Document summaries for the week of June 17, 2019

ESTATES, TRUSTS & GIFTS

State cannot tax trust if only contact is beneficiary’s residence

The U.S. Supreme Court held that North Carolina cannot tax a trust when the trust's only connection to the state is the residence of a beneficiary. North Carolina Dep't of Rev. v. Kimberley Rice Kaestner 1992 Family Trust, No. 18-457 (U.S. 6/21/19) (see related news story).

 

INDIVIDUALS

Tax Court finds that IRS did not commit fraud on the court

In a case on remand from the D.C. Circuit, the Tax Court clarified the legal grounds and reasoning of its earlier order that denied a taxpayer’s motion for leave to file an out-of-time motion to vacate its order and decision. The Tax Court explained that the denial was justified on the grounds that the taxpayer’s underlying motion lacked merit. In reviewing whether the taxpayer had made a prima facie case that the IRS committed fraud on the Tax Court, the court concluded that the taxpayer had not shown that the IRS intended to conceal information or mislead the court or that the IRS committed fraud on the court. Byers, T.C. Memo. 2019-76 (6/18/19).

Horse-related activities were not engaged in for profit

The Tax Court held that a couple were not engaged in their horse-related activities with the objective of making a profit within the meaning of Sec. 183 and, thus, were not entitled to deduct over $100,000 of losses in 2014 and 2015 from that activity. The court noted that the couple generated a comfortable gross income outside their horse-related activities, which provided no financial benefit other than the potential for generous tax savings. Sapoznik, T.C. Memo. 2019-77 (6/18/19).

Taxpayer entitled to refund under claim-of-right doctrine

The Eleventh Circuit reversed a lower court’s decision and held that a taxpayer was entitled to a refund under the claim-of-right doctrine for income she returned after paying taxes on it. Mihelick, No. 17-14975 (11th Cir. 6/18/19).

 

IRS PROCEDURE

IRS inaccurately measured its telephone service performance, TIGTA says

The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS’s measure of the level of service on its telephone assistance lines did not accurately reflect overall call demand or the Service’s performance for telephone assistance. TIGTA Rep’t No. 2019-40-041 (6/17/19).

TIGTA reports on IRS software version control management

The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS’s software version control management needs improvement. TIGTA Rep’t No. 2019-20-031 (6/18/19).

ETAAC makes report to Congress

The Electronic Tax Administration Advisory Committee released its annual report to Congress, evaluating the IRS’s Security Summit and making recommendations focused on the prevention of identity theft and refund fraud. Electronic Tax Administration Advisory Committee Report to Congress (6/19/19).

IRS issues July 2019 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for July 2019. The ruling provides various prescribed rates under Sec. 1274 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. Rev. Rul. 2019-16 (6/19/19).

National taxpayer advocate delivers report to Congress

Nina Olson, the national taxpayer advocate, delivered Volume 1 of her final report to Congress. The report includes an analysis of the 2019 filing season, an assessment of the impact of the recent government shutdown on the Taxpayer Advocate Service (TAS), 12 areas of focus, and a discussion of TAS advocacy initiatives, casework, and research studies. Objectives Report to Congress: Fiscal Year 2020, Volume 1 (6/20/19).

 

PARTNERSHIPS

Court rejects partnership’s request for a CDP hearing

In a case where a partnership failed to timely file partnership returns, failed to file an information return with respect to certain foreign corporations and partnerships, and did not timely request a Collection Due Process (CDP) hearing with the IRS, the Tax Court (1) dismissed the partnership’s petition because the IRS had not issued a notice of determination to the partnership; (2) rejected the partnership’s request to order the IRS to give the partnership a CDP hearing; (3) rejected the partnership’s reliance on Buffano, T.C. Memo. 2007-32, because the instant case was distinguishable; and (4) concluded that Sec. 7803(a)(3) does not confer jurisdiction on the court and does not extend jurisdiction provided under other sections of the Code. The court agreed with the IRS that, because no notice of determination was sent to the partnership under Sec. 6320 and Sec. 6330 for the tax years at issue, the necessary prerequisite — i.e., a notice of determination — to confer jurisdiction on the court was lacking. Atlantic Pacific Management Group, LLC, 152 T.C. No. 17 (6/20/19).

 

TAX ACCOUNTING

Proposed revenue procedure addresses methods of calculating W-2 wages for purposes of Sec. 199A(g)

The IRS issued a proposed revenue procedure that provides computational guidance on methods and appropriate sources of data for calculating W-2 wages for purposes of Sec. 199A(g), which provides a deduction for specified agricultural and horticultural cooperatives, and for purposes of proposed regulations (REG-118425-18) published contemporaneously with the proposed revenue procedure. The revenue procedure will apply to tax years ending after Dec. 31, 2017. Notice 2019-27 (6/18/19) (see related news story).

IRS proposes Sec. 199A rules for cooperatives

Along with Notice 2019-27, the IRS issued proposed regulations providing guidance to cooperatives and their patrons regarding the qualified business income deduction under Sec. 199A. REG-118425-18 (6/18/19) (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.