Document summaries for the week of March 18, 2019
Final regs. on RIC income test
The IRS issued final regulations relating to the income test used to determine whether a corporation may qualify as a regulated investment company (RIC) under Sec. 851. T.D. 9851 (3/19/19).
IRS suspends revenue rulings on active trade or business requirement for spinoffs
The IRS announced that it is reviewing its approach to the active trade or business requirement that a business must meet for a five-year period to qualify for a tax-free spinoff under Sec. 355. As a result, the Service suspended Rev. Ruls. 57-464 and 57-492, in which it previously ruled on the topic. Rev. Rul. 2019-09 (3/21/19).
IRS updates rates and tables for defined benefit plans
The IRS issued a notice with the updated mortality improvement rates and static mortality tables that are used to determine (1) the minimum funding requirements under Sec. 430(h)(3) for 2020, and (2) the minimum present value under Sec. 417(e)(3) for distributions with annuity starting dates during stability periods beginning in 2020. The notice also includes a modified unisex version of the mortality tables for determining minimum present value under Sec. 417(e)(3) and Section 205(g)(3) of ERISA for distributions with annuity starting dates during stability periods beginning in 2020. Notice 2019-26 (3/22/19).
Court rejects taxpayer’s equitable innocent spouse relief claim
The Tax Court held that a taxpayer failed to establish he was entitled to equitable innocent spouse relief from joint liability for his 2006 tax year. After weighing all the relevant factors outlined in Rev. Proc. 2013-34, the court found that only two factors — the taxpayer’s physical health and the lack of significant benefit — weighed in favor of granting relief, while the remaining eight factors either favored retained liability or were neutral. Brooks, T.C. Summ. 2019-5 (3/18/19).
Taxpayer cannot deduct losses from restoring vintage fighter plane but escapes accuracy-related penalties
The Tax Court held that a pilot could not deduct losses he incurred in restoring a Fairey Firefly World War II fighter aircraft because he lacked a profit motive. However, because the IRS did not show that accuracy-related penalties were personally approved in writing by the immediate supervisor of the individual assessing the penalties, the court concluded that the taxpayer was not liable for them for the years at issue. Kurdziel, T.C. Memo. 2019-20 (3/21/19).
Couple cannot take yacht and RV-related deductions; loss on sale of residence also disallowed
The Tax Court held that a couple (1) were not entitled to depreciation deductions for a yacht and recreational vehicle they claimed to use in their trade or business of operating a marina; (2) were not entitled to losses on the sale of a former residence that they claimed had been converted to income-producing property; and (3) were liable for accuracy-related penalties. With respect to the couple’s claim that they had converted their residence to income-producing property, the court held that the residence’s rental at less than fair market value was solely insurance-driven and without a profit motive. Langston, T.C. Memo. 2019-19 (3/21/19).
Compliance requirements for sponsoring entities of FFIs
The IRS issued final regulations on the compliance requirements and verification procedures for sponsoring entities of foreign financial institutions (FFIs) and certain nonfinancial foreign entities, trustees of certain trustee-documented trusts, registered deemed-compliant FFIs, and financial institutions that implement consolidated compliance programs. T.D. 9852 (3/22/19).
IRS lists ‘Dirty Dozen’ tax scams
The IRS issued its annual list of the “Dirty Dozen” tax scams. IRS website (3/20/19) (see related news story).
Chief Counsel’s Office addresses requirements for certain self-authenticating documents
The Office of Chief Counsel advised that Rule 902 of the Federal Rules of Evidence addresses self-authenticating evidence that requires no extrinsic evidence of authenticity to be admitted, and that Rules 902(1) and 902(11) require documents to contain a seal and to be certified. According to the Chief Counsel’s Office, Rule 902(1) provides that domestic public documents that are sealed and signed are self-authenticating if they bear a seal of an agency of the United States and a signature of attestation. CCA 201908020 (3/22/19).
IRS expands underpayment penalty waiver for 2018 returns
The IRS announced it is expanding a waiver of the addition to tax for underpayment of estimated income tax for certain individuals for tax year 2018. The notice, which supersedes Notice 2019-11, (1) expands the waiver to individuals whose total withholding and estimated tax payments equal or exceed 80% of the tax shown on the return for the 2018 tax year (from 85% in the prior notice), (2) updates procedures for requesting the waiver, and (3) provides procedures for taxpayers who paid additions to tax for underpayment of estimated tax but who qualify for relief under the notice to request a refund of the addition to tax. Notice 2019-25 (3/22/19) (see related news story).
Prop. regs. issued on sales of life insurance contracts
The IRS issued proposed regulations on new information reporting obligations under Sec. 6050Y related to reportable policy sales of life insurance contracts and payments of reportable death benefits. REG-103083-18 (3/22/19) (see related news story).
Tax relief for Nebraska victims of severe weather
The IRS announced that victims of the severe winter storm, straight-line winds, and flooding that took place on March 9, 2019, in Nebraska may qualify for tax relief. NE-2019-02 (3/22/19).
IRS proposes amendments to regs. on corporate partners’ transactions with a partnership
The IRS issued proposed regulations that would amend regulations finalized in 2018 (T.D. 9833) that prevent a corporate partner from avoiding corporate-level gain through transactions with a partnership involving equity interests of the partner or certain related entities. REG-135671-17 (3/22/19).
IRS provides average purchase price data to issuers of qualified mortgage bonds
The IRS provided issuers of qualified mortgage bonds, as defined in Sec. 143(a), and issuers of mortgage credit certificates, as defined in Sec. 25(c), with (1) nationwide average purchase prices for residences in the United States, and (2) average area purchase price safe harbors for residences in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. The IRS notes that issuers may continue to rely on the nationwide average purchase price set forth in Rev. Proc. 2018-28 with respect to bonds sold, or for mortgage credit certificates issued with respect to bond authority exchanged, before April 19, 2019, if the commitments to provide financing or issue mortgage credit certificates are made on or before May 19, 2019. Rev. Proc. 2019-14 (3/20/19).
Business meal deductions after the TCJA
This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.
Quirks spurred by COVID-19 tax relief
This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.