Document summaries for the week of July 30, 2018


Final regs. on charitable contribution substantiation

The IRS published final regulations that implement changes made by the American Jobs Creation Act of 2004, P.L. 108-357, and the Pension Protection Act of 2006, P.L. 109-280, to the substantiation and reporting rules for charitable contributions under Sec. 170. T.D. 9836 (7/30/18) (see related news story).

Donation of clothes purchased at a discount do not result in a full charitable contribution deduction

The Tax Court held that a taxpayer was not entitled to a noncash charitable contribution deduction of $34,401 and instead agreed with the IRS that the taxpayer’s deduction was limited to $6,117. The court rejected the taxpayer’s argument that the fair market value of a retail item is the dollar amount shown on the price tag when the retailer first offers the item for sale. The court also found that the taxpayer had not satisfied the substantiation requirements to take the deductions. Grainger, T.C. Memo. 2018-117 (7/30/18).

Taxpayer cannot deduct Mary Kay losses and travel to daughter’s volleyball tournaments, Europe, and Disney World

The Tax Court held that a taxpayer (1) could not deduct losses from her activity as a Mary Kay consultant because the activity was not engaged in for profit within the meaning of Sec. 183, and (2) was liable for accuracy-related penalties because her underpayments of tax were attributable to negligence for which the taxpayer did not show reasonable cause. The court said that the deductions the taxpayer claimed for travel to her daughter’s volleyball tournaments, Europe, and Disney World would have difficulty passing the “straight-face” test. Nix, T.C. Memo. 2018-116 (7/30/18).

Court denies taxpayer’s motion for anonymity in whistleblower proceedings

The Tax Court denied a taxpayer’s motion to proceed anonymously with claims for a whistleblower award. According to the court, the taxpayer’s whistleblower claims are based on publicly obtained information and not on information he obtained as an employee or in a fiduciary capacity, and his weak basis for anonymity did not outweigh the presumption of open proceedings. Whistleblower 7208-17W, T.C. Memo. 2018-118 (7/31/18).

IRS addresses tax treatment of certain tuition program contributions and education expenses

The IRS issued a notice announcing its intention to issue regulations clarifying (1) the special rules for contributions of refunded qualified higher education expenses to a qualified tuition program; (2) the new rules permitting a rollover from a qualified tuition program to an ABLE account under Sec. 529A; and (3) the new rules that treat certain elementary or secondary school expenses as qualified higher education expenses. The IRS also said that taxpayers can rely immediately on the guidance provided in the notice. Notice 2018-58 (7/30/18).

IRS provides debt relief to students attending schools that suddenly closed

The IRS is providing relief to taxpayers who took out private student loans to finance attendance at a school owned by Corinthian College Inc. (CCI) or American Career Institutes Inc. (ACI), both of which were suddenly closed. Under the relief provided, (1) a taxpayer will be able to exclude from gross income the discharged amount of a private student loan taken out to finance attendance at ACI or CCI; (2) a taxpayer is not required to increase taxes owed in the year of discharge for prior claimed credits or deductions attributable to payments made on these private student loans; and (3) the IRS will not require a creditor to file returns and furnish payee statements for the discharged indebtedness. Rev. Proc. 2018-39 (7/30/18).

Couple had too much income to avoid repaying advance PTC

The Tax Court held that a couple were not entitled to a premium tax credit (PTC) and, as a result, had to repay the advance PTC (APTC) paid on the wife’s behalf. The court noted that the couple had failed to include Social Security benefits they received in income and, once it was added, they had too much modified adjusted gross income to qualify for relief from repaying the APTC. Grant, T.C. Memo. 2018-119 (8/1/18).

Property developer cannot deduct yacht expenses; penalties overruled

The Tax Court held that expenses claimed by a Florida property developer, who bought a yacht to ostensibly market his properties to wealthy anglers, were not deductible, either as ordinary and necessary expenses or under the strict limitations of Sec. 274. However, because the IRS did not meet its burden of production under Sec. 7491 (requiring evidence of the examiner’s supervisor’s written approval), the court found the taxpayer was not liable for an accuracy-related penalty for the years at issue. Becnel, T.C. Memo. 2018-120 (8/2/18).

IRS extends modified housing assistance safe harbor to homeowners affected by SALT limitation

The IRS extended the application of the Treasury Department’s Housing Finance Agency (HFA) Hardest Hit Fund safe harbor to homeowners affected by the $10,000 limitation on deductible property taxes (and other state and local taxes (SALT)) that is effective for years 2018–2025.  Under the modified safe harbor, participating homeowners may allocate mortgage payments actually made, first to deductible mortgage interest and thereafter, by any reasonable allocation method, to real property taxes, mortgage insurance premiums, home insurance premiums, and principal. Notice 2018-63 (8/3/18).

IRS to propose regs. on ABLE account contribution limits

The IRS said it will issue proposed regulations that clarify the limitation on contributions by certain designated beneficiaries to ABLE (Achieving a Better Life Experience) accounts under Sec. 529A. In addition to the annual gift tax exclusion, a designated beneficiary who works may also contribute up to the lesser of: (1) the designated beneficiary’s compensation for the tax year, or (2) the poverty line in the preceding calendar year for a one-person household in the state in which the designated beneficiary lives. Notice 2018-62 (8/3/18).



IRS issues transition tax proposed regulations

Proposed regulations address the Sec. 965 transition tax that requires U.S. shareholders of deferred foreign income corporations to pay tax on post-1986 deferred income. REG-104226-18 (8/1/18) (see related news story).

Anti-inversion regulations issued

Final regulations were issued that address (1) transactions structured to avoid the purposes of Secs. 7874 and 367, and (2) certain post-inversion tax-avoidance transactions. T.D. 9834 (7/30/18).

Tax Insider Articles


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.