Document summaries for the week of March 11, 2019

CORPORATIONS

IRS extends private letter ruling pilot program

The IRS announced that it is extending indefinitely its pilot program under Rev. Proc. 2017-52 for private letter rulings that address whether corporate stock distributions, such as spinoffs, are tax-free under Sec. 355. The program was originally set to expire on March 21, 2019. IRS Statement on Private Letter Ruling Pilot Program Extension (3/12/19).

 

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 2019-21 (3/14/19).

Covered compensation tables issued for 2019 plan year

The IRS issued tables of covered compensation under Sec. 401(l)(5)(E) and related regulations for the 2019 plan year. For this purpose, covered compensation is the average of the contribution and benefit bases in effect under Section 230 of the Social Security Act for each year in the 35-year period ending with the year in which an employee attains Social Security retirement age. Rev. Rul. 2019-06 (3/13/19).

 

ESTATES, TRUSTS & GIFTS

Post-death events reduce estate’s charitable deduction

The Ninth Circuit affirmed a Tax Court holding sustaining a deficiency against an estate for overstating the amount of a charitable deduction. The court upheld the Tax Court’s decision to take into account events that occurred after the decedent’s death in determining the value of the deduction. The court also sustained an accuracy-related penalty. Dieringer, No. 16-72640 (9th Cir. 3/12/19).

 

EXCISE TAXES

IRS requests comments on changes to excise tax treatment of fuel used to operate certain auxiliary equipment

The IRS is requesting comments on possible changes to the regulations for excise tax treatment of fuel used in a motor vehicle to operate auxiliary equipment via a power takeoff (PTO) mechanism. Comments are requested on how an exemption for fuel used to power equipment via a PTO could be supported and equitably administered given the range of vehicle types and sizes and the complexity of businesses using those vehicles. Notice 2019-10 (3/12/19).

 

INDIVIDUALS

All Social Security benefits are includible in MAGI in calculating premium tax credit

The Tax Court held that, for purposes of determining a taxpayer’s eligibility for the Sec. 36B premium tax credit, a taxpayer’s modified adjusted gross income (MAGI) includes all Social Security benefits received during the tax year irrespective of whether a Sec. 86(e) election has been made. As a result of including all of the taxpayer’s Social Security benefits in MAGI, the taxpayer’s MAGI was just above the maximum threshold to qualify for the premium tax credit. Johnson, 152 T.C. No. 6 (3/11/19).

Couple who filed POA and extension request using their new address did not properly notify IRS of address change

The Tax Court held that, for purposes of determining if the IRS properly sent a notice of deficiency to a couple’s last known address, a taxpayer’s last known address is the address shown on the most recently filed and properly processed return, unless updated by clear and concise notification of a different address. The couple filed Form 2848, Power of Attorney and Declaration of Representative, and Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, both with their updated address. However, the court concluded, neither form is a return or clear and concise notification for purposes of updating a taxpayer’s last known address. Gregory, 152 T.C. No. 7 (3/13/19).

Court sustains collection action and adds $10,000 penalty for frivolous positions

The Tax Court sustained a collection action against a taxpayer and affirmed an IRS determination to uphold a notice of intent to levy to collect the taxpayer’s unpaid tax liabilities and penalties for 2010, 2012, and 2015. After noting that the IRS had agreed to abate a $5,000 penalty assessed for 2010 under Sec. 6702 and a portion of the taxpayer’s assessed liability for 2012, the court required the taxpayer to pay a penalty of $10,000 under Sec. 6673(a) for advancing frivolous positions in the Tax Court. Wesley, T.C. Memo. 2019-18 (3/14/19).

Ministers’ tax-free housing allowances do not violate Establishment Clause

The Seventh Circuit held, reversing a district court’s decision, that the Sec. 107 exclusion of housing allowances from ministers’ taxable income does not violate the Establishment Clause of the First Amendment. Gaylor v. Mnuchin, No. 18-1277 (7th Cir. 3/15/19).

 

IRS PROCEDURE

IRS removes hundreds of regulations

In final regulations, the IRS removed 296 existing regulations that the Service deems to be unnecessary because they do not have current or future applicability under the Code. Seventy-nine regulations were amended to reflect the removal of the 296 regulations. T.D. 9849 (3/11/19).

Regs. issued on low-income housing credit compliance monitoring

The IRS issued final regulations that address the compliance-monitoring duties of a state or local housing credit agency under Sec. 42. The final regulations revise and clarify certain rules relating to the requirement to conduct physical inspections and review of low-income certifications under Regs. Sec. 1.42-5. T.D. 9848 (3/11/19).

IRS issues April 2019 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for April 2019 as determined under Sec. 1274, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, the adjusted federal long-term, and the tax-exempt rate. Rev. Rul. 2019-08 (3/15/19).

 

S CORPORATIONS

S corporation is liable for Sec. 6699 late-filing penalty even though shareholders filed their returns on time

The Tax Court held that an S corporation was liable for the penalty under Sec. 6699 for failing to timely file its return, notwithstanding that the S corporation’s shareholders obtained an extension for, and timely filed, their own tax return, and notwithstanding that the IRS allegedly excused the penalty for another year on similar facts. In addition, because the Sec. 6699 penalty was automatically calculated electronically for purposes of Sec. 6751(b)(2)(B), written approval by an immediate supervisor did not need to precede its assessment. ATL & Sons Holdings, Inc., 152 T.C. No. 8 (3/13/19).

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.