Document summaries for the week of July 29, 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 2019-44 (7/29/19).

 

EXEMPT ORGANIZATIONS

Organization formed to generate sales leads loses tax-exempt status

The Tax Court held that an organization holding itself out as a Sec. 501(c)(3) tax-exempt entity was not operated exclusively for one or more exempt purposes and, thus, the IRS did not err in ruling it ineligible for an exemption from tax under Sec. 501(a). According to the court, the organization was being used as part of a telemarketing effort to promote and generate sales leads in support of a for-profit business, and this was not an exempt purpose within the meaning of Sec. 501(c)(3), nor was it substantially related to an exempt purpose. Giving Hearts, Inc., T.C. Memo. 2019-94 (7/29/19).

Court invalidates changes to substantial-donor reporting requirement

A federal district court held that the IRS did not follow proper notice-and-comment procedures when it issued Rev. Proc. 2018-38, in which the Service announced it would no longer require most tax-exempt organizations to report the names and addresses of substantial donors. The court invalidated the revenue procedure. Bullock, No. CV-18-103 (D. Mont. 7/30/19) (see related news story).

 

INDIVIDUALS

Taxpayer must defer costs incurred in bidding on real estate development project

The Tax Court held that the treatment of payments made in attempting to win certain real estate development contracts depends on whether the taxpayer receives the contracts on which he was bidding. Had the taxpayer acquired the property at issue, he would be required to capitalize such costs if he were considered to be producing property; but, since he did not receive an ownership interest in the property at issue, Regs. Sec. 1.263A-1(e)(3)(ii)(T) required the deferral of the costs pending the outcome of the bidding process. Ashkouri, T.C. Memo. 2019-95 (7/30/19).

EITC can be denied for taxpayer’s children where the credit was improperly claimed for one child

The IRS Office of Chief Counsel advised that, where a taxpayer claimed the earned income tax credit (EITC) for three children and the credit was disallowed for one of those children yet the taxpayer continued to claim the credit for that one child in succeeding years, the taxpayer is subject to the two-year ban on claiming the EITC under Sec. 32(k)(1), assuming a final determination is made that the taxpayer’s claim for that one child was due to reckless or intentional disregard for the rules and regulations. According to the Chief Counsel’s Office, the ban applies even though the taxpayer otherwise would have been entitled to the EITC for her other two children. CCA 201931008 (8/2/19).

 

TAX ACCOUNTING

Taxpayers can change bonus depreciation treatment for certain tax years

The IRS will permit taxpayers to change their bonus depreciation treatment for property acquired after Sept. 27, 2017, and placed in service during a tax year that includes Sept. 28, 2017. Rev. Proc. 2019-33 (7/31/19) (see related news story).

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.