Document summaries for the week of Jan. 8, 2018

EMPLOYEE BENEFITS

IRS revises covered compensation tables for 2018

The IRS issued a ruling containing the covered compensation tables effective Jan. 1, 2018. These tables reflect a revision to the taxable wage base for 2018 that was announced by the Social Security Administration on Nov. 27, 2017, and apply in lieu of the tables that were provided earlier in Rev. Rul. 2017-22. Rev. Rul. 2018-04 (1/8/18).

IRS issues January interest rate notice

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) for January 2018.  In addition, guidance is provided 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 2018-11 (1/10/18).

EXEMPT ORGANIZATIONS

Association for Honest Attorneys founder liable for excise taxes on excess benefit transactions

The Tax Court held that an attorney who formed a Sec. 501(c)(3) tax-exempt organization called Association for Honest Attorneys and made payments from its bank account for her son’s tuition to military school and for the exhumation and DNA testing of her father’s remains was liable for excise taxes under Sec. 4958 of approximately $79,000 because she was a disqualified person who had engaged in excess benefit transactions with the association. Farr, T.C. Memo. 2018-2 (1/9/18).

INDIVIDUALS

Tax return preparer liable for 75% fraud penalty for underreporting income and claiming excessive deductions

The Tax Court held that a CPA who prepared tax returns and underreported gross receipts and claimed excessive deductions on his own Schedule C, Profit or Loss From Business, for three tax years, including deductions for half of his personal residence expenses, was liable for the 75% fraud penalty under Sec. 6663. The court rejected the taxpayer’s claim that his serious medical problems during the years at issue constituted reasonable cause under Sec. 6664(c)(1), instead finding that he had not overcome clear and convincing evidence of fraud. Ankerberg, T.C. Memo. 2018-1 (1/8/18).

Most of stipend graduate student received is excludable from income under U.S.–Russia treaty

The Tax Court held that a portion of a stipend a graduate student received in 2011 from Purdue University to fund work on his scientific research is exempt from federal income tax under the Russia–U.S. treaty. Because approximately 70% of the student’s stipend was funded through a Purdue Research Foundation Research Grant and a Special Incentive Research Grant, that portion was excludable and the remaining 30% of payments were includible in income. Kiselev, T.C. Summ. 2018-2 (1/10/18).

INTERNATIONAL

Arrangement among related entities does not constitute insurance for tax purposes

The Office of Chief Counsel was asked whether an arrangement between affiliated operating entities and a captive insurance affiliate dealing with the fluctuation in the value of specified foreign currencies is insurance for federal income tax purposes. The Chief Counsel’s Office advised that, while economic risk of loss arising from the fluctuation in the value of specified foreign currencies can be an insurable risk, certain terms of the arrangement at issue did not comport with the commonly accepted sense of insurance and, thus, the arrangement did not constitute insurance. CCA 201802014 (1/12/18).

IRS PROCEDURE

Court denies IRS request to assess Sec. 6673(a) penalty

The Tax Court denied an IRS motion to impose a Sec. 6673(a) penalty on a taxpayer for taking a frivolous position, after concluding that the IRS would not be prejudiced if the court denied the motion. In granting the taxpayer’s motion to dismiss, the court noted that, while the taxpayer’s history of litigation with the court might merit the imposition of the Sec. 6673 penalty, the IRS had not moved to impose those penalties against the taxpayer in the past, nor had the court warned the taxpayer about them, despite the taxpayer’s history of frivolous proceedings. The court thought warning the taxpayer that the penalty would be imposed if he returned to the court again making similar arguments was in order rather than imposition of the penalty. Lorusso, T.C. Memo. 2018-3 (1/11/18). 

PRACTICE & STANDARDS

IRS did not abuse its discretion in denying whistleblower’s claim

The Tax Court held that, when reviewing an IRS determination under Sec. 7623(b) regarding a whistleblower claim award, it will limit the scope of its review to the administrative record, which may be supplemented if it is incomplete. The court concluded that the applicable standard of review for determinations under Sec. 7623(b) is abuse of discretion, and the IRS in this case did not abuse its discretion in rejecting the whistleblower’s claim for an award. Kasper, 150 T.C. No. 2 (1/9/18).