Document summaries for the week of Aug. 12, 2019

CORPORATIONS

Transactions involving affiliated group result in new parent company

The Office of Chief Counsel advised that an affiliated group of corporations filing a consolidated return remained in existence after transactions described in Regs. Sec. 1.1502-75(d), but with a new parent company as the common parent of the continuing parent group. The parent group’s tax year did not terminate as a result of the transactions at issue but continued until the year closed. CCA 201933009 (8/16/19).

 

EMPLOYEE BENEFITS

IRS issues monthly corporate yield curve and segment 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 as to 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), as reflected by the application of Sec. 430(h)(2)(C)(iv). Notice 2019-48 (8/13/19).

 

INDIVIDUALS

Court denies taxpayer’s request for abatement of interest

The Tax Court denied a taxpayer’s request for abatement of interest relating to an audit of his 1999 tax return. The IRS initiated its audit (in writing) on Aug. 11, 2011, and therefore the taxpayer was not entitled to abatement under Sec. 6404(e)(1) for any period before that date, even if the IRS had initially contacted him in writing about the matter years earlier. Adams, T.C. Memo. 2019-99 (8/12/19).

Street vendor who did not establish amount of earned income is not entitled to earned income tax credit

The Tax Court held that a taxpayer, a self-employed New York City street vendor, was not eligible for the earned income tax credit (EITC) for 2014 and 2015 because she did not establish the amount of her earned income for those years and provided no evidence on which the court could estimate the amounts of her income and expenses. The court rejected the taxpayer’s argument that she had a constitutional right to receive a tax refund, noting that she had no right to a refund if she had not met the statutory requirements for the EITC. Doucoure, T.C. Summ. 2019-20 (8/12/19).

Return preparer cannot deduct loan repayments but can deduct commissions paid to independent contractors

The Tax Court held that an income tax return preparer who operated his business as a limited liability company, which was taxed as a disregarded entity for federal tax purposes, could not deduct on his Schedule C amounts repaid to individuals who invested in his business because he did not prove that the transactions represented bona fide loans and that the payments qualified as deductible interest. However, the court did find that the taxpayer was entitled to deduct commission payments made to the independent contractors who prepared returns for his business and that he had provided a reasonable basis from which the court could make an estimate of his actual commission expenses. Moore, T.C. Memo. 2019-100 (8/15/19).

IRS addresses implications of taxpayer’s failure to cash qualified retirement plan distribution check

The IRS ruled that an individual’s failure to cash a designated distribution check received from a qualified retirement plan, where she had no investment in the contract under Sec. 72 and had never made a withholding election with respect to her benefit under the plan, is includible in her income in the year received under Sec. 402(a). In addition, the IRS said, the individual’s failure to cash the distribution check does not alter the employer’s obligations with respect to withholding under Sec. 3405; nor does it alter the employer’s obligations with respect to reporting under Sec. 6047(d). Rev. Rul. 2019-19 (8/14/19).

 

INTERNATIONAL

Appeals court affirms Amazon transfer-pricing decision

The Ninth Circuit affirmed a Tax Court decision that upheld Amazon’s transfer-pricing method when it transferred certain preexisting intangible assets to a Luxembourg subsidiary. Amazon.com, No. 17-72922 (9th Cir. 8/16/19).

 

IRS PROCEDURE

Alimony tax gap has grown, TIGTA reports

The Treasury Inspector General for Tax Administration (TIGTA) issued a report on the alimony “tax gap” — the difference between alimony deductions claimed and alimony income reported — which grew 38% between 2010 and 2016. TIGTA Rep’t No. 2019-40-048 (8/13/19) (see related news story).

IRS issues September 2019 applicable federal rates

The IRS issued a ruling to prescribe various rates for federal income tax purposes for September 2019. These include the applicable federal rates for purposes of Sec. 1274, the adjusted applicable federal rates for purposes of Sec. 1288, and the adjusted federal long-term rate and long-term tax-exempt rate described in Sec. 382. Rev. Rul. 2019-20 (8/16/19).

Basic Form 921 is wholly inapplicable in Form 921-I situations

With respect to a specific question of who must sign a form agreeing to an extension of the statute of limitations, the Office of Chief Counsel advised that only Form 921-I, Consent Fixing Period of Limitation on Assessment of Income and Profits Tax, and not Form 921, Consent to Extend the Time to Assess Income Tax, must be signed by each partner/shareholder/beneficiary. The Chief Counsel’s Office noted that the basic Form 921 is a consent for individual taxpayers and is wholly inapplicable to the Form 921-I situation, in which a flow-through entity extends its partner/shareholder/beneficiaries’ assessment statute for the allocable share of common improvements. CCA 201933012 (8/16/19).

Third parties cannot pay another’s tax liability and then sue for a refund

The Office of Chief Counsel advised that Sec. 6325(b)(4) and Sec. 7426(a)(4) supersede Williams, 514 U.S. 527 (1995), and thus third parties cannot pay another’s tax liability and then sue for refund. The Chief Counsel’s Office noted that its advice reflects the position taken in Rev. Rul. 2005-50, which it continues to follow. CCA 201933011 (8/16/19).

Cross-collateralization clause does not poison otherwise valid purchase money mortgage

The Office of Chief Counsel advised that a cross-collateralization clause, sometimes referred to as a “dragnet clause,” is a provision wherein a mortgage secures not only a specifically described obligation but also all other obligations between the mortgagor and the holder, whether then existing or later contracted. The Chief Counsel’s Office said that it was unaware of a position that the inclusion of a cross-collateralization clause in a deed of trust would poison an otherwise valid purchase money mortgage such that it would not be recognized as a purchase money security interest; however, it noted that the extent of the purchase money security interest would be limited to the amount of the purchase money and associated interest. CCA 201933010 (8/16/19).

IRS offers automatic underpayment relief for 2018 filers

The IRS is automatically waiving the penalty for underpayment of estimated tax for individual taxpayers who paid at least 80% of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year. IR-2019-144 (8/14/19) (see related news story).

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.