Document summaries for the week of May 20, 2019

CHARITABLE CONTRIBUTIONS

Lack of substantiation dooms charitable contribution deduction

The D.C. Circuit held that a limited liability company was not entitled to claim a charitable contribution deduction for donating a future interest in a piece of commercial property to the University of Michigan because it failed to substantiate the value of the donated property. Blau, No. 17-1266 (D.C. Cir. 5/24/19).

 

EMPLOYMENT TAXES

CPEO rules finalized

The IRS finalized regulations governing certified professional employer organizations (CPEOs), which allow employee leasing companies and other professional employer organizations to be solely liable for payroll taxes on wages they pay to their customers’ employees. T.D. 9860 (5/24/19) (see related news story).

 

EXEMPT ORGANIZATIONS

IRS lists organizations that have had exempt status revoked

The IRS issued a list of organizations for which it has revoked its determination that they qualify as organizations described in Sec. 501(c)(3) and Sec. 170(c)(2). Announcement 2019-04 (5/20/19).

 

INDIVIDUALS

Taxpayer can partially exclude cancellation of debt from gross income

The Tax Court held that a taxpayer could exclude from her 2011 gross income discharged debts of $42,852 and $5,299 under the insolvency exclusion and the qualified principal residence indebtedness exclusion, respectively. However, the taxpayer had to include in her 2011 gross income $307,337 that she had previously excluded because, the court found, she could not prove that she was insolvent beyond the amount the court and the IRS allowed. Bui, T.C. Memo. 2019-54 (5/21/19).

 

IRS PROCEDURE

IRS failed to properly verify mailing of deficiency notice to former NFL player

The Tax Court held that the IRS abused its discretion when it failed to properly verify that the assessment of a retired National Football League player’s unpaid 2010 income tax liability was preceded by a duly mailed notice of deficiency. The court noted that the IRS had “incredibly” produced a USPS Form 3877 dated May 11, 2012, intended to evidence the mailing of a May 11, 2012, notice of deficiency to the taxpayer via USPS certified mail, after previously stipulating that it could not produce a USPS Form 3877 for the May 11, 2012, notice of deficiency to the taxpayer. Kearse, T.C. Memo. 2019-53 (5/20/19).

Court rejects assessment of trust fund recovery penalty against taxpayer

The Tax Court held that, in determining what action, if any, should be taken to remedy an IRS error in assessing a trust fund recovery penalty against a taxpayer, the  Sec. 6672(b)(3)(B) requirement that the IRS make a final administrative determination in response to a timely protest before it can assess the penalty is one of the requirements of applicable law or administrative procedure, compliance with which must be verified by the Office of Appeals in a Sec. 6330 collection-review hearing. The Tax Court further held that the assessment of the trust fund recovery penalty in the instant case was invalid and, as a result, did not sustain the collection action determination made by the Office of Appeals. Romano-Murphy, 152 T.C. No. 16 (5/21/19).

IRS corrects typo in Notice 2019-32

The IRS issued a correction of a typographical error in the first sentence of Section 4.01 of Notice 2019-32, a notice in which the IRS requests comments on Sec. 45Q issues. The sentence states that comments may be submitted in writing on or before Thursday, June 4, 2019, but the correct date is July 4, 2019. Announcement 2019-06 (5/20/19).

IRS has superior claim to delinquent taxpayer’s income

The Sixth Circuit held that the IRS is entitled to take a taxpayer’s consulting fees for payment of back taxes, ahead of other claimants, including a company that loaned the taxpayer money and obtained a judgment against him. AES-Apex Employer Servs., Inc. v. Rotondo, No. 17-2068 (6th Cir. 5/17/19).

2018 IRS Data Book issued

The IRS issued its annual Data Book, describing activities conducted by the IRS from Oct. 1, 2017, to Sept. 30, 2018, and including information about tax returns, refunds, examinations, and appeals. 2018 IRS Data Book (5/20/19).

Forms 4549 and 982 were informal refund claims

The Office of Chief Counsel advised that a taxpayer’s timely filing of a Form 4549, Income Tax Examination Changes, constituted an informal claim for refund, and the subsequent filing of a Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), by the Taxpayer Advocate Service on the taxpayer’s behalf constituted an additional informal refund claim. In addition, the Chief Counsel’s Office concluded that (1) a Letter 105C, Claim Disallowed, did not disallow the taxpayer’s refund claim contained in the Form 4549, and, therefore, the Sec. 6532 period for filing suit had not begun to run, and (2) Sec. 6514 does not prevent the IRS from making a credit or refund in this situation. CCA 201921013 (5/24/19).

IRS properly pursued collection and denied interest abatement

The Tax Court held that the IRS did not abuse its discretion in sustaining collection actions against a couple and in declining to abate interest on their deficiencies for 2001 through 2006 determined in prior proceedings. The court noted that the couple did not submit an offer in compromise or an installment payment schedule and had rejected proposals by the IRS settlement officer. Krehnbrink, T.C. Memo. 2019-56 (5/22/19).

Court rejects request for innocent spouse relief

The Tax Court held that a taxpayer was not entitled to innocent spouse relief under Sec. 6015, finding that (1) she was not in total compliance with the income tax laws because she failed to file her 2016 tax return, and (2) she had reason to know of the understatements of tax liability on the joint returns at issue. The court concluded that because the remaining factors it considered were neutral, it was not inequitable to hold the taxpayer liable for the tax at issue. Briley, T.C. Memo. 2019-55 (5/22/19).

Courts lack jurisdiction to enjoin IRS microcaptive notice

The Sixth Circuit affirmed a lower court’s dismissal of a suit for lack of subject-matter jurisdiction. The plaintiff had sought to enjoin enforcement of Notice 2016-66, which named certain microcaptive insurance transactions as transactions of interest, alleging it violated the Administrative Procedure Act and the Congressional Review Act. The court held that the plaintiff’s complaint was barred by the Anti-Injunction Act and the tax exception to the Declaratory Judgment Act, which together divest the federal district courts of jurisdiction over suits “for the purpose of restraining the assessment or collection of any tax.” CIC Services, LLC, No. 18-5019 (6th Cir. 5/22/19).

 

MISCELLANEOUS

IRS addresses state and local and Indian tribal bonds

The IRS issued guidance regarding the issuance of tax-exempt state and local bonds under Sec. 103 and tax-exempt Indian tribal government bonds under Sec. 7871 in current refunding issues to refund (directly or indirectly in a series of current refunding issues) original bonds issued in eligible targeted bond programs. The guidance supersedes Notices 2012-3 and 2014-9. Notice 2019-39 (5/22/19).

 

TAX ACCOUNTING

IRS issues 2019 vehicle depreciation limits and income inclusion amounts

The IRS issued (1) tables of limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2019, and (2) a table of amounts that must be included in income by lessees of passenger automobiles first leased by the taxpayer during calendar year 2019. The tables detailing these depreciation limitations and lessee inclusion amounts reflect the automobile price inflation adjustments required by Sec. 280F(d)(7). Rev. Proc. 2019-26 (5/21/19) (see related news story). 

Newsletter Articles

50th ANNIVERSARY

50 years of The Tax Adviser

The January 2020 issue marks the 50th anniversary of The Tax Adviser, which was first published in January 1970. Over the coming year, we will be looking back at early issues of the magazine, highlighting interesting tidbits.

PRACTICE MANAGEMENT

2019 tax software survey

This annual survey shows how CPAs rate the tax preparation software they used during last tax season and how it handled the recent tax law changes.