Document summaries for the week of Jan. 28, 2019

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 2019-13 (1/30/19).

 

INDIVIDUALS

Taxpayer liable for additional taxes and penalties for unreported income, disallowed deductions, retirement plan distributions, and failing to timely file returns

The Tax Court held that a taxpayer, who worked full-time as a medical sales representative and also as an independent contractor, was liable for additional taxes and penalties as a result of (1) a distribution he received from his individual retirement account;  (2) gross receipts he should have reported on Schedule C, Profit or Loss From Business; (3) disallowed employee expense and charitable contribution deductions; and (4) his failure to timely file a tax return for the years at issue. While the court expressed sympathy for the health problems that the taxpayer said prevented him from performing his tax obligations on time, the court noted that the taxpayer still engaged in many normal activities during the relevant time period and found that he thus did not have reasonable cause for failing to file his tax returns on time. Totten, T.C. Summ. 2019-1 (1/29/19).

 

IRS PROCEDURE

Notices of deficiency existed and were mailed

The Eighth Circuit affirmed a district court decision upholding the validity of notices of deficiency sent to a taxpayer who failed to file returns for the years 2002 and 2009. The government presented sufficient evidence to prove the notices of deficiency existed and were actually mailed to the taxpayer even though he claimed he never received them, the court held. Meyer, No. 17-3463 (8th Cir. 1/28/19).

IRS issues February 2019 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for February 2019. This guidance 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 and are determined as prescribed by Sec. 1274. Rev. Rul. 2019-04 (1/29/19).

IRS can proceed with collection actions against taxpayer who failed to file tax returns

The Tax Court held that a taxpayer, who failed to file tax returns and had been assessed taxes and penalties by the IRS after the IRS prepared substitute returns for him, did not satisfy his burden of showing that the IRS abused its discretion by sustaining its notice of federal tax lien filing against the taxpayer. The court thus agreed that it was appropriate for the IRS to proceed with collection actions against the taxpayer. Belanger, T.C. Memo. 2019-1 (1/30/19).

 

PARTNERSHIPS

Real estate partnership was entitled to worthless debt deduction

The Tax Court held that a real estate development partnership was entitled to a worthless debt deduction of $2,926,692. The court rejected the IRS’s argument that the debt was not genuine after finding that only two out of 13 factors weighed against finding that it was a bona fide debt. 2590 Associates, LLC, T.C. Memo. 2019-3 (1/31/19).

 

TAX ACCOUNTING

Taxpayer cannot increase property’s basis with a second mortgage

The Tax Court determined the bases of two pieces of property — (1) a motel and recreational vehicle park and (2) vacant land — that a taxpayer had sold in 2010. In doing so, the court rejected the taxpayer’s argument that the basis of the land should be increased by a second mortgage on it, after finding no indication that the mortgage was part of the land’s purchase price and concluding that the mere mortgaging of property already owned does not increase that property’s basis. Estate of Andersen, T.C. Memo. 2019-2 (1/30/19).

Taxpayer eligible for automatic IRS consent to change method of accounting

The Office of Chief Counsel advised that an accrual-method taxpayer, whose present method of accounting for an item of gross income was impermissible under Sec. 451(b)(1)(C), was eligible to use Rev. Proc. 2018-60 to obtain automatic IRS consent to change its method of accounting to comply with Sec. 451(b)(1)(A), if the taxpayer otherwise satisfied the terms and conditions set forth in that revenue procedure. Rev. Proc. 2018-60 provides automatic consent for method changes to comply with Sec. 451(b)(1)(A), as amended by the law known as the Tax Cuts and Jobs Act of 2018. The Chief Counsel’s Office further noted that to satisfy Sec. 451(b)(1)(A), a taxpayer must also comply with the all-events test as defined in Sec. 451(b)(1)(C). CCA 201852019 (1/31/19).

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.