Document summaries for the week of May 14, 2018
Relief for small employers that claimed Sec. 45R credit
The IRS provided relief to employers that properly claimed a Sec. 45R small employer’s health insurance premium tax credit for all or part of the 2016 tax year (or a later tax year), but that are unable to offer employees a qualified health plan through a Small Business Health Options Program (SHOP) Exchange because the employer is in a county in which no qualified health plan is available through a SHOP Exchange. Notice 2018-27 (5/14/17).
IRS to issue proposed regs. on life insurance contract sales
The IRS announced that it intends to issue proposed regulations providing guidance to assist taxpayers in complying with the information-reporting obligations for reportable policy sales of life insurance contracts, also known as life settlement transactions under new Sec. 6050Y. Notice 2018-41 (5/14/18).
College tuition waiver benefit awarded to husband as part of severance package is not excludable from income
The Tax Court held that a couple were not entitled to exclude from their 2013 taxable income the value of a tuition waiver benefit that had been awarded to the husband as part of a severance package when he was laid off from Tulane University in 1991 and that the couple used in 2013 for their daughter’s college education. The Tax Court rejected the couple’s argument that Sec. 117(d) extends the exclusion of qualified tuition reductions from gross income to certain former employees who are considered separated from service by reason of retirement, after concluding that the husband’s separation from Tulane did not fit within the ordinary meaning of the term “retirement.” Voigt, T.C. Summ. 2018-25 (5/14/18).
Sales manager’s visits to customer facilities are personal
The Tax Court held that a taxpayer who worked as a sales manager and visited local customer facilities was not entitled to deductions for unreimbursed employee business expenses that were predominantly personal and only indirectly related to the conduct of company business. The court noted that the taxpayer’s logs showed that on many days he drove from his home to a customer’s facility, had lunch, and then returned home, and that he likewise reported mileage expenses for round trips from his home to the company’s headquarters. The court found that the miles the taxpayer drove were nondeductible personal commuting expenses. Fehr, T.C. Summ. 2018-26 (5/16/18).
Trust is a sham; owners are taxable on partnership income
The Tax Court held that a trust that owned four partnerships was a sham that should be disregarded and that the partnerships’ income was taxable to the couple who owned the trust. However, the court did not uphold penalty assessments against the couple, who relied on tax professionals to prepare their tax return and thus showed reasonable cause for underpayments. Full-Circle Staffing, LLC, T.C. Memo. 2018-66 (5/17/18).
Indian coal production credit inflation adjustment issued for 2017
The IRS provided that the inflation adjustment factor of 1.2115 be used to determine the amount of the Sec. 45 Indian coal production credit for 2017, which is $2.423 per ton on the sale of Indian coal. Notice 2018-36 (5/14/18).
Carbon oxide sequestration credit inflation adjustment issued for 2018
The IRS provided the inflation adjustment factor used to determine the amount of the Sec. 45Q carbon oxide sequestration credit, which resulted in a credit for calendar year 2018 of $22.87 per metric ton of qualified carbon oxide under Sec. 45Q(a)(1) and $11.44 per metric ton of qualified carbon oxide under Sec. 45Q(a)(2). Notice 2018-40 (5/14/18).
IRS can seize and sell equipment used to measure cannabinoids in marijuana
In response to a question whether, pursuant to Secs. 6331 and 6335, the IRS may administratively seize and sell certain chromatographer mass spectrometers taxpayers used “in the marijuana industry” to measure cannabinoids, the Office of Chief Counsel advised that the equipment was not drug paraphernalia under the Drug Paraphernalia Statute of 28 U.S.C. Section 863 and, thus, there was generally no restriction on its seizure and sale. CCA 201820018 (5/18/18).
New procedure aids reliance on IRS tax-exempt organization lists
The IRS combined several previously issued revenue procedures to provide more easily accessible guidance to grantors and contributors to tax-exempt organizations. The single procedure, which supersedes the previously issued ones, sets forth the extent to which grantors and contributors may rely on the listing of an organization in IRS databases as eligible to receive tax-deductible contributions under Sec. 170. Rev. Proc. 2018-32 (5/16/18) (see related news story).
IRS issues June 2018 applicable federal rates
The IRS issued a ruling that prescribes the applicable federal rates for June 2018. This guidance provides various rates for federal income tax purposes, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. The rates are determined under Sec. 1274. Rev. Rul. 2018-16 (5/16/18).
Partners cannot rely on advice of a tax shelter promoter to escape penalties on tax deficiencies
The Tax Court held that two brothers, who were partners in a partnership that sold a family business and engaged in a son-of-boss deal to manufacture tax losses to offset the resulting gains, were liable for accuracy-related penalties on the resulting tax deficiencies. The court concluded that the partners did not meet the reasonable-cause-and-good-faith defense to the penalties by relying on the advice of a promoter, and pointed out that the partners’ tax return preparers specifically advised that they would not opine on the transactions in the return that gave rise to the tax deficiencies. RB-1 Investment Partners, T.C. Memo. 2018-64 (5/14/18).
No charitable deduction where partnership’s transfer of property to a city was a quid-pro-quo exchange
The Tax Court held that a partnership was not entitled to a charitable contribution deduction of more than $11 million where it transferred real property and development credits to a city in which it was developing a planned community in exchange for development plan approval and with the expectation of the city’s future approval of a development plan. The court concluded that the benefits the partnership received had substantial value that the tax matters partner did not report or value on the partnership’s tax return. In addition, the Tax Court found that the partnership had unreported self-employment income and was subject to accuracy-related penalties. Triumph Mixed Use Investments III, LLC, T.C. Memo. 2018-65 (5/15/18).
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.