Document summaries for the week of March 25, 2019

CORPORATIONS

IRS withdraws proposed continuity-of-interest regulations

The IRS announced that it is withdrawing proposed regulations that would have provided guidance on determining whether certain transactions applicable to corporate reorganizations satisfy the continuity-of-interest requirement under Regs. Sec. 1.368-1(e). REG-124627-11 (3/29/19).

IRS issues new proposed regulations on tax-free REIT spinoffs

The IRS withdrew a portion of earlier proposed regulations (REG-126452-15) on transactions in which property of a C corporation becomes the property of a real estate investment trust (REIT) following certain corporate distributions of controlled corporation stock and issued revised proposed regulations on the same subject. REG-113943-17 (3/26/19).

IRS updates regulations on corporate distributions

The IRS issued proposed regulations that would update the existing regulations under Sec. 301 to reflect statutory changes made by the Technical and Miscellaneous Revenue Act of 1988, P.L. 100-647. Those changes provided that the amount of a distribution of property made by a corporation to its shareholder is the fair market value of the distributed property. REG-121694-16 (3/26/19).

Proposed stock basis regulations withdrawn

The IRS withdrew proposed regulations it issued in 2009 that would have provided guidance on the recovery of stock basis in distributions of property made by a corporation to a shareholder and certain transactions treated as dividend-equivalents, as well as guidance regarding the determination of gain and the basis of stock or securities received in certain transactions. REG-143686-07 (3/27/19).

 

ESTATES, TRUSTS & GIFTS

Government's third-party beneficiary claim was timely

The Tenth Circuit held that the government's claim to collect unpaid estate taxes as a third-party beneficiary to an estate was timely under Utah law. Johnson, No. 17-4083 (10th Cir. 3/29/19).

 

INDIVIDUALS

In light of new SALT limit, IRS issues ruling on tax treatment of state and local tax refunds

The IRS clarified the tax treatment of state and local tax (SALT) refunds arising from any year in which the new limit on the SALT deduction is in effect. According to the IRS, if a taxpayer received a tax benefit from deducting state or local taxes in a prior tax year and the taxpayer recovers all or a portion of those taxes in the current tax year, the taxpayer must include in gross income the lesser of (1) the difference between the taxpayer's total itemized deductions taken in the prior year and the amount of itemized deductions the taxpayer would have taken in the prior year had the taxpayer paid the proper amount of state and local tax, or (2) the difference between the taxpayer's itemized deductions taken in the prior year and the standard deduction amount for the prior year, if the taxpayer was not precluded from taking the standard deduction in the prior year. Rev. Rul. 2019-11 (3/29/19) (see related news story).

Bankruptcy court order does not preclude subsequent notice of deficiency for same tax year

The Tax Court held that a bankruptcy court order that does not determine a taxpayer's total federal tax liability for a given tax year, but only resolves the amount of the IRS's claim to be paid by the bankruptcy estate pursuant to the plan of reorganization, does not preclude a subsequent notice of deficiency (or resulting tax proceeding) for nondischargeable taxes from the same tax year. The court also concluded that, because the bankruptcy court did not determine the debtor's total federal tax liability for any of the subject tax years, res judicata and collateral estoppel do not bar the IRS from pursuing additional deficiencies for the tax years at issue. Breland, 152 T.C. No. 9 (3/28/19).

Court refuses to dismiss whistleblower case for lack of jurisdiction

The Tax Court rejected an IRS motion to dismiss a whistleblower award case for lack of jurisdiction. The court held that, under the principles enunciated in Comparini, 143 T.C. 274 (2014), and Myers, 148 T.C. 438 (2017), a second letter by the IRS to an individual who filed a whistleblower claim constituted a "determination regarding an award" sufficient to confer jurisdiction upon the Tax Court. Whistleblower 15488-17W, T.C. Memo. 2019-23 (3/27/19).

Failure to file requested information precludes taxpayer from receiving an OIC or installment agreement

The Tax Court granted summary judgment to the IRS with respect to its determination to sustain a collection action against a taxpayer who did not report all his income and who failed to pay the full amount of tax due on his tax return. The court found no abuse of discretion on the IRS's part. The court noted that the taxpayer had failed to file the required forms and the financial information necessary to support an OIC or an installment agreement he requested. McMurtry, T.C. Memo. 2019-22 (3/27/19).

