Document summaries for the week of July 23, 2018
Ninth Circuit reverses Tax Court in transfer-pricing case
The promulgation of Regs. Sec. 1.482-7A(d)(2), under which related entities must share the cost of employee stock compensation for their qualified cost-sharing arrangements to be considered valid, did not exceed the IRS’s rulemaking authority, complied with the Administrative Procedure Act, and is entitled to deference under the standard from Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), the Ninth Circuit held. The decision reversed the Tax Court’s holding in Altera Corp., 145 T.C. 91 (2015). Altera Corp., No. 16-70496 (9th Cir. 7/24/18) (see related news story).
ESTATES, TRUSTS & GIFTS
Executrix can disaffirm amended returns filed by a surviving spouse only after decedent’s death
The Chief Counsel advised that an executrix of an estate could not disavow an amended return filed by the decedent’s spouse in one or more years the decedent was still alive because Sec. 6013(a)(3) permits returns to be disavowed if they are filed by a “surviving spouse.” Sec. 2(a) defines a surviving spouse as one “whose spouse died during either of his two taxable years immediately preceding the taxable year.” Thus, the spouse was not a surviving spouse for years the decedent was still alive. But the spouse was a surviving spouse in a later year, meaning the executrix could disavow that return. CCA 201830012 (7/27/18).
Ninth Circuit reverses Tax Court on transferee liability
A company’s sale was constructively fraudulent as to the IRS because the company did not receive a reasonably equivalent value in exchange for the transfer to the shareholders, leaving it unable to satisfy its tax obligation, the Ninth Circuit held. The taxpayers were thus transferees under Sec. 6901, the court found. The opinion reversed a decision of the Tax Court, to which the Ninth Circuit remanded the case with instructions to enter a verdict for the IRS. Slone, No. 16-73349 (9th Cir. 7/24/18).
IRS issues final regs. on charitable contribution substantiation rules
Final regulations set forth the substantiation requirements for contributions of more than $500 under Secs. 170(f)(11)(B) through (D); the new definitions of qualified appraisal and qualified appraiser applicable to noncash contributions under Sec. 170(f)(11)(E); substantiation requirements for contributions of clothing and household items under Sec. 170(f)(16); and recordkeeping requirements for all cash contributions under Sec. 170(f)(17). T.D. 9836 (7/30/18) (see related news story).
Disabled veteran partially entitled to innocent spouse relief from wife’s embezzlement income
A taxpayer who suffered from post-traumatic stress disorder sought relief from his joint 2010 and 2011 tax liability for income omitted from tax returns that his ex-wife, who was an accountant, had embezzled from her employer. Although the taxpayer qualified for Sec. 6015(b) relief for 2010, the Tax Court found that, for 2011, he did not qualify for relief under Sec. 6015(b), (c) (separate liability), or (f) (equitable relief) because by that point he had actual knowledge of the income, had given the return information to the couple’s tax preparer, and did not tell the preparer about the embezzled income. Jacobsen, T.C. Memo. 2018-115 (7/25/18).
Appeals court invalidates foreign corporation ownership regs.
The D.C. Circuit Court of Appeals reversed a Tax Court decision and held that the regulations promulgated in T.D. 9087, prohibiting consideration of bearer shares in determining a foreign corporation’s ownership for purposes of establishing whether the foreign corporation is entitled to the benefits of Sec. 883(a)(1) permitting certain gross income to be exempt from U.S. taxation, are an unreasonable interpretation of the Code. Good Fortune Shipping SA, No. 17-1160 (D.C. Cir. 7/27/18).
Chief Counsel defines when a jeopardy levy can occur
The Chief Counsel explained the four instances in which a jeopardy levy can occur even when there has been no jeopardy or termination assessment. The Chief Counsel also described the conditions under which a collection is in jeopardy: (1) the taxpayer is or appears to be designing to leave the United States or to conceal himself or herself; (2) the taxpayer is or appears to be designing to hide, transfer, conceal, or dissipate his or her assets; (3) the taxpayer's financial solvency appears to be imperiled; or (4) an individual physically possesses cash or its equivalent exceeding $10,000 who does not claim ownership or that it belongs to another person whose identity can be readily ascertained and who acknowledges ownership. CCA 201830013 (7/27/18).
Extended limitation period in son-of-boss case covered partnership items
Partners’ consent in a son-of-boss (bond option sales strategy) case to extend the statute of limitation on their individual returns for the tax year ending Dec. 31, 2000, included partnership items, even though the partnership’s short tax year ended Dec. 19, 2000, the Tax Court held. Inman Partners, T.C. Memo. 2018-114 (7/23/18).
Investment banker’s time estimate does not satisfy success-based fee documentation requirement
Because the taxpayer had been acquired in an acquisition to which Regs. Sec. 1.263(a)-5 applied, it was required to capitalize the costs incurred to facilitate the transaction, except to the extent it maintained sufficient documentation to prove that a portion of the fee was allocable to activities that did not facilitate the transaction. The taxpayer deducted 92% of the investment banker’s fees, based on an estimate the banker provided, and did not elect safe harbor treatment under Rev. Proc. 2011-29. The Chief Counsel determined that the documentation the taxpayer provided was insufficient, and, as a result, 100% of the fee had to be capitalized. CCA 201830011 (7/27/18).
Business meal deductions after the TCJA
This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.
Quirks spurred by COVID-19 tax relief
This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.