Document summaries for the week of June 24, 2019

ESTATES, TRUSTS & GIFTS

Alternate valuation date values are only available if they result in lower estate and GST tax

The Office of Chief Counsel advised that, with respect to valuing the property of an estate, alternate valuation date values elected under Sec. 2032 can only be used if the value results in a lower gross estate and a lower combined estate and generation-skipping transfer tax. If, for whatever reason, that is not the case, the Office of Chief Counsel said that the taxpayer must use date-of-death values. CCA 201926013 (6/28/19).

 

EXEMPT ORGANIZATIONS

Prop. regs. on private college endowment tax

The IRS issued proposed regulations for determining the Sec. 4968 excise tax applicable to the net investment income of certain private colleges and universities that have more than 500 tuition-paying students and assets of at least $500,000 per student. REG-106877-18 (6/28/19).

 

INDIVIDUALS

Pastor cannot deduct travel expenses he failed to adequately substantiate

The Tax Court denied the vehicle expense deductions of a pastor after concluding that he failed to adequately substantiate the mileage claimed under the strict requirements of Sec. 274(d), citing, for example, that the pastor’s vehicle logs showed that he “drove” from his home in Florida to the Dominican Republic and South Africa in a relatively short time. The court also found that (1) while the vehicle logs claimed expenses for business trips to other places, the pastor failed to produce gas receipts or other records that would substantiate that the travel to those places actually occurred, and (2) the pastor failed to show that the trips to the Dominican Republic and South Africa were primarily related to his trade or business. Burden, T.C. Summ. 2019-11 (6/24/19).

Chief Counsel’s Office addresses effect of Section 218A of Social Security Act on Indian tribal council members

The Office of Chief Counsel advised that an Indian tribe’s decision to enter into an agreement under Section 218A of the Social Security Act and elect Social Security coverage for its tribal council members, or its decision to not enter into such an agreement, does not affect the classification of those workers for any tax purposes other than Federal Insurance Contributions Act taxes. Section 218A, the Chief Counsel’s Office noted, was added by the Tribal Social Security Fairness Act and it provides that the commissioner of Social Security must, at the request of any Indian tribe, enter into an agreement with that Indian tribe for the purpose of extending the Social Security insurance system to services performed by individuals as members of that Indian tribe’s tribal council. CCA 201926011 (6/28/19).

IRS relieved taxpayer of trust fund recovery penalties for only one company, not two

The Tax Court held that, while an IRS officer did determine that the taxpayer should be relieved of the trust fund recovery penalties (TFRPs) relating to a corporation run by the taxpayer’s daughter, that IRS officer did not determine to relieve the taxpayer of the TFRPs with respect to another company that was run by the taxpayer’s wife. As a result, the court sustained a collection-due-process determination made after the taxpayer’s collection-due-process hearing with the IRS Office of Appeals. Crews, T.C. Memo. 2019-80 (6/27/19).

Taxpayer failed to adequately substantiate numerous business expense deductions

The Tax Court upheld the disallowance of a large number of deductions a taxpayer who ran numerous businesses claimed because the taxpayer failed to adequately substantiate those deductions. In addition, the court held that the taxpayer was liable for Sec. 6651(a)(1) late-filing addition to tax and Sec. 6662(a) penalties, rejecting the taxpayer’s claim that he relied on his accountant to prepare his return. Baca, T.C. Memo. 2019-78 (6/26/19).

President of employment staffing company liable for trust fund recovery penalties for most periods

The Tax Court held that a taxpayer, who took over an employment staffing company from his parents after they were convicted of tax crimes and were set to be incarcerated, was a responsible person who willfully failed to pay over the corporation’s employment taxes under Sec. 6672 and was thus liable for trust fund recovery penalties for most of the tax period quarters at issue. The court noted that the taxpayer, who was president of the company and had sole signatory authority over the trust fund established to pay the employment taxes, chose to make payments from the fund to a professional sports team, a country club, and himself before paying the corporation’s employment tax liabilities. Dixon, T.C. Memo. 2019-79 (6/27/19).

 

IRS PROCEDURE

Review of equitable subrogation law may be advisable in situation involving a certificate of discharge

The Office of Chief Counsel was asked for advice about the issuance of a certificate of discharge under Sec. 6325(b)(2)(B) and a sale of real property involving a potential loan modification under the Home Affordable Modification Program. The Chief Counsel’s Office advised that, if the loan is being refinanced (or otherwise modified), then there might be an issue involving subrogation and the Chief Counsel’s Office attached material relating to the laws on equitable subrogation and also advised that the Internal Revenue Manual sections on short-sale situations should be reviewed. CCA 201926012 (6/28/19).

Interest allowed where IRS incorrectly applies remittance by a nonliable spouse

The Office of Chief Counsel advised that interest is allowable on a refund of a remittance made by a nonliable spouse that the IRS incorrectly applied to the liable spouse’s tax liability. According to the Chief Counsel’s Office, (1) the interest is allowable from the date the remittance was received and applied by the IRS, and (2) the date the interest stops depends on whether the overpayment is credited or refunded. CCA 201926001 (6/28/19).

 

MISCELLANEOUS

2 more census tracts in Puerto Rico designated as QOZs

The IRS issued a notice adding to a previous list of census tracts designated as qualified opportunity zones (QOZs) under Sec. 1400Z-1(b)(3) two census tracts in Puerto Rico. Notice 2019-42 (6/25/19).

Newsletter Articles

TECHNOLOGY

2018 tax software survey

Among CPA tax preparers, tax return preparation software generates often extensive and ardent discussion. To get through the rigors of tax season, they depend on their tax preparation software. Here’s how they rate the leading professional products.

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.