Document summaries for the week of July 9, 2018
IRS issues monthly corporate yield curve and segment rates
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). In addition, the IRS provided guidance 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 2018-60 (7/13/18).
ESTATES, TRUSTS & GIFTS
Certain estate and trust deductions are not limited by TCJA changes
The IRS announced its intention to issue regulations that will provide that the suspension of miscellaneous itemized deductions under Sec. 67(g), which was enacted in P.L. 115-97, known as the Tax Cuts and Jobs Act, does not affect the deductibility under Sec. 67(e)(1) of certain estate and trust administration fees as well as the deductibility of expenses under Sec. 642(b), Sec. 651, and Sec. 661. Estates and nongrantor trusts may rely on this guidance for tax years beginning after Dec. 31, 2017. Notice 2018-61 (7/13/18).
Old revenue rulings obsoleted
The IRS obsoleted 10 old revenue rulings that addressed issues under former Secs. 3121(b)(8)(B) and 3121(k) of the 1954 Code. Rev. Rul. 2018-20 (7/9/18).
IRS did not abuse its discretion in collection action
The Tax Court held that the IRS did not abuse its discretion in sustaining a determination to proceed with a levy on a taxpayer who owed taxes for 2012 and 2014. The court determined that the IRS settlement officer properly considered (1) whether the requirements of applicable law or administrative procedure had been met; (2) issues appropriately raised by the taxpayer; and (3) whether the collection actions balanced the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Amaefuna, T.C. Summ. 2018-34 (7/9/18).
Couple who relied on tax prep software did not have reasonable cause to avoid penalties
The Tax Court held that a couple (1) underreported a taxable refund of state income tax; (2) were not entitled to deductions they claimed on Schedules C, Profit or Loss From Business; (3) were not entitled to itemized deductions claimed for charitable contributions and unreimbursed employee expenses; and (4) were liable for self-employment tax on wages the husband received from the International Monetary Fund. In addition, the court held that the couple were liable for penalties for substantially understating their tax liabilities because they did not seek advice from a qualified tax professional but relied entirely on tax preparation software. Ayissi-Etoh, T.C. Memo. 2018-107 (7/9/18).
Couple’s rental real estate losses are disallowed
The Tax Court held that a couple were not entitled to deduct various expenses reported on their Schedules C, Profit or Loss From Business, for 2013 and 2014, relating to the husband’s investment management business for which no gross income was reported. Also, the couple were not entitled to deduct rental real estate losses reported on their Schedule E, Supplemental Income and Loss, for 2014 because they did not prove that they materially participated in the activity. Balocco, T.C. Memo. 2018-108 (7/9/18).
Court disallows deductions; penalties upheld
The Tax Court held that because a taxpayer did not substantiate or reasonably attempt to ascertain the correctness of deductions and losses he took on his tax returns, he was not entitled to (1) deductions for moving expenses in 2013 and 2014, or (2) deductions claimed on Schedules A, Itemized Deductions, beyond amounts the IRS allowed. In addition, the court found that the taxpayer did not reasonably attempt to ascertain the correctness of the disallowed deductions or losses or to comply with the Code and sustained accuracy-related penalties under Sec. 6662(a). Schaekar, T.C. Summ. 2018-35 (7/10/18).
Couple cannot deduct most of rental real estate-related deductions but are not liable for penalties
The Tax Court held that, due to lack of substantiation, a couple were not entitled to (1) travel and other expenses the IRS disallowed, including expenses for a trip to Puerto Rico, which they claimed were related to their rental real estate properties; (2) deductions relating to a home the couple owned in which their son lived but did not pay rent; and (3) rental real estate losses because neither of the taxpayers qualified as a real estate professional and thus the losses were limited by the passive activity loss rules of Sec. 469. However, the court did find that (1) for one of the years at issue, the couple could take a larger deduction than the IRS allowed because the couple qualified for the Sec. 469(i) exception to the loss limitation rules; and (2) the couple were not liable for accuracy-related penalties the IRS assessed because the IRS failed to comply with Sec. 6751(b)(1). Martin, T.C. Memo. 2018-109 (7/11/18).
Unreimbursed business expenses are not deductible where taxpayer did not work outside metropolitan area where he lived
The Tax Court held that a taxpayer who routinely installed flame-retardant insulating materials in new buildings and large renovation projects at various temporary work sites in the Chicago metropolitan area was not entitled to a deduction for unreimbursed employee business expenses because he did not work outside the metropolitan area where he lived and normally worked. The court also concluded that the taxpayer could not deduct over $1,000 for the two years at issue for cleaning the overalls he wore for work and was liable for accuracy-related penalties for each of the years because, although he used a return preparer, that preparer was simply a scrivener filling in whatever numbers the taxpayer provided to him. Campbell, T.C. Summ. 2018-37 (7/12/18).
Settlement payment received by couple from Bank of America is not excludable from gross income
The Tax Court held that a $41,000 settlement payment that a couple received from the Bank of America (BoA) for BoA's repeated and persistent foreclosure misconduct, which caused the couple "tremendous anxiety and stress" and forced them to spend lots of time trying to get BoA to act properly, was not excludable from their gross income. The court concluded that the couple did not carry their burden of proving that the settlement payment was made with respect to a disputed debt or on account of the wife's personal physical injuries or physical sickness. French, T.C. Summ. 2018-36 (7/12/18).
No miscellaneous itemized deduction allowed for $400,000 restitution payment
The Tax Court held that a taxpayer was not entitled to a miscellaneous itemized deduction under either Sec. 162(a) or Sec. 165(c)(1) or (2) for a $400,000 restitution payment he made in 2014. The court reached its conclusion after finding that (1) the taxpayer did not show that the restitution payment promoted or protected his trade or business of being an employee; (2) the taxpayer did not present any evidence that the primary purpose or motive for making the payment was other than that he was obligated to do as part of a criminal sentence; and (3) the taxpayer did not enter the transaction for which restitution payment was made with the intention of making a profit. Washburn, T.C. Memo. 2018-110 (7/12/18).
OPR announces practitioner disciplinary actions
The IRS Office of Professional Responsibility announced recent disciplinary actions against CPAs, attorneys, and enrolled agents. Announcement 2018-11 (7/9/18).
Rules issued for beginning construction of energy property
In a notice, the IRS provided two methods for taxpayers to establish the beginning of construction of qualifying energy property (a physical work test and a 5% safe harbor) for purposes of the Sec. 48 investment tax credit. The notice also provided a continuity requirement for both methods, rules for transferring energy property, and additional beginning-of-construction rules. Notice 2018-59 (7/9/18)
IRS issues data security resource guide
The IRS issued a new publication, a data security resource guide, intended to provide tax professionals with a basic understanding of minimal steps to take to protect client data. Publication 5293 (7/10/18) (see related news story).
Amendments to due diligence regs. proposed
The IRS issued proposed regulations amending the tax return preparer due diligence requirements to reflect changes made by P.L. 115-97, known as the Tax Cuts and Jobs Act, regarding determining eligibility to file as a head of household. REG-103474-18 (7/13/18).
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.