, and enrolled agents. Announcement 2018-15 (12/10/18).

Chief Counsel suggests minor modification to quitclaim deed

The Office of Chief Counsel, in a two-sentence Chief Counsel Advice involving a quitclaim deed modification, said that it did not object to adding a sentence to a draft deed and suggested a minor variation of language previously proposed. The suggested addition by the Chief Counsel’s Office read: “The above-described property is conveyed free and clear of the federal tax lien.” CCA 201850021 (12/14/18).

Chief Counsel authorizes disclosure of return information to certain employees

The Office of Chief Counsel advised that, in the undisclosed situation at issue, Sec. 6103(h)(1) applied to authorize the disclosure of return information to certain employees. CCA 201850020 (12/14/18).

Taxpayer liable for restitution for aiding and abetting tax evasion by his father

The Tax Court held that Sec. 6201(a)(4) authorizes the IRS to assess restitution that a taxpayer has been ordered to pay upon being convicted of violating Sec. 7201 when the taxpayer’s wrongdoing consisted of aiding and abetting his father in evading the payment of the father’s tax liability. The court also concluded that the taxpayer’s restitution liability was not discharged in a bankruptcy proceeding and sustained an IRS collection action against the taxpayer. Bontrager, 151 T.C. No. 12 (12/12/18).

 

PARTNERSHIPS

Special partnership statute of limitations rules under Sec. 6229 applied to couple’s 2001 tax year

The Tax Court held that the IRS was not bound by an initial decision (later abandoned) to audit a partnership’s return for the small partnership tax period under the Tax Equity and Fiscal Responsibility Act (TEFRA) procedures and that the special statute of limitations rules for TEFRA partnerships under Sec. 6229 applied to a couple’s 2001 tax year for that partnership. In addition, the court concluded that a partner-level determination is required to adjust the couple’s tax liabilities following a decision in the TEFRA case and the IRS did not issue invalid multiple notices of deficiency. Sarma, T.C. Memo. 2018-201 (12/12/18).

 

TAX ACCOUNTING

IRS increases standard mileage rates for business, medical, and moving expenses for 2019

The IRS issued the optional standard mileage rates for 2019 for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes, and to use in calculating reductions to basis for depreciation taken under the business standard mileage rate. The rates are (1) 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018, (2) 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and (3) 14 cents per mile driven in service of charitable organizations. Notice 2019-02 (12/14/18) (see related news story).

IRS phasing out credit for new qualified plug-in electric drive motor vehicles sold by Tesla

The IRS announced a credit phase-out schedule for new qualified plug-in electric drive motor vehicles sold by Tesla Inc. Under the phaseout, which is the result of Tesla Inc. submitting reports that indicate that its cumulative sales of qualified vehicles reached the 200,000 vehicle limit during the calendar quarter ending Sept. 30, 2018, if a new qualified plug-in electric drive motor vehicle sold by Tesla, Inc. is purchased for use or lease on or after Jan. 1, 2019, the allowable credit is as follows: (1) for vehicles purchased for use or lease on or after Jan. 1, 2019, and on or before June 30, 2019, the credit is 50% of the otherwise allowable amount determined under Sec. 30D(b); (2) for vehicles purchased for use or lease on or after July 1, 2019, and on or before Dec. 31, 2019, the credit is 25% of the otherwise allowable amount determined under Sec. 30D(b); and (3) for vehicles purchased for use or lease on or after Jan. 1, 2020, no credit is allowable. Notice 2018-96 (12/14/18).

Newsletter Articles

TAX REFORM

Traps for the unwary: Tax Cuts and Jobs Act changes

By now many of us are familiar with the various provisions of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. Here is a list of changes together with (perhaps) unexpected nuances.

DEDUCTIONS

Qualified business income deduction regs. and other guidance issued

The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.