Document summaries for the week of April 29, 2019

EMPLOYEE BENEFITS

IRS expands retirement plan determination letter areas

The IRS expanded the areas for issuing determination letters for certain retirement plans, specifically, statutory hybrid plans and plan mergers. As provided in prior guidance, plan sponsors will continue to be able to submit a determination letter application for initial plan qualification and for qualification upon plan termination. Rev. Proc. 2019-20 (5/1/19).

Court finds benefit plan is not entitled to refund of health insurance annual fees

Upholding the validity of Regs. Sec. 57.2(b)(2)(iv), the Court of Federal Claims held that a multiple-employer welfare arrangement was not excluded from the definition of a “covered entity” subject to the annual fee on health insurance providers and therefore was not entitled to a refund of its annual fee payments. Iowa Bankers Benefit Plan, No. 17-842T (Fed. Cl. 5/2/19).

 

INDIVIDUALS

Taxpayer’s failure to stay current on employment tax obligations precludes collection alternatives

The Tax Court held that an IRS settlement officer did not abuse her discretion in rejecting a proposed installment agreement and sustaining a proposed collection action against a taxpayer with outstanding employment tax liabilities. The court noted that the taxpayer, a hospitality management company that operates food and wine festivals in California, was not in compliance with its current federal employment tax deposit obligations and that established IRS policy requires taxpayers to be in compliance with those obligations to be eligible for collection alternatives. Coastal Luxury Management Inc., T.C. Memo. 2019-43 (4/29/19).

Couple must repay advance premium assistance tax credit

The Tax Court held that the tax liability of a couple who were married in November of the year at issue was appropriately increased by the amount of the advance premium assistance tax credit that was applied against the wife’s monthly health insurance premium because the couple’s income exceeded 400% of the amount of the federal poverty line. The court noted that the couple’s alternative marriage-year tax credit was equal to the sum of their alternative premium assistance amounts for the premarriage months (zero) and their premium assistance amounts for the marriage months and, accordingly, the couple’s alternative marriage-year tax credit was zero. Fisher, T.C. Memo. 2019-44 (4/30/19).

Tenth Circuit upholds gross-misstatement penalty

The Tenth Circuit affirmed a Tax Court decision imposing a 40% penalty on taxpayers for a gross misstatement of the value of a conservation easement they donated to a land trust. The initial notice of deficiency included only a 20% penalty under Sec. 6662(a), but the court held that this did not prevent the IRS from later imposing a higher penalty, which had been approved by a supervisor as required under Sec. 6751. Roth, No. 18-9006 (10th Cir. 4/29/19).

Most of a couple’s deductions are denied

The Tax Court held that a couple could not deduct claimed expenses including: (1) $3,000 for donating the use of their timeshare to a nonprofit because a letter from the nonprofit did not contain sufficient information to satisfy applicable substantiation requirements; (2) $6,105 for other charitable contributions for which no substantiation was provided; (3) $30,349 for unreimbursed employee expenses because the wife did not request their reimbursement from her employer and did not maintain a log, calendar, or similar records to substantiate expenses subject to Sec. 274(d); and (4) $5,616 for unsubstantiated car and truck expenses. However, the court did find that the couple could deduct an additional $896 for state and local income taxes for which they provided substantiation. Simpson, T.C. Summ. 2019-9 (5/2/19).

Taxpayer cannot get a break from the IRS for living in Los Angeles

The Tax Court held that an IRS settlement officer (SO) did not abuse her discretion in rejecting a $100 offer in compromise by a taxpayer who owed almost $20,000 in unpaid taxes for tax years 2012–2014, where the IRS’s analysis showed that the taxpayer had disposable income of $2,137 per month and equity in assets of $2,974. The court rejected the taxpayer’s argument that SO’s allowances were insufficient because of his high cost of living in Los Angeles. Ansley, T.C. Memo. 2019-46 (5/1/19).

Excluded IRA contributions and match are not deductible

The Tax Court denied a $6,500 deduction by a taxpayer for a claimed contribution to an individual retirement account (IRA) where the taxpayer said he doubled his $2,890 pretax reduction from wages to include his employer’s pretax matching contribution. The taxpayer also omitted from his 2015 return gambling winnings of $2,890 that he said were offset by gambling losses. However, the court found the  taxpayer provided no proof of his gambling losses and did not itemize his deductions. Arseo, T.C. Summ. 2019-8 (5/2/19).

Court denies litigation and administrative costs

The Tax Court rejected a taxpayer’s motion for an award of litigation and administrative costs because, the court held, the taxpayer was not the “prevailing party” under Secs. 7430(a) and (c)(4). The court noted that the government’s position was “substantially justified” within the meaning of Sec. 7430(c)(4)(B) because, at the time of the underlying litigation, no Tax Court or appellate precedent addressed whether the IRS was authorized to assess underpayment interest on restitution-based assessments. Bontrager, T.C. Memo. 2019-45 (5/1/19).

Failure to include the value of a residence transferred to his wife precludes an OIC

The Tax Court held that an IRS SO did not abuse her discretion in rejecting a taxpayer’s OIC that did not reflect the value of a residence the taxpayer had previously transferred to his wife, because (1) the taxpayer failed to establish that his wife paid adequate consideration for the residence; (2) the record demonstrated, or provided grounds for inferring, that the taxpayer transferred the residence to protect it from his creditors; (3) the taxpayer failed to demonstrate the transfer affected his use or enjoyment of the property; and (4) the wife could appropriately be treated as holding title to the residence as the taxpayer’s nominee. The Tax Court further held that upholding a determination by Appeals that lacks an adequate explanation does not violate the doctrine of SEC v. Chenery Corp., 318 U.S. 80 (1943), when the failure relates to a legal issue rather than a matter within the agency's discretion. Hinerfeld, T.C. Memo. 2019-47 (5/2/19).

 

IRS PROCEDURE

Oil recovery and marginal production reference price published

The IRS published the reference price under Sec. 45K(d)(2)(C) for calendar year 2018. The reference price applies in determining the amount of the Sec. 43 enhanced oil recovery credit, the Sec. 45I marginal well production credit, and the Sec. 613A percentage depletion in case of oil and natural gas produced from marginal properties. Notice 2019-28 (4/29/19).

 

TAX ACCOUNTING

IRS issues area median gross income figures

The IRS issued guidance with respect to U.S. and area median gross incomes used by issuers of qualified mortgage bonds, as defined in Sec. 143(a), and mortgage credit certificates, as defined in Sec. 25(c), in computing the housing cost/income ratio under Sec. 143(f)(5). Rev. Proc. 2019-21 (5/2/19).

IRS requests comments on carbon sequestration credits

The IRS is requesting general comments on issues arising under Sec. 45Q, as well as specific comments concerning the secure geological storage and measurement of qualified carbon oxide, the recapture of the benefit of the credit for carbon oxide sequestration, and other related issues. Treasury and the IRS anticipate issuing regulations and other guidance to implement the provisions of Sec. 45Q, as amended by Section 41119 of the Bipartisan Budget Act of 2018, P.L. 115-123. Notice 2019-32 (5/2/19).

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

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.