Document summaries for the week of Feb. 5, 2018

C CORPORATIONS

IRS will no longer process applications for new clean renewable energy bonds

The IRS announced that it will not process applications for, or issue allocations of, the remaining unused authority to issue new clean renewable energy bonds under Sec. 54C, which was repealed by P.L. 115-97, effective for bonds issued after Dec. 31, 2017. Notice 2018-15 (1/31/18).

Solely owned corporation cannot deduct rent paid to its owner

The Tax Court held that a corporation, solely owned by a doctor who was also its sole employee, was not entitled to deduct expenses relating to the purported rental of part of the doctor’s home. The court noted that the corporation did not produce any evidence of a written rental agreement or other documentation to support its position that the amounts claimed were actually rent. The court also noted that the doctor did not treat the arrangement as a bona fide rental, as he did not report any reciprocal rental income on his Schedules E, Supplemental Income and Loss, for the years at issue. Christopher C.L. Ng M.D., Inc. APC, T.C. Memo. 2018-14 (2/5/18).

 

EMPLOYEE BENEFITS

Pension contribution limits unchanged by tax reform law

The IRS announced that the 2018 dollar limitations on retirement plan contributions were unchanged by P.L. 115-97. IR-2018-19 (2/6/18) (see related news story).

 

EXEMPT ORGANIZATIONS

New exemption applications are unnecessary when not-for-profit changes form or place of organization

The IRS generally will not require a new exemption application from a domestic Sec. 501(c) organization that changes its form or place of organization. Thus, Rev. Rul. 67-390 and Rev. Rul. 77-469 are obsoleted. Rev. Proc. 2018-15 (2/8/18).

 

INDIVIDUALS

Taxpayer lacked sufficient basis in S corporation to deduct loss

The Tax Court upheld an IRS assessment relating to a taxpayer’s tax deficiency stemming from the partial disallowance of a flowthrough deduction for a net operating loss of an S corporation in which the taxpayer held an interest. The court concluded that the taxpayer did not have sufficient basis in the S corporation to absorb all of the loss. Meruelo, T.C. Memo. 2018-16 (2/5/18).

Taxpayer entitled to innocent spouse relief from liabilities incurred by ex-husband’s business

The Tax Court sustained an IRS determination that a taxpayer was not entitled to innocent spouse relief with respect to a liability from the withdrawal of funds from her Sec. 401(k) plan. However, the court did find that the taxpayer was entitled to innocent spouse relief with respect to her ex-husband’s business, after finding that the ex-husband had misled and abused her during their marriage. Minton, T.C. Memo. 2018-15 (2/5/18).

Security guard to Hollywood celebrities wins partial deduction of expenses disallowed by IRS

The Tax Court held that a former policeman who performed security services for Hollywood celebrities was entitled to deduct miscellaneous itemized deductions relating to vehicle expenses, on-duty security costs, security licensing and training, office supplies, and job search expenses that the IRS had disallowed. However, the court also concluded that the taxpayer could not deduct expenses relating to Verizon bills, a home office, clothing, and other items because they were personal and/or their business use was unsubstantiated. Colbert, T.C. Summ. 2018-7 (2/6/18).

Court disallows repair deductions for commercial buildings as capital expenditures

The Tax Court held that a couple could not deduct more than $27,000 in repair expenses for two commercial buildings they owned because the expenses were really depreciable capital expenditures. While the couple submitted an itemized list of the work performed and its costs, the court noted there was no evidence about the context in which that work was performed nor its effect on the value or the useful life of either property. Brown, T.C. Summ. 2018-6 (2/5/18).

IRS extends time to pay for repairs to personal residences resulting from deteriorating concrete foundations

The IRS has extended the time announced in Rev. Proc. 2017-60 that individuals have to pay to repair damage to their personal residences resulting from deteriorating concrete foundations caused by the presence of the mineral pyrrhotite beyond Jan. 1, 2018. Rev. Proc. 2017-60 provides a safe harbor that allows an individual to deduct the amounts paid before Jan. 1, 2018 to repair damage to his or her personal residence caused by deteriorating concrete foundations containing the mineral pyrrhotite. Rev. Proc. 2018-14 (2/7/18).

 

IRS PROCEDURE

IRS issues February AFRs

The IRS issued the applicable federal rates for February 2018. Rev. Rul. 2018-05 (2/5/18).

 

MISCELLANEOUS

IRS issues guidance on designating qualified opportunity zones for purposes of Secs. 1400Z-1 and 1400Z-2

The IRS issued guidance to the chief executive officers (CEOs) of any state, any possession of the United States, and the District of Columbia regarding the procedure for designating population census tracts as qualified opportunity zones for purposes of Sec. 1400Z-1 and Sec. 1400Z-2. Specifically, the guidance clarifies the nomination process under Sec. 1400Z-1 by informing the CEOs of each state that census tracts in their jurisdictions are eligible to be nominated to be qualified opportunity zones and by providing the requirements and due dates for the nomination, certification, and designation of the zones. Rev. Proc. 2018-16 (2/8/18).

IRS expands low-income housing credit disaster relief for Puerto Rico

In response to the devastation caused by Hurricane Maria to the Commonwealth of Puerto Rico, the IRS expanded the low-income housing credit disaster relief previously provided in Rev. Proc. 2014-49 and Rev. Proc. 2014-50. The expanded relief is limited to certain areas of Puerto Rico and, except as expressly provided in the notice, all provisions of Rev. Proc. 2014-49 and Rev. Proc. 2014-50 apply to the designated disaster area without modification. Notice 2018-17 (2/8/18).

 

TAX-EXEMPT ENTITIES

Court rejects entity’s tax-exempt status

The Tax Court agreed with an IRS determination that an entity was not exempt from federal income tax under Sec. 501(a) because it was not an organization described in Sec. 501(c)(3). The court noted that, during the administrative process, the entity advised the IRS that recognizing it as an exempt organization might be beneficial to the entity’s founder to prevent the foreclosure of the mortgage on his personal residence, which was listed as an asset in the entity’s application despite the lack of any evidence that he had transferred its title to the entity. David Muresan Scientific Research Foundation, T.C. Memo. 2018-13 (2/5/18).

Newsletter Articles

PRACTICE MANAGEMENT

Tax software survey

Our annual survey offers a look at how CPAs judged their tax preparation software in a wide range of types of practices.

NEWS

Congress enacts tax reform

Here are many of the most important provisions in the new law that affect both individual taxpayers and businesses. All changes were effective Jan. 1, 2018, except as noted.