Document summaries for the week of Dec. 16, 2019
Tax document summaries for the week of Dec. 16–20, 2019, covering corporations, employee benefits, individuals, and more.
Final regs. issued under Sec. 355(e)
The IRS issued final regulations regarding the distribution by a distributing corporation of stock or securities of a controlled corporation without the recognition of income, gain, or loss. The final regulations provide guidance in determining whether a corporation is a predecessor or successor of a distributing or controlled corporation for purposes of the exception under Sec. 355(e). T.D. 9888 (12/16/19).
Prop. regs. on compensation in excess of $1 million
The IRS issued proposed regulations providing guidance on Sec. 162(m), which disallows a deduction by any publicly held corporation for employee remuneration paid to any covered employee to the extent that employee’s remuneration exceeds $1 million for the tax year. REG-122180-18 (12/16/19) (see related news story).
Pre-approved defined benefit plan remedial amendment cycle
The IRS issued a procedure which provides that the third six-year remedial amendment cycle for pre-approved defined benefit plans begins on May 1, 2020, and ends on Jan. 31, 2025. It also provides that the on-cycle submission period for providers to submit opinion letter applications begins on Aug. 1, 2020, and ends on July 31, 2021. Rev. Proc. 2020-10 (12/16/19).
IRS issues interim guidance on income tax withholding from retirement and annuity distributions
The IRS issued guidance for the 2020 calendar year regarding withholding from periodic payments for pensions, annuities, and certain other deferred income under Sec. 3405(a), including the rules for withholding from periodic payments when no withholding certificate has been furnished. The guidance also informs taxpayers that Treasury and the IRS are considering whether the 2020 default rate of withholding under Sec. 3405(a) will continue to be appropriate for calendar years after 2020 and request comments on the potential adoption of a new default withholding rate. Notice 2020-3 (12/18/19).
Taxpayer’s multiple returns for same year result in frivolous return penalty
The Tax Court held that a taxpayer who failed to file federal income tax returns for 2006 through 2008, and who filed tax returns for 2013 three times (1) could not challenge the underlying tax liabilities for 2006–2008; (2) could challenge the Sec. 6702(a) frivolous return penalties assessed for 2013; and (3) was liable for only one of the Sec. 6702(a) frivolous return penalties assessed for 2013. The court also concluded that the IRS settlement officer in charge of the taxpayer’s case satisfied the verification requirements of Sec. 6330 and did not abuse her discretion in determining to sustain the filing of Notices of Federal Tax Liens. Jaxtheimer, T.C. Memo. 2019-164 (12/16/19).
Appeals court holds individual mandate unconstitutional
The Fifth Circuit held that Sec. 5000A’s mandate that taxpayers obtain health insurance providing minimum essential coverage or pay a shared-responsibility payment is unconstitutional now that the amount of the payment is zero. Texas, No. 19-10011 (5th Cir. 12/18/19) (see related news story).
IRS issues foreign tax credit final regulations
The IRS issued final regulations providing guidance on determining foreign tax credits. T.D. 9882 (12/16/19) (see related news story).
Foreign tax credit regulations proposed
The IRS issued proposed regulations covering various foreign tax credit issues, including apportionment of research-and-development costs and foreign tax redeterminations under Sec. 905. REG-105495-19 (12/16/19) (see related news story).
IRS issues final dividend equivalent regulations
The IRS issued final regulations providing guidance to nonresident alien individuals and foreign corporations that hold certain financial products providing for payments that are contingent upon or determined by reference to U.S.-source dividend payments. T.D. 9887 (12/16/19).
IRS intends to delay the effective date of certain dividend equivalent rules
In conjunction with T.D. 9887 (immediately above), the IRS issued a notice announcing its intention to amend the Sec. 871(m) regulations to delay the effective/applicability date of certain rules in those final regulations and to extend the phase-in period provided in Notice 2018-72 for certain provisions of the Sec. 871(m) regulations. Notice 2020-2 (12/16/19).
DISC base period T-bill rate published
The IRS published a “base period T-bill rate” of 2.32% for determining the interest charge payable by shareholders of a domestic international sales corporation (DISC) for the one-year period ending Sept. 30, 2019. Rev. Rul. 2019-27 (12/16/19).
Russian citizen’s wages are exempt from tax under U.S.-Russia treaty
The Tax Court held that income reported on a Russian citizen’s Forms W-2, Wage and Tax Statement, was exempt from tax under Article 18 of the United States–Russia tax treaty. The court concluded that (1) wages may be eligible for the Article 18 exemption so long as they are payments similar to a grant or an allowance, and (2) the payments the taxpayer received were payments similar to a grant or an allowance and were therefore exempt from federal income tax. Baturin, 153 T.C. No. 10 (12/18/19).
IRS issues January 2020 applicable federal rates
The IRS issued a ruling that prescribes the applicable federal rates for January 2020. The ruling provides various prescribed 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. 2020-1 (12/17/19).
Taxpayer audio recordings of meetings with IRS
The Office of Chief Counsel advised that Sec. 7521, which requires IRS employees in some circumstances to permit audio recording and provide taxpayers certain explanations of IRS procedures, does not apply to discussions pertaining to the Employee Plans (EP) and Exempt Organization (EO) determination letter process. Sec. 7521 only applies to in-person interviews with a taxpayer relating to the determination or collection of any tax, and the EP and EO determination process is not related to the determination or collection of any tax. Any determination or collection of any tax, the Chief Counsel’s Office said, would take place in a separate proceeding depending on the outcome of the EO and EP determination process. PMTA 2019-12 (12/17/19).
IRS did not abuse its discretion in rejecting CNC status for delinquent taxpayer
The Tax Court held that an IRS settlement officer (SO) committed no abuse of discretion when he rejected a taxpayer’s request for CNC (currently not collectible) status after he determined that the taxpayer was not in financial hardship and could make payments on her outstanding tax liabilities for the years at issue. The court concluded that, where the taxpayer did not pursue an offer in compromise beyond her initial Collection Due Process hearing request, it is not an abuse of discretion for the IRS to sustain a proposed collection action and not consider collection alternatives when the taxpayer has proposed none. Margolis-Sellers, T.C. Memo. 2019-165 (12/18/19).
IRS failure to withdraw NFTL was not an abuse of discretion
The Tax Court held that an IRS settlement officer (SO) followed proper procedures in accordance with the law when filing a Notice of Federal Tax Lien (NFTL) and thus did not abuse her discretion in sustaining the NFTL filing. The court noted that, while Sec. 6323(j)(1) provides that the IRS may withdraw an NFTL, the IRS’s failure to do so in the instant case was not an abuse of discretion. Banks, T.C. Memo. 2019-166 (12/19/19).
Final opportunity zone regulations issued
The IRS issued final regulations providing guidance on tax-favored investments in qualified opportunity zones (QOZs). T.D. 9889 (12/20/19) (see related news story).
Tax provisions passed as part of appropriations bill
Congress passed and President Donald Trump signed into law an appropriations bill that contains many tax provisions, including tax extenders, changes to retirement plan rules, disaster relief, and repeal of certain health care taxes. Further Consolidated Appropriations Act, 2020, H.R. 1865 (12/19/19) (see related news story).
FASB issues accounting standards update on accounting for income taxes
FASB issued a standard that is intended to simplify accounting for income taxes under FASB ASC Topic 740, Income Taxes. Accounting Standards Update No. 2019-12 (12/18/19) (see related news story).
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.