Document summaries for the week of Jan. 29, 2018

INDIVIDUALS

Virgin Islands information sharing with IRS amounts to filing of the taxpayers’ return

The Tax Court held that, where a couple sent their income tax return to the Virgin Islands Bureau of Internal Revenue and the first two pages of it somehow (and without their knowledge or explicit approval) ended up at the Philadelphia office of the IRS, the couple were treated as having filed their return with the IRS, and that started the running of the statute of limitation. The court noted that it is not unprecedented for a court to determine that a return filed in one tax jurisdiction may begin the running of the statute of limitation in a second tax jurisdiction, and, while the couple might not have sent the forms to the IRS themselves, the court could find no authority saying they had to do so if the IRS received it from another source. Hulett, 150 T.C. No. 4 (1/29/18).

Court sustains levy on taxpayer for failing to pay trust fund recovery penalties

The Tax Court sustained an IRS determination to collect by levy a taxpayer’s unpaid trust fund recovery penalties under Sec. 6672. The court held that there was no abuse of discretion in the IRS’s refusal to accept the taxpayer’s offer in compromise and that the taxpayer’s repeated rejections of a proposed installment agreement did not result in an abuse of discretion. Preston, T.C. Summ. 2018-4 (1/29/18).

Court rejects taxpayer’s request for litigation fees, finding he was not the prevailing party

The Tax Court held that, with respect to litigation between a taxpayer and the IRS involving the allocation of retirement plan deductions to the taxpayer, the taxpayer was not the prevailing party under Secs. 7430(a) and (c)(4) because the position of the United States was substantially justified within the meaning of Sec. 7430(c)(4)(B). The court thus denied the taxpayer’s motion for fees and costs relating to the litigation. Bruner, T.C. Memo. 2018-10 (1/30/18).

IRS PROCEDURE

IRS issues guidance on income tax withholding rules

The IRS issued guidance that (1) extends the effective period of Forms W-4, Employee’s Withholding Allowance Certificate, furnished to claim exemption from income tax withholding under Sec. 3402(n) for 2017 until Feb. 28, 2018, and temporarily permits employees to claim exemption from withholding under Sec. 3402(n) for 2018 by using the 2017 Form W-4; (2) suspends the requirement that employees must furnish their employers new Forms W-4 within 10 days of changes of status resulting in fewer withholding allowances; (3) provides that the optional withholding rate on supplemental wage payments is 22% for tax years 2018 through 2025; and (4) provides that, for 2018, withholding on annuities or similar periodic payments where no withholding certificate is in effect is based on treating the payee as a married individual claiming three withholding allowances under Sec. 3405(a)(4). The IRS said it is currently working on revising Form W-4 to reflect the changes made by P.L. 115-97, known as the Tax Cuts and Jobs Act of 2017, and as a result, the 2018 Form W-4 may not be released until after Feb. 15, 2018. Notice 2018-14 (1/29/18) (see related news story).