Document summaries for the week of June 11, 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 2018-56 (6/14/18).
Taxpayer cannot deduct divorce legal fees as business or income-producing expenses
The Tax Court held that a taxpayer did not demonstrate that legal fees he had incurred with respect to his divorce were deductible under Sec. 162(a) or 212. The court noted that the taxpayer had not established that his wife’s divorce claim related to winding down his business or that the legal fees were ordinary and necessary to his trade or business. Lucas, T.C. Memo. 2018-80 (6/11/18).
Marijuana seller cannot deduct business expenses from sale of nonmarijuana merchandise
The Tax Court held that the sale of nonmarijuana merchandise by a single-member limited liability company (LLC) that ran a Colorado medical marijuana business was not separate from the LLC's business of also selling marijuana merchandise and, under Sec. 280E, all of the LLC's business expenses were not deductible. In reaching its conclusion, the Tax Court found that the LLC, which was classified as a disregarded entity, had only one unitary business — selling marijuana. The court also agreed with the IRS's calculation of costs of goods sold, not the taxpayer's, and with the IRS's imposition of accuracy-related penalties. Alterman, T.C. Memo. 2018-83 (6/13/18).
Disabled doctor cannot exclude SSDI payments from income
The Tax Court held that monthly payments under the Social Security Disability Insurance (SSDI) program, which were made to a doctor who had suffered a physical injury that left her disabled and caused her to retire, were taxable to the extent determined by Sec. 86. The court noted that, while some privately funded programs that pay disability retirement benefits may constitute "health insurance" under Sec. 104(a)(3) and thus potentially be excludable from income, the SSDI program is a government-sponsored insurance plan, and Congress did not intend that SSDI benefits could be construed as an accident or health plan excludable from income. Palsgaard, T.C. Memo. 2018-82 (6/13/18).
Innocent-spouse filing deadline cannot be equitably tolled, Fourth Circuit holds
The Fourth Circuit held that Sec. 6015(e)(1)(A)(ii)'s 90-day filing requirement in innocent-spouse cases is jurisdictional and cannot be excused, and it affirmed a Tax Court order dismissing the taxpayer's petition for lack of jurisdiction. The court rejected the taxpayer's argument that the deadline is a claim-processing rule that is subject to equitable tolling. Nauflett, No. 17-1986 (4th Cir. 6/14/18)
Typo in Notice 2018-40 fixed
The IRS corrected a typographical error in Notice 2018-40, which published the inflation-adjustment factor for the carbon oxide sequestration credit under Sec. 45Q for calendar year 2018. Announcement 2018-09 (6/11/18).
S corporation shareholder cannot unilaterally change an S corporation’s election
The Tax Court held that an S corporation could not revoke its election to deduct certain employment tax expenses for 2006 and 2007 and instead claim Sec. 45B “FICA tip” credits solely by the request of one of its shareholders acting in his capacity as a shareholder. The court stated that granting the shareholder’s request would create a precedent allowing shareholders to change corporations’ tax elections unilaterally. Caselli, T.C. Memo. 2018-81 (6/12/18).
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.