Document summaries for the week of Jan. 15, 2018

CORPORATIONS

IRS provides temporary relief to medical device manufacturers for certain failure-to-deposit penalties

The IRS issued guidance relating to the excise tax on medical devices imposed by Sec. 4191 (the medical device excise tax). Specifically, the notice provides temporary relief to medical device manufacturers from the failure-to-deposit penalties imposed by Sec. 6656 for 2018. Notice 2018-10 (1/17/18). 

 

INDIVIDUALS

Taxpayer liable for taxes on canceled debt

The Tax Court held that, because a bank canceled an outstanding credit card debt that the taxpayer owed, the taxpayer had additional income of $9,686 that he should have included in gross income. While the court was sympathetic to the taxpayer’s argument that he was deceived by the bank’s offer to settle the debt by having him pay a lesser amount, the court noted that the taxpayer was not insolvent when the debt was canceled, and, thus, the IRS’s assessment of additional tax was correct. Glennon, T.C. Memo. 2018-4 (1/16/18).

Discharge of debt puts taxpayer’s income over exemption ceiling for repayment of health insurance premium advance credit

The Tax Court held that a taxpayer had an additional tax liability as a result of an advance premium assistance tax credit that was applied to her monthly health insurance premium. The court found that, as a result of a bank’s canceling the taxpayer’s debt, the taxpayer’s income for the year at issue exceeded 400% of the federal poverty line, making her ineligible for the credit. Keel, T.C. Memo. 2018-5 (1/16/18).

 

IRS PROCEDURE

Guidance issued on revocation or denial of passports for taxpayers with delinquent tax debts

The IRS announced guidance for implementing new Sec. 7345, added by the Fixing America’s Surface Transportation (FAST) Act, P.L. 114-94, which requires the IRS to notify the State Department of taxpayers certified to have “seriously delinquent tax debt.” The State Department then will generally deny an application for issuance or renewal of a passport and may revoke or limit a previously issued passport. Notice 2018-01 (1/16/18).

Court upholds collection action against church

The Tax Court sustained a proposed IRS collection action against a church, which failed to file copies of Form W-2, Wage and Tax Statements, with the Social Security Administration, after the church neglected to submit either a Form 433-B, Collection Information Statement for Businesses, or the financial data to support that form as the IRS had requested and was not in compliance with its filing obligations. The court also found no abuse of discretion by the IRS, noting that the church had failed to put a concrete offer on the table. Pantano Baptist Church, T.C. Summ. 2018-3 (1/17/18). 

 

INTERNATIONAL

Shareholders in CFC that guaranteed loans to U.S. entity have ordinary income as a result

The Tax Court granted the IRS’s motion for summary judgment, holding that, under the Subpart F rules of Sec. 951(a)(1)(B) and Sec. 956(d), two U.S. shareholders of two controlled foreign corporations (CFCs) that guaranteed loans made to a U.S. entity must include in gross income, as ordinary income, the CFCs’ applicable earnings. The court rejected the U.S. shareholders’ arguments that the regulations requiring them to report the income as ordinary income were invalid and that the gross income should be taxed as qualified dividend income. SIH Partners LLLP, 150 T.C. No. 3 (1/18/18).

IRS issues additional guidance on transition tax on foreign earnings

The IRS issued additional guidance, partially modifying previously issued guidance in Notice 2018-07, for computing the transition tax on the untaxed foreign earnings of foreign subsidiaries of U.S. companies under P.L. 115-97, which is informally known as the Tax Cuts and Jobs Act. The guidance (1) describes regulations that the IRS intends to issue, including rules addressing the calculation of earnings under the transition tax; (2) modifies Notice 2018-07 regarding the repatriation of earnings subject to the transition tax; and (3) provides taxpayers targeted relief from certain unintended regulatory and reporting consequences arising from a change to existing stock attribution rules in P.L. 115-97. Notice 2018-13 (1/19/18).

Newsletter Articles

SPONSORED REPORT

States look to unclaimed property for revenue

State audits of abandoned and unclaimed property (AUP) have exploded in recent years. This report outlines the escheat process, common types of AUP, how different states are handling it and how companies can plan for potential audits and liabilities.

DEDUCTIONS

Understanding the new Sec. 199A business income deduction

The new deduction allows certain business owners to keep pace with the significant corporate tax cut provided by the Tax Cuts and Jobs Act.