Document summaries for the week of Nov. 12, 2018

CORPORATIONS

Shareholder liable for pre-notice interest on corporation’s tax liability

The Ninth Circuit affirmed a Tax Court decision that the sole shareholder of a corporation was liable for interest on the corporation’s unpaid taxes due before he received a notice of transferee liability from the IRS. In a separate memorandum opinion, the court had affirmed that the shareholder was liable for the unpaid taxes as well. Tricarichi, No. 16-73418 (9th Cir. 11/13/18).

 

ESTATES, TRUSTS & GIFTS

Notices of deficiency following TEFRA audit are valid

The Tax Court held that affected-item notices of deficiency issued to a couple by the IRS following a partnership-level proceeding under the unified audit and litigation partnership procedures (TEFRA) were valid. The court noted that the validity of the notices depended on whether a partner-level determination was required following the TEFRA case decision. The court concluded that IRS adjustments to the couple’s loss deductions on sales of stock and foreign currency were affected items that required partner-level determinations. Estate of Keeter, T.C. Memo. 2018-191 (11/15/18).

 

INDIVIDUALS

Attorney must include in income a $30,000 payment from a client ‘friend’

The Tax Court held that a taxpayer, who was a retired police officer and self-employed attorney specializing in workers’ compensation cases for police and fire officials, had to include in income a $30,000 payment he received from a police officer he represented in a case, which the taxpayer characterized as a “gift” from a friend. The payment came from a lump-sum settlement the officer received in the case. The court also determined that the taxpayer had not substantiated any greater amount of expenses incurred in an event he held to attract new clients than the IRS had allowed and therefore was not entitled to any additional deduction. Duncan, T.C. Memo. 2018-190 (11/13/18).

 

IRS PROCEDURE

Tax Court holds that further proceedings are necessary because of IRS’s inconsistent positions

The Tax Court granted in part and denied in part a motion by the IRS for partial summary judgment relating to a proposed collection action against a couple with respect to their federal income tax liabilities for 2009 through 2012, which resulted from their failure to timely file returns for those years. The court held that, because the IRS’s position appeared inconsistent with determinations previously made by an IRS settlement officer and by the IRS’s Baltimore Insolvency Unit, as well as with the IRS’s previous position before the Tax Court, further proceedings were required to resolve questions concerning the discharge and abatement of the couple’s 2010 tax liabilities. Richardson, T.C. Memo. 2018-189 (11/13/18).

IRS issues 2019 inflation adjustments

The IRS issued the 2019 inflation-adjusted amounts for a large number of tax provisions and new tax tables for use during 2019. Rev. Proc. 2018-57 (11/15/18) (see related news story).

Chief Counsel recommends reviewing template for disclosing return information

The Office of Chief Counsel advised that Sec. 6103(l)(7) may authorize disclosure of return information to an unnamed agency and agreed that a content management application (CMA) should be drafted for that purpose. The Chief Counsel’s Office also suggested that the CMA template be reviewed to contemplate other shared state database scenarios. CCA 201846004 (11/16/18).

IRS issues December 2018 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for December 2018 under Sec. 1274. 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. Rev. Rul. 2018-30 (11/16/18).

IRS proposes raising enrolled agent and other fees

The IRS proposed to increase the enrollment and renewal user fee for enrolled agents and the renewal user fee for enrolled retirement plan agents, both from $30 to $67. The proposed regulations would also remove the initial enrollment user fee for enrolled retirement plan agents (Regs. Sec. 300.10) because the IRS no longer offers initial enrollment. REG-122898-17 (11/15/18).

Foundation is liable as transferee despite wrong date on notice

The Second Circuit upheld a Tax Court decision that the taxpayer was liable as a transferee for unpaid income tax resulting from a “Midco” tax shelter transaction. The court rejected the taxpayer’s argument that the Tax Court lacked jurisdiction because the IRS’s notice of transferee liability contained an incorrect end date for its tax year. Diebold Foundation, Inc., No. 17-3622-cv (2d Cir. 11/15/18).

 

S CORPORATIONS

Chief Counsel warns of legal hazards in assessing penalty on S corporation co-owner

The Office of Chief Counsel advised that an S corporation may be a tax return preparer within the definition of Sec. 7701(a)(36) if it employs a person who prepares a tax return for compensation. Thus, the S corporation may be the proper person on which to assess a due-diligence penalty under Sec. 6695(g), pursuant to Regs. Sec. 1.6695-2(c), if one of the requirements set forth in that regulation section is met. However, the Chief Counsel’s Office concluded that it did not have enough facts to recommend whether the S corporation being reviewed met the applicable requirements. It noted likely legal hazards in assessing the penalty directly on the S corporation’s 25% co-owner because the S corporation, not the co-owner, employed the preparers. CCA 201846005 (11/16/18).

Newsletter Articles

TECHNOLOGY

2018 tax software survey

Among CPA tax preparers, tax return preparation software generates often extensive and ardent discussion. To get through the rigors of tax season, they depend on their tax preparation software. Here’s how they rate the leading professional products.

DEDUCTIONS

Understanding the new Sec. 199A business income deduction

The new deduction allows certain business owners to keep pace with the significant corporate tax cut provided by the Tax Cuts and Jobs Act.