Document summaries for the week of Oct. 15, 2018
IRS issues monthly employer plan funding 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 on 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 2018-82 (10/15/18).
Sec. 501(c)(4) organizations that influence the election of public office candidates are political parties
The Office of Chief Counsel advised that a Sec. 501(c)(4) organization that makes expenditures to influence or attempt to influence the election of a candidate for elective public office is a political party under Sec. 271. In addition, the Chief Counsel’s Office concluded that a taxpayer may not claim a worthless debt deduction under Sec. 166 for any debt owed by the Sec. 501(c)(4) organization because Sec. 271 was enacted to prevent political party supporters from claiming a bad debt deduction for disallowed political contributions by disguising them as loans. CCA 201842006 (10/19/18).
Country club cannot deduct losses from unprofitable social events
Affirming the Tax Court, the Sixth Circuit held that a Sec. 501(c)(7) tax-exempt country club could not offset its investment income with losses from unprofitable nonmember events because it did not hold the events with a primary purpose of making a profit. The country club therefore had underpaid unrelated business income tax for the years at issue. Losantiville Country Club, No. 17-2394 (6th Cir. 10/15/18).
Couple liable for taxes on money embezzled by wife
The Tax Court held that (1) a couple received and failed to report more than $200,000 of income the wife embezzled from a not-for-profit where they both worked; (2) the couple were not entitled to deduct $295,871 of gambling losses; and (3) the husband was liable for self-employment tax on income received from the not-for-profit. The court also concluded that the couple were liable for the Sec. 6663 fraud penalty and the late-filing penalty under Sec. 6651(a). Castaneda, T.C. Memo. 2018-173 (10/16/18).
Couple are denied charitable contribution deductions to their religious not-for-profit
The Tax Court held that a husband and wife who established a religion-based not-for-profit were not entitled to charitable contribution deductions of more than $340,000 for expenses they paid for certain land improvements they donated to the organization and for donations to it of a tractor/mower and their personal residence. The court also held that the couple were liable for the accuracy-related penalty under Sec. 6662(a). Presley, T.C. Memo. 2018-171 (10/15/18).
IRS clarifies how suspension of personal exemption deduction affects the premium tax credit and individual shared responsibility payment
The IRS issued interim guidance clarifying how the suspension of the personal exemption deduction in Sec. 151(d)(5) applies to certain rules under Sec. 36B and Sec. 6011 relating to the premium tax credit, and under Sec. 5000A relating to the individual shared responsibility provision. The IRS also announced that it intends to amend the regulations under Sec. 36B and Sec. 6011 to clarify the application of Sec. 151(d)(5). Notice 2018-84 (10/18/18) (see related news story).
IRS issues November 2018 applicable federal rates
The IRS prescribed federal rates for November 2018 under Sec. 1274, 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. 2018-28 (10/15/18).
IRS issues revenue procedure on mortgage-backed securities
The IRS issued a revenue procedure that applies to taxpayers that hold investments in one or more segregated asset accounts on which variable contracts, as defined in Sec. 817, are based. The guidance allows taxpayers to elect to treat certain mortgage-backed securities as having deemed issuers for purposes of the diversification requirements of Sec. 817(h). Rev. Proc. 2018-54 (10/16/18).
Court upholds levy on couple's property
The Tax Court upheld an IRS levy on a couple's property resulting from the couple's unpaid income tax liability for the 2010 tax year. The court held that an IRS settlement officer did not abuse his discretion and that the couple did not substantiate that the husband would be unable to earn sufficient income to pay their liabilities if a notice of federal tax lien were filed. Levin, T.C. Memo. 2018-172 (10/15/18).
Taxpayer cannot use CDP to challenge liability previously determined by the Tax Court
The Tax Court agreed with an IRS determination that a taxpayer: (1) was precluded from challenging through the Collection Due Process (CDP) procedure the amount of his 2006 tax liability that had previously been determined by the Tax Court; (2) could not establish that a settlement or compromise of his 2006 liability had occurred, let alone been approved by an authorized IRS officer; and (3) had neither requested a collection alternative nor established his eligibility for one. Longino, T.C. Memo. 2018-175 (10/16/18).
Court grants motion to dismiss petition filed four years late
The Tax Court rejected a taxpayer's argument that a valid notice of deficiency was not mailed to his last known address and thus his petition to the Tax Court was timely. The Tax Court held that the petition was untimely because it was filed more than four years after the statutory time for doing so. As a result, the court granted the IRS's motion to dismiss for lack of jurisdiction. Sadek, T.C. Memo. 2018-174 (10/16/18).
U.S. residency certification fees raised
The IRS announced that is increasing the user fee for residency certifications made on Form 8802, Application for United States Residency Certification, from $85 to $185 for nonindividual taxpayers, effective Dec. 1, 2018. Rev. Proc. 2018-50 (10/15/18).
Prop. regs. issued on opportunity zone tax incentive
The IRS issued proposed regulations providing guidance on the deferral of gain under new Sec. 1400Z-2 for investments in qualified opportunity funds. REG-115420-18 (10/19/2018).
IRS ruling addresses qualified opportunity fund requirements; draft Form 8996 issued
The IRS issued guidance for taxpayers on the original-use requirement for land purchased after 2017 in qualified opportunity zones. The IRS also released a draft of Form 8996, Qualified Opportunity Fund, which investment vehicles will use to self-certify as qualified opportunity funds. Rev. Rul. 2018-29 (10/19/18).
S corporation owners liable for taxes on unreported income and disallowed personal expenses
The Tax Court held that a couple who were the sole shareholders of an S corporation were required to include in income the total amount of income that the S corporation reported on its tax returns for each of the years at issue, as well as an additional amount that the IRS determined in a notice of deficiency, and were not entitled for years 2011, 2012, and 2013 to deduct any expenses with respect to certain personal services that they performed during those years. The court also concluded that the couple could not deduct $21,940 with respect to a claimed net operating loss carryover for which they offered no evidence. Smith, T.C. Memo. 2018-170 (10/15/18).
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.