Document summaries for the week of Dec. 2, 2019

Tax document summaries for the week of Dec. 2-6, 2019, covering corporations, individuals, IRS procedure, and more.

CORPORATIONS

Money services business not a ‘bank’ under Sec. 581

The Tax Court held that because the money services business MoneyGram is not a “bank” within the meaning of Sec. 581, the corporation could not claim ordinary loss deductions under Sec. 582 on account of the worthlessness of certain securities. According to the court, the corporation did not qualify as a bank because it did not display the essential characteristics of a bank as that term is commonly understood and because a substantial part of its business did not consist of receiving deposits and making loans and discounts. MoneyGram International, Inc., 153 T.C. No. 9 (12/3/19).

 

EMPLOYEE BENEFITS

IRS issues 2019 Required Amendments

The IRS issued the 2019 Required Amendments List (2019 RA List), which is an annual list of changes in retirement plan qualification requirements. Beginning with the 2019 RA List, all RA Lists will apply to both individually designed plans qualified under Sec. 401(a) and individually designed plans that satisfy the requirements of Sec. 403(b). Notice 2019-64 (12/4/19).

 

INDIVIDUALS

Lawyer sanctioned for making frivolous arguments for not filing returns

The Tax Court held that an attorney, who operated his law practice through a wholly owned S corporation and who had not filed federal income tax returns since 2004, was liable for a $3,000 penalty under Sec. 6673(a)(1) for taking frivolous and groundless positions with respect to his reasoning for not filing his tax returns. The court rejected his arguments that no federal statute imposes a tax on a person’s ordinary labor, calling such arguments selective and misguided readings of multiple statutes. Worsham, T.C. Memo. 2019-155 (12/3/19).

Independent contractor cannot deduct commuting expenses after work contract is extended

The Tax Court held that an independent contractor could not deduct her commuting expenses after Sept. 30, 2014, because after that date she entered into a new contract and could not reasonably expect the length of her services provided to that employer to be less than one year, as required by Rev. Rul. 99-7. The court rejected the taxpayer’s argument that she performed different duties under the two contracts and thus they should not be combined, and found instead that the total period of service controls even if the duties change during the period of service. Biegalski, T.C. Summ. 2019-35 (12/3/19).

Cash reimbursements for transit due to malfunctioning transit passes are includible in income

The Office of Chief Counsel advised that for a business with newly hired or returning seasonal transit pass users, cash reimbursements for malfunctioning transit passes may be, under appropriate circumstances, properly viewed as a qualified transportation fringe under Sec. 132(f). However, the Chief Counsel’s Office said, cash reimbursements for expenses incurred in the use of transit due to malfunctioning cards or systems are not qualified transportation fringe benefits, and the value of any cash reimbursements provided for such expenses is included in the employee’s income and is included in wages subject to Federal Insurance Contributions Act, Federal Unemployment Tax Act, and income tax withholding. CCA 201949019 (12/6/19).

 

INTERNATIONAL

Final regs. issued on BEAT

The IRS issued final regulations providing guidance on the Sec. 59A base-erosion and anti-abuse tax (BEAT). T.D. 9885 (12/3/19) (see related news story).

Prop. regs. issued on BEAT

The IRS issued proposed regulations addressing how a taxpayer determines its aggregate group for purposes of determining gross receipts and the base-erosion percentage for purposes of the Sec. 59A base-erosion and anti-abuse tax (BEAT), as well as how the BEAT applies to partnerships. REG-112607-19 (12/3/19) (see related news story).

IRS again extends applicability date of final regulations under Sec. 987

The IRS announced its intention to amend the regulations under Sec. 987 to defer the applicability date of the final regulations under Sec. 987, as well as certain related final and temporary regulations, by one additional year. According to the IRS, it will amend Temp. Regs. Sec. 1.861-9T and Regs. Secs. 1.985-5, 1.987-11, 1.988-1, 1.988-4, and 1.989(a)-1 of the 2016 final regulations and Regs. Sec. 1.987-2 and 1.987-4 of the 2019 final regulations to apply to tax years beginning on or after the first day of the first tax year following Dec. 7, 2020. Notice 2019-65 (12/6/19).

 

IRS PROCEDURE

Deadline for health care information statements extended

The IRS extended the due dates for sending certain health care information statements to individuals as required under the Patient Protection and Affordable Care Act, P.L. 111-148. Specifically, the IRS extended the due date for furnishing individuals the 2019 Form 1095-B, Health Coverage, and the 2019 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from Jan. 31, 2020, to March 2, 2020. Notice 2019-63 (12/2/19) (see related news story).

IRS clarifies adequate disclosure for purposes of reducing penalties

The IRS identified circumstances under which the disclosure on a taxpayer’s income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under Sec. 6662(d) (relating to the substantial-understatement aspect of the accuracy-related penalty) and for the purpose of avoiding the tax return preparer penalty under Sec. 6694(a). Rev. Proc. 2019-42 (12/2/19).

IRS issues quarterly interest rates for tax overpayments and underpayments

The IRS issued the rates for interest on tax overpayments and underpayments for the first calendar quarter of 2020, beginning Jan. 1, 2020. The interest rates will be 5% for overpayments (4% in the case of a corporation), 5% for underpayments, 2.5% for the portion of a corporate overpayment exceeding $10,000, and 7% for large corporate underpayments. Rev. Rul. 2019-28 (12/6/19).

IRS does not have authority to ignore Social Security lump-sum payments in determining eligibility for Sec. 36B credit

In response to a Taxpayer Advocate Service request, the Office of Chief Counsel advised that Executive Order 13765 does not provide the IRS with the authority to ignore Social Security lump-sum payments in determining a taxpayer’s eligibility for the Sec. 36B premium tax credit. Further, the Chief Counsel’s Office stated, E.O. 13765 does not provide authority to relieve taxpayers of the tax imposed on excess advance payments of the premium tax credit when an excess advance credit payment arises from the taxpayer’s having received a lump-sum disability payment from the Social Security Administration. CCA 201949001 (12/6/19).

Newsletter Articles

50th ANNIVERSARY

50 years of The Tax Adviser

The January 2020 issue marks the 50th anniversary of The Tax Adviser, which was first published in January 1970. Over the coming year, we will be looking back at early issues of the magazine, highlighting interesting tidbits.

PRACTICE MANAGEMENT

2019 tax software survey

This annual survey shows how CPAs rate the tax preparation software they used during last tax season and how it handled the recent tax law changes.