Document summaries for the week of July 16, 2018

EMPLOYEE BENEFITS

Final regs. refine plan contribution requirements

The IRS issued final regulations providing that employer contributions to certain qualified retirement plans may be qualified matching contributions or qualified nonelective contributions if they meet nonforfeitability requirements and distribution limitations at the time they are allocated to a participant’s account, even if they do not when contributed to the plan. T.D. 9835 (7/20/18).

EXEMPT ORGANIZATIONS

IRS no longer requires donor information on many exempt-organization returns

The IRS issued a revenue procedure removing a requirement under the regulations for many tax-exempt organizations to report certain donors' names and addresses on returns in the Form 990 series. The relief does not extend to Sec. 501(c)(3) charities, which still must report the information. Rev. Proc. 2018-38 (7/17/18) (see related news story). 

INDIVIDUALS

Taxpayer's deductions mostly disallowed for lack of substantiation and business purpose; penalties upheld

A taxpayer who tried to start a business selling products online also worked occasionally in construction. He combined both of these activities on one Schedule C, Profit or Loss From Business, on which he reported losses of $25,203 for 2013 and $36,172 for 2014. However, he failed to substantiate almost all of the expenses that produced those losses, producing credit card statements with items circled that he claimed were business expenses but that clearly included amounts charged by family members and other nondeductible personal expenses, including a trip to Ecuador. The court also denied the taxpayer's charitable contribution deduction and upheld the IRS's penalties for late filing and accuracy. Archer, T.C. Memo. 2018-111 (7/16/2018).

Children who did not reside with taxpayers were not dependents

Married taxpayers conceded in a Tax Court pretrial memorandum that their two children whom they claimed as dependents for 2015, and for whom they also claimed an earned income tax credit and child tax credit, did not live with them during the year. Consequently, the court sustained the IRS’s denial of the tax benefits. Jusino, T.C. Memo. 2018-112 (7/19/18).

IRS PROCEDURE

IRS updates specifications for private printing of substitute 2018 Forms W-2 and W-3

The IRS issued specifications for private printing of red-ink substitutes for 2018 Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. The new revenue procedure will be produced as the next version of Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3, and supersedes Rev. Proc. 2017-42. Rev. Proc. 2018-37 (7/16/18).   

IRS issues applicable federal rates for August

The IRS issued the short-term, midterm, and long-term rates for August under Sec. 1274(d); the adjusted short-term, midterm, and long-term federal rates for August under Sec. 1288(b); the adjusted federal long-term and long-term tax-exempt rates under Sec. 382(f); the percentages for determining the low-income housing credit for buildings placed in service in August; and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest under Sec. 7520. Rev. Rul. 2018-21 (7/17/18).

PMTA analyzes FBAR willfulness standard

In a Program Manager Technical Assistance (PMTA) memo, the IRS advised that the standard for civil willful violations of the Report of Foreign Bank and Financial Accounts (FBAR) reporting and recordkeeping requirements includes not only knowing violations, but also willful blindness to them and reckless violations of them. The burden of proof for establishing a civil FBAR violation is a preponderance of the evidence, the memo stated. PMTA 2018-13 (7/16/18).

No abuse of discretion; trust fund recovery penalties upheld

The Tax Court found an IRS settlement officer did not abuse her discretion in sustaining a levy to collect trust fund recovery penalties against a CEO of two related health care entities, whom the IRS relieved of penalties with respect to one of the entities but not the other. The IRS was not precluded from collecting the remaining penalties by any of several alleged faults, including that its letter to the CEO relieving him from the partial liability did not specify to which entity it pertained, the court held. Colon, T.C. Memo. 2018-113 (7/19/18).

PRACTICE MANAGEMENT

IRS urges tax pro cyber safety

As part of its ongoing Security Summit initiative, the IRS described six safeguards by which tax professionals may secure taxpayer electronic data: anti-virus software, firewalls, two-factor authentication, backup software or services, storage encryption, and a security plan meeting the Federal Trade Commission’s Safeguards Rule. News Release IR-2018-150 (7/17/18).

STATE & LOCAL

States sue for SALT

New York, Connecticut, Maryland, and New Jersey sued the federal government, seeking declaratory and injunctive relief from the $10,000 limit on individual itemized deductions on federal returns for payments of state and local taxes (SALT) imposed by P.L. 115-97, known as the Tax Cuts and Jobs Act. The states’ arguments include that the full deduction is necessary to prevent the government from interfering with their sovereign authority. New York v. Mnuchin, No. 18-cv-6427 (S.D.N.Y. 7/17/18) (complaint) (see related news story).