Taxpayer received no benefit from ex-husband's unreported income; innocent spouse relief granted

The Tax Court held that, after considering all the relevant facts and circumstances, a taxpayer met the requirements of Sec. 6015(f) and was thus entitled to innocent spouse relief with respect to a 2012 tax deficiency. The court rejected attempts by the taxpayer's ex-husband to intervene and noted that it was his unreported income — from which the taxpayer received no benefit — that caused the tax deficiency at issue. Henry, T.C. Memo. 2019-24 (3/27/19).

IRS did not abuse its discretion in declining to give couple additional time to submit information

The Tax Court granted summary judgment to the IRS and upheld the IRS’s filing of a notice of federal tax lien and a notice of intent to levy on a couple for the couple’s 2011 federal income tax liability. The court found that the IRS settlement officer did not abuse her discretion by declining to give the couple additional time to present additional information after noting that the couple had refused to submit their financial information or tax returns for 2011 and subsequent years. Ludlam, T.C. Memo. 2019-21 (3/25/19).

 

INTERNATIONAL

US parent company must include amounts in income under Secs. 951 and 956

In a highly redacted memorandum, the IRS Office of Chief Counsel advised that, under the substance-over-form and step-transaction doctrines, a U.S. parent company must include certain amounts in income under Secs. 951(a)(1)(B) and 956. In addition, citing a regulation under Sec. 956, the Chief Counsel's Office advised that the U.S. parent company also had to include an additional amount in income. CCA 201910021 (3/29/19).

IRS waives time requirements for certain taxpayers to elect to exclude foreign earned income

The IRS provided a waiver of the minimum time requirements for individuals who left the Democratic Republic of the Congo, Cuba, Iraq, or Nicaragua on designated dates in 2018 because of war, civil unrest, or similar adverse conditions to elect to exclude their foreign earned income in those countries from gross income for 2018. Rev. Proc. 2019-15 (3/28/19).

IRS issues Sec. 911 foreign housing adjustments for 2019

The IRS adjusted the limitation on housing expenses for purposes of Sec. 911 on the basis of housing costs relative to those in the United States. If the limitation is higher for tax year 2019 than the adjusted limitation in Notice 2018-44, qualified taxpayers may apply the adjusted limitation for 2019 to their 2018 tax year. Notice 2019-24 (3/28/19).

IRS issues announcement and report on advance pricing agreements

The IRS issued an annual announcement and report for 2018, pursuant to the Ticket to Work and Work Incentives Improvement Act of 1999, P.L. 106-170, on advance pricing agreements and the Advance Pricing and Mutual Agreement (APMA) Program. Announcement 2019-03 (3/27/19).

 

IRS PROCEDURE

EIN applicants will need SSN or ITIN

The IRS announced that, starting May 13, 2019, it will accept employer identification number (EIN) applications only from individual taxpayers as the responsible party on the EIN application who have either a Social Security number or an individual taxpayer identification number. IR-2019-58 (3/27/19) (see related news story).

Final regs. issued on reportable transaction penalty under Sec. 6707A

The IRS issued final regulations regarding the amount of the Sec. 6707A penalty for failure to disclose reportable transaction information. T.D. 9853 (3/26/19) (see related news story).

Tax relief for Iowa victims of severe storms and flooding

The IRS announced that victims of the severe storms and flooding that took place on March 12, 2019, in Iowa may qualify for tax relief. IA-2019-02 (3/25/19).

 

TAX ACCOUNTING

Credit for GM qualified plug-in electric drive motor vehicles begins to phase out April 1, 2019

The IRS announced the credit phase-out schedule for new qualified plug-in electric drive motor vehicles sold by General Motors LLC (GM) after quarterly reports indicated that GM’s cumulative sales of qualified plug-in electric drive motor vehicles reached the 200,000-vehicle limit listed in Sec. 30D(e) during the calendar quarter ending Dec. 31, 2018. Accordingly, the credit for all new qualified plug-in electric drive motor vehicles sold by GM will begin to phase out on April 1, 2019. Notice 2019-22 (3/26/19).

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.