Document summaries for the week of Dec. 9, 2019

Tax document summaries for the week of Dec. 9–13, 2019, covering employee benefits, IRS procedure, partnerships, and more.

EMPLOYEE BENEFITS

IRS updates mortality tables for defined benefit pension plans

The IRS issued a notice that sets forth: (1) the mortality improvement rates and static mortality tables that are required to determine minimum funding requirements under Sec. 430(h)(3)(A) for valuation dates occurring during 2021, and (2) the mortality table that is used for purposes of determining minimum present value under Sec. 417(e)(3) for distributions with annuity starting dates that occur during stability periods beginning in the 2021 calendar year. In addition, the notice requests comments on possible modifications to the method of determining these mortality tables. Notice 2019-67 (12/10/19).

Prop. regs. to increase consumer access to health care price information

The IRS, the Employee Benefits Security Administration, and the Centers for Medicare & Medicaid Services jointly issued proposed regulations that set forth requirements under Sec. 9815 for nongrandfathered group health plans and health insurance issuers of nongrandfathered coverage in the individual and group markets to disclose to a participant, beneficiary, enrollee, or authorized representative such individual’s cost-sharing liability for covered items or services from a particular provider. REG-118378-19 (12/9/19).

IRS clarifies amendments treated as integral to a plan provision in light of recent changes

The IRS has clarified which amendments are treated as integral to a plan provision that fails to satisfy the qualification requirements of the Internal Revenue Code by reason of a change to those requirements made by the recently published regulations under Sec. 401(k) and Sec. 401(m) relating to hardship distributions of elective deferrals. This revenue procedure also extends the deadline, applicable to preapproved plans, for adopting an interim amendment relating to those regulations. Rev. Proc. 2020-9 (12/12/19).

Cooperative does not have to separate DPAD amounts for patronage and nonpatronage activities

The Tax Court cited its decision in Ag Processing, Inc., 153 T.C. No. 3 (2019), in holding that an agricultural cooperative was not required to compute separate domestic production activity deduction (DPAD) amounts for its patronage and nonpatronage activities. The court also concluded that (1) the cooperative must allocate its aggregately computed DPAD between its patronage and nonpatronage accounts; and (2) because the Form 1120-C, U.S. Income Tax Return for Cooperative Associations, Schedule G, Allocation of Patronage and Nonpatronage Income and Deductions, is made pursuant to Subchapter T, and not former Sec. 199, the cooperative should allocate its DPAD using the same method it used for its other Schedule G allocations. Growmark, Inc., T.C. Memo. 2019-161 (12/11/19).

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 2020-1 (12/11/19).

 

EXEMPT ORGANIZATIONS

Final regs. on calculating UBTI for exempt employee benefit organizations

The IRS issued a final regulation providing guidance on how certain organizations that provide employee benefits must calculate unrelated business taxable income (UBTI). T.D. 9886 (12/9/19).

 

INDIVIDUALS

Couple liable for penalties after failing to substantiate deductions

The Tax Court held that a couple (1) executed a binding agreement extending the statute of limitation period for 2013; (2) underreported gross receipts on two Schedules C, Profit or Loss From Business; (3) failed to substantiate deductions taken for mortgage interest expenses; (4) failed to substantiate Schedule C deductions in excess of the amounts the IRS allowed; and (5) failed to substantiate deductions for net operating loss carryforwards from 2000 or 2001. The court also found the couple liable for penalties under Sec. 6662(a) after noting that the husband was a CPA who presumably had sufficient knowledge and experience to understand his tax obligations and properly maintain tax records. McRae, T.C. Memo. 2019-163 (12/12/19).

 

IRS PROCEDURE

IRS did not abuse its discretion in refusing to withdraw Notice of Federal Tax Lien

The Tax Court sustained a collection action against a taxpayer who owed more than $35,000 in federal taxes, holding that IRS settlement officers did not abuse their discretion in declining to withdraw a Notice of Federal Tax Lien (NFTL). With respect to the taxpayer’s argument that the IRS had given him incorrect information regarding the NFTL, the court said that, even assuming misinformation was given, the taxpayer failed to meet his heavy burden of demonstrating that he was adversely affected. Brown, T.C. Memo. 2019-157 (12/9/19).

Taxpayer was not a ‘prevailing party’ entitled to recover costs

The Tax Court held that, because the Appeals Office reached a settlement with the taxpayer, the United States never took a “position” contrary to the taxpayer’s position within the meaning of Sec. 7430(c)(7). As a result, the taxpayer was not a prevailing party and was not entitled to recover costs incurred in connection with the administrative proceeding. Klopfenstein, T.C. Memo. 2019-156 (12/9/19).

IRS did not abuse its discretion in sustaining lien against former return preparer

The Tax Court held that the IRS Office of Appeals acted within its discretion in sustaining a Notice of Federal Tax Lien against a taxpayer who had previously agreed that she was liable for tax return preparer penalties of $50,000 as well as unpaid federal income taxes. The court concluded that there was no abuse of discretion in any respect on the IRS’s part. Rockafellor, T.C. Memo. 2019-160 (12/11/19).

Court remands taxpayer’s case to Appeals to clarify record on taxpayer’s alleged informal refund claim

The Tax Court held that there was insufficient information to determine whether a taxpayer had made a timely informal refund claim pertaining to a prior-year overpayment sufficient to extinguish certain tax liabilities at issue. As a result, the court remanded the case for Appeals to clarify the record. Schwartz, T.C. Memo. 2019-162 (12/12/19).

IRS issues more proposed regulations on charitable contribution deduction in lieu of state and local taxes

The IRS issued proposed regulations that provide guidance on the treatment of payments made to charitable organizations in return for consideration, including in return for state and local tax credits. The proposed regulations incorporate Rev. Proc. 2019-12 and Notice 2019-12. REG-107431-19 (12/13/19) (see related news story).

 

PARTNERSHIPS

IRS extends deadline to report partnership capital on tax basis method

The IRS issued a notice providing that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 (for partnership tax years beginning in calendar 2019) but will be effective beginning in 2020 (for partnership tax years that begin on or after Jan. 1, 2020). For 2019, partnerships and other persons must report partner capital accounts consistent with the reporting requirements in the 2018 forms and instructions, including the requirement to report negative tax basis capital accounts on a partner-by-partner basis. Notice 2019-66 (12/9/19) (see related news story).

Partnership entitled to deduction for worthless real estate partnership interest

The Tax Court held that a real estate partnership interest owned by a partnership became worthless in 2009 and the partnership was thus entitled to a Sec. 165(a) loss deduction for the worthless property. The court found that the taxpayer subjectively determined that its partnership interest was worthless, and objective factors confirmed to the court that the interest became essentially valueless in 2009. MCM Investment Management, LLC, T.C. Memo. 2019-158 (12/10/19).

Seller of mobile homes was not entitled to use installment sale method

The Tax Court held that a partnership that sold land and mobile homes and provided financing to mobile home buyers was not entitled to use the installment method with respect to the mobile homes because it was a dealer of mobile homes. However, the court held the partnership could use the installment method for its land-only sales, also that it was not required to include the notes received in the sales in income because the notes were not cash equivalents and had no fair market value. Joyner Family Limited Partnership, T.C. Memo. 2019-159 (12/11/19).

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.