Document summaries for the week of April 22, 2019

INDIVIDUALS

Construction business owner entitled to deductions from lawsuit settlement

The Tax Court held that a taxpayer in the custom homebuilding and construction business was entitled to deduct a portion of settlement payments made to customers who sued over faulty home construction. The court concluded that the origin of the lawsuit’s claims was the work performed by an S corporation and a C corporation, both of which were majority owned by the taxpayer. The taxpayer was entitled to a pro rata portion of the S corporation’s deduction of half of the settlement payments and a deduction for an unreimbursed employee business expense paid on behalf of the C corporation. Ferguson, T.C. Memo. 2019-40 (4/23/19).

Tribal members liable for taxes on casino distributions, but escape penalties

The Tax Court held that a married couple, who were members of the Miccosukee Tribe of Indians of Florida, were required to include in income distributions they received from a casino operated on tribal land and owned communally by all members. However, the court concluded that the couple were not liable for the assessed penalties because the IRS did not obtain written supervisory approval before the first formal communication of the initial determination to assess penalties and did not meet its burden of production under Sec. 7491(c). Clay, 152 T.C. No. 13 (4/24/19).

Couple entitled to a casualty loss deduction for personal items destroyed by EF5 tornado

The Tax Court held that a couple (1) failed to report gross receipts from the husband’s masonry business on Schedule C, Profit or Loss From Business; (2) were entitled to deductions for contract labor expenses and adjustments for cost of goods sold for the masonry business; (3) did not have to increase the amount of guaranteed payments the husband received from a partnership by business expense reimbursements he received but did have to increase guaranteed payments for a loan from the partnership that was never repaid; (4) and were not entitled to a car and truck expense deduction for mileage driven for partnership-related business. Finally, the court concluded that, with respect to damage sustained by an EF5 tornado, the couple could not deduct damage to real property because they could not prove their adjusted basis in that property, but they could take a casualty loss deduction for personal items destroyed by the tornado the value of which was not fully reimbursed by insurance. Bolles, T.C. Memo. 2019-42 (4/25/19).

Couple’s Social Security benefits make them ineligible for premium tax credit

The Tax Court held that a couple were not entitled to a premium tax credit because their modified adjusted gross income (MAGI) exceeded 400% of the amount equal to the federal poverty line for the year at issue. In calculating the couple’s MAGI, the court included Social Security benefits the couple received during the tax year and rejected the couple’s argument that MAGI does not include Social Security benefits received during the tax year that are attributable to prior years by reason of a Sec. 86(e) election. Monroe, T.C. Memo. 2019-41 (4/24/19).

 

INTERNATIONAL

IRS may treat a partnership as an aggregate of its partners in order to carry out purposes of Sec. 367(d)

In response to a question involving transfers of intangible property by a U.S. person to a foreign corporation in a Sec. 351 or Sec. 361 exchange, the Office of Chief Counsel advised that the IRS may assert its authority under Regs. Sec. 1.701-2(e) to treat a partnership as an aggregate of its partners in order to carry out the purposes of Sec. 367(d). Furthermore, the Chief Counsel’s Office said, the limitation in Regs. Sec. 1.701-2(e)(2) does not apply. CCA 201917007 (4/26/19).

 

IRS PROCEDURE

IRS invites comments on 2019–2020 Priority Guidance Plan

Treasury and the IRS issued a notice inviting public comment on recommendations for items that should be included on the 2019–2020 Priority Guidance Plan. The 2019–2020 Priority Guidance Plan will identify guidance projects that Treasury and the IRS intend to actively work on as priorities during the period from July 1, 2019, through June 30, 2020. Notice 2019-30 (4/24/19).

Newsletter Articles

TAX REFORM

Traps for the unwary: Tax Cuts and Jobs Act changes

By now many of us are familiar with the various provisions of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. Here is a list of changes together with (perhaps) unexpected nuances.

DEDUCTIONS

Qualified business income deduction regs. and other guidance issued

The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.