Document summaries for the week of May 13, 2019

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(c)(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(c)(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)(c)(ii)(I), as reflected by the application of Sec. 430(h)(2)(C)(iv). Notice 2019-35 (5/16/19).

INDIVIDUALS

Taxpayer materially participated in money-lending business

The Tax Court held that a taxpayer who started a money-lending business that capitalized on his network of contacts in the Chicago construction industry, which he had developed while running a garbage-collection and waste-management business, materially participated in his lending business during each year from 2009 through 2012. However, the court held that the taxpayer and his wife were liable for accuracy-related penalties for underpayments of tax unrelated to the money-lending business if the Rule 155 computations resulted in a substantial understatement of tax. Barbara, T.C. Memo. 2019-50 (5/13/19).

Insufficient evidence precludes innocent spouse relief

The Tax Court held that a taxpayer failed to show he was entitled to innocent spouse relief under Sec. 6015(f). The court noted that, because the record before it was limited, it could not analyze all of the nonexclusive equitable relief factors in Rev. Proc. 2013-34. Thus, it was not inequitable to deny relief, the court held. Martin, T.C. Memo. 2019-51 (5/15/19).

Court denies taxpayer’s second motion for summary judgment

In a Collection Due Process case involving a taxpayer who argued that he had no underlying tax liability for 2003, the Tax Court held that none of the allegations and contentions in the taxpayer’s second motion for summary judgment genuinely disputed any of the facts material to an IRS motion for summary judgment or otherwise justified granting the taxpayer’s motion. Thus, the Tax Court denied the taxpayer’s motion and granted that of the IRS. Rosenberg, T.C. Memo. 2019-52 (5/15/19).

Couple gets double tax benefit by excluding Medicaid waiver payment from income and using it to calculate an EITC

The Tax Court held that a Medicaid waiver payment, which a couple received under a state program and excluded from income under Notice 2014-7, was earned income eligible for the earned income tax credit (EITC). The IRS notice classifies such payments as difficulty-of-care foster payments excludable from income under Sec. 131. However, the court rejected that classification, finding the notice could not thereby remove a statutory tax benefit. Feigh, 152 T.C. No. 15 (5/15/19).

INTERNATIONAL

Regs. issued on QBUs subject to Sec. 987

The IRS issued final regulations relating to combinations and separations of qualified business units (QBUs) subject to Sec. 987 and the recognition and deferral of foreign currency gain or loss with respect to a QBU subject to Sec. 987 in connection with certain QBU terminations and certain other transactions involving partnerships. T.D. 9857 (5/13/19).

CFC ownership attributions rules issued

The IRS issued proposed regulations that provide rules on the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation (CFC) under Sec. 954(d)(3). REG-125135-15 (5/17/19).

IRS PROCEDURE

IRS increases enrolled agent user fees

In final regulations, the IRS increased the enrollment and renewal fees for enrolled agents and the renewal fees for enrolled retirement plan agents from $30 to $67, effective June 12, 2019. T.D. 9858 (5/13/19).

IRS will waive late-filing penalty for certain CCH customers

The IRS posted instructions for taxpayers who will not be able to meet May 15 filing deadlines due to an outage in Wolters Kluwer systems. Taxpayers can request a waiver of the Sec. 6651 penalty for reasonable cause. IRS Statement and Instructions Regarding Recent Software Outage (5/14/19) (see related news story).

IRS issues June 2019 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for June 2019. This guidance provides various prescribed rates 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, and are determined as prescribed by Sec. 1274. Rev. Rul. 2019-14 (5/16/19).

Estate and widow are liable for taxes as transferees

The Sixth Circuit affirmed a Tax Court decision that an estate and the decedent’s widow were liable as transferees for the tax debts of a closely held business they sold after the decedent’s death. Billy F. Hawk, Jr., GST Non-Exempt Marital Trust, No. 18-1534 (6th Cir. 5/15/19).

TIGTA reports on status of TCJA guidance

The Treasury Inspector General for Tax Administration (TIGTA) issued a report on the status of the IRS Office of Chief Counsel’s issuance of guidance related to P.L. 115-97, known as the Tax Cuts and Jobs Act (TCJA). TIGTA found that the IRS had issued 79 pieces of TCJA guidance as of the beginning of the 2019 filing season and had plans to issue 90 more. TIGTA Rep’t No. 2019-14-025 (5/14/19).

S CORPORATIONS

Premature ESOP deductions lead to past-due taxes

The Tenth Circuit affirmed a Tax Court decision, holding taxpayers liable for past-due taxes arising out of errors on their tax returns caused by premature deductions for expenses paid by their S corporation’s employee stock ownership plan (ESOP). However, the court remanded the case for recalculation of the deficiency amounts. Petersen, No. 17-9003 (10th Cir. 5/15/19).

STATE & LOCAL TAXES

California tax agency cannot be sued in Nevada court, Supreme Court holds

Overruling its prior precedent in Nevada v. Hall, 440 U.S. 410 (1979), the U.S. Supreme Court held, in a 5–4 decision, that California’s Franchise Tax Board could not be sued by a taxpayer in Nevada state court because states retain their sovereign immunity from private suits brought in the courts of other states. Franchise Tax Board of Cal. v. Hyatt, No. 17-1299 (U.S. 5/13/19).

TAX ACCOUNTING

Accounting Standards Update would simplify accounting for income taxes

FASB proposed simplifying the rules for accounting for income taxes by removing specific exceptions to the general principles of FASB Accounting Standards Codification Topic 740, Income Taxes, and requested comments on the proposal by June 28. Proposed Accounting Standards Update (5/14/19) (see related news story).