Document summaries for the week of July 22, 2019

CORPORATIONS

Insurance discount factors revised

The IRS revised insurance discount factors for the 2018 accident year, as well as discount factors for the 2019 accident year. These discount factors will be used to compute discounted unpaid losses under Sec. 846 and discounted estimated salvage recoverable under Sec. 832. Rev. Proc. 2019-31 (7/22/19).

 

EMPLOYEE BENEFITS

Prop. regs. on multiemployer plan qualification

The IRS issued proposed regulations that provide an exception, if certain requirements are met, to the application of the “unified plan rule” for a defined contribution multiemployer plan in the event of a failure by an employer participating in the plan to satisfy a qualification requirement or to provide information needed to determine compliance with a qualification requirement. REG-121508-18 (7/22/19).

 

INDIVIDUALS

Payment of children’s private school tuition is not a legitimate consideration for an offer in compromise

The Tax Court upheld an IRS collection action against a taxpayer who failed to pay the full amount of his taxes due for 2012, 2013, and 2014 after finding that an IRS settlement officer (SO) did not abuse her discretion in rejecting an offer in compromise the taxpayer submitted. The court dismissed the taxpayer’s argument that the SO’s analysis did not take into consideration his children’s private school tuition after finding that private school tuition is not allowed unless a child has special needs that cannot be met by public schools. Love, T.C. Memo. 2019-92 (7/22/19).

Indexing adjustments provides for calculation of premium tax credit

The IRS issued a revenue procedure that provides indexing adjustments applicable to certain calculations of the Sec. 36B premium tax credit. Specifically, the revenue procedure updates the applicable percentage table used to calculate an individual’s premium tax credit for tax years beginning in calendar year 2020 and updates the required contribution percentage for plan years beginning after calendar year 2019. Rev. Proc. 2019-29 (7/22/19).

Psychic is liable for taxes and penalties on unreported income

The Tax Court held that a taxpayer who worked as a psychic counselor for his mother’s business and performed 30-minute psychic readings for $200 was liable for tax deficiencies and penalties after failing to report approximately $1.5 million in income. The court rejected the taxpayer’s defense that cash deposited in his bank accounts over the four years at issue, which the IRS labeled as income, was the result of loans between him and his mother. Dufresne, T.C. Memo. 2019-93 (7/25/19).

Failure to conduct gambling activity in a businesslike manner precludes gambling loss deduction

The Tax Court held that a taxpayer was not engaged in the trade or business of gambling in 2014 and, thus, could not deduct his excess gambling losses and related travel expenses because, the court found, he did not conduct the gambling activity in a businesslike manner as evidenced by his failure to maintain appropriate records or to follow any form of business plan. In addition, with respect to rental property he owned, the court denied depreciation and Sec. 179 expense deductions because he could not substantiate that he purchased the property for which he took the depreciation and had not made an election to expense costs under Sec. 179. Wu, T.C. Summ. 2019-17 (7/25/19).

Personal casualty loss does not have to occur precisely in disaster area to be deductible

The Office of Chief Counsel advised that a personal casualty loss does not have to happen in a “disaster area” to be deductible but must take place in the state receiving the federal disaster declaration. The Chief Counsel memorandum concluded also that a personal nonfederally declared disaster loss that occurred before Dec. 31, 2017, but was not sustained until after Dec. 31, 2017, is not deductible. PMTA 2019-8 (7/26/19).

 

IRS PROCEDURE

Only certain additional Medicare taxes are subject to deficiency procedures

The Office of Chief Counsel advised that, while the additional Medicare tax imposed under Sec. 1401(b)(2) is subject to the deficiency procedures under Secs. 6211–6213 because it is an income tax, the additional Medicare tax imposed under Sec. 3101(b)(2) is not subject to such deficiency procedures because it is considered an employment tax. The Chief Counsel’s Office noted that, for purposes of the deficiency procedures under Secs. 6211–6213, the term “deficiency” is limited to income, estate, and gift taxes, as well as certain excise taxes. PMTA 2019-6 (7/26/19).

Agent risks disclosing confidential return info by asking friend for ride to taxpayer’s home

The Office of Chief Counsel advised that there is a risk of unauthorized disclosure of confidential return information under Sec. 6103 where a revenue agent has a friend or relative drive him or her to an appointment at a taxpayer’s residence. The Chief Counsel’s Office stated that, while there is no absolute bar to using alternative methods of transportation, agents should be sure not to directly or indirectly disclose that a taxpayer is under the IRS’s scrutiny. PMTA 2019-7 (7/26/19).

 

PARTNERSHIPS

Final regs. on allocation of foreign income taxes by partnerships

The IRS issued final regulations to amend the safe harbor that is used for determining whether allocations of creditable foreign tax expenditures are deemed to be in accordance with the partners’ interests in the partnership. T.D. 9871 (7/24/19).

Eligible partnerships granted 6-month extension to file Form 1065 and furnish Schedules K-1

In accordance with a new revenue procedure, the IRS is granting an extension of time to eligible partnerships to file a superseding Form 1065, U.S. Return of Partnership Income, and furnish a corresponding Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., to each of its partners. This relief only applies to partnerships that, for the applicable tax year: (1) have not elected out of the centralized partnership audit regime; (2) have timely filed Form 1065; and (3) have timely furnished all Schedules K-1 required to be furnished (without regard to the extensions of time provided by the new revenue procedure). Rev. Proc. 2019-32 (7/25/19) (see related news story).

 

TAX ACCOUNTING

IRS simplifies procedures for insurance companies to obtain IRS consent for certain accounting method changes

The IRS issued simplified procedures for an insurance company to obtain automatic IRS consent to change its methods of accounting for discounting unpaid losses and expenses unpaid, estimated salvage recoverable, and unearned premiums attributable to title insurance, to comply with Sec. 846, as amended by the Tax Cuts and Jobs Act, P.L. 115-97. The new procedures apply for tax years beginning after Dec. 31, 2017, and ending on or before Dec. 31, 2019. Rev. Proc. 2019-30 (7/22/19).

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.