Document summaries for the week of May 27, 2019
HSA contribution limits for 2020
The IRS issued the increased contribution limits for health savings accounts for 2020. Rev. Proc. 2019-25 (5/28/19) (see related news story).
Withholding rules issued for certain distributions
The IRS issued proposed regulations on the withholding rules for certain periodic and nonperiodic distributions under Sec. 3405 other than eligible rollover distributions. The guidance is based on the rules in Notice 87-7. REG-132240-15 (5/30/19).
Expenses incurred in evangelization activities were nondeductible personal expenses
The Tax Court held that a taxpayer, who co-founded an organization to provide religious and spiritual counseling, could not deduct as charitable contributions the majority of unreimbursed expenses incurred in his evangelization activities — such as meals, airplane rentals, hotels, and repairs to his crucifix — because the expenses were either incurred in whole or in part for personal purposes or were not properly substantiated. The court also concluded that (1) the denial of the taxpayer’s charitable contribution deductions did not violate the First Amendment; (2) the taxpayer was liable for a penalty under Sec. 6651(a) for not timely filing the return at issue; and (3) the taxpayer was not liable for the accuracy-related penalty under Sec. 6662 because the IRS did not show that it had obtained written supervisory approval of the initial penalty determination. Oliveri, T.C. Memo. 2019-57 (5/28/19).
Husband’s alcoholism does not qualify as reasonable cause for penalty relief
The Tax Court held that (1) a taxpayer could not challenge the IRS’s noncompliance with Sec. 6751(b) in a claim for innocent spouse relief, and (2) the taxpayer and her husband were liable for accuracy-related penalties, tax shelter–related penalties, and substantial-understatement-of-tax penalties. The court rejected the couple’s argument that the penalties should be dismissed because of the husband’s alcoholism, noting that he was a partner in a major international law firm and was still able to implement highly sophisticated tax shelter transactions and run several businesses during the years at issue. Rogers, T.C. Memo. 2019-61 (5/30/19).
Court determines long-term capital loss on property sales
The Tax Court held that, because a couple realized $7,203,750 from the sale of properties at foreclosure with a basis of $11,550,807, they had a long-term capital loss of $4,347,057. The court rejected the couple’s assertion that they had an additional $752,000 basis in the property as a result of two successive like-kind exchanges because, the court said, they did not adequately substantiate that additional basis. Breland, T.C. Memo. 2019-59 (5/29/19).
Rules for determining gain or loss from partnership interests
The IRS issued proposed regulations under Sec. 864(c)(8) that provide rules for determining the amount of gain or loss recognized by a nonresident alien individual or foreign corporation from the sale or exchange of a partnership interest that is treated as effectively connected with the conduct of a trade or business in the United States. REG-113604-18 (5/28/19).
Practitioner disciplinary sanctions announced
The IRS Office of Professional Responsibility announced recent disciplinary sanctions involving CPAs, attorneys, and enrolled agents. Announcement 2019-05 (5/28/19).
IRS releases draft 2020 Form W-4
The IRS posted a draft revised Form W-4, Employee’s Withholding Allowance Certificate, for use in 2020. The draft form implements changes made by the law known as the Tax Cuts and Jobs Act, P.L. 115-97. Draft Form W-4 (5/31/19) (see related news story).
Court upholds IRS levy; IRS officer did not abuse her discretion
The Tax Court upheld an IRS notice of intent to levy and found that an IRS settlement officer (SO) did not abuse her discretion by declining to consider a collection alternative with respect to a taxpayer’s unpaid tax liability. The court, noting that the taxpayer had refused to submit required financial information and had terminated a Collection Due Process hearing peremptorily, said that the SO had no obligation to offer a collection alternative to an unwilling recipient. Millen, T.C. Memo. 2019-60 (5/30/19).
IRS did not abuse its discretion in upholding a levy on a couple who failed to pay tax due
The Tax Court held that it was not an abuse of discretion for the IRS to uphold a levy to collect balances due from a couple for 2008 and 2009 after they defaulted on an offer-in-compromise agreement for those years by failing to pay the tax due for 2015. The court noted that an abuse of discretion may be found if IRS action is arbitrary, capricious, or without sound basis in fact or law but found none of those characteristics in the instant case. Sadjadi, T.C. Memo. 2019-58 (5/29/19).
Interest on tax due is not suspended while IRS holds a taxpayer’s subsequently returned tax deposit
The Office of Chief Counsel advised that, if a taxpayer has identified a tax deposit, or part of a deposit, as being for a disputable tax, the taxpayer is entitled to overpayment interest on the returned deposit. However, the Chief Counsel’s Office also cited Section 8 of Rev. Proc. 2005-18 in advising that, if a remittance held as a deposit is returned at the taxpayer’s written request, with or without interest, and a deficiency is later assessed, the running of interest will not be suspended during the period for which the remittance was held as a deposit. CCA 201922029 (5/31/19).
Taxpayer’s ex-wife did not follow proper procedures to obtain a refund
The Office of Chief Counsel advised that a taxpayer’s ex-wife was not entitled to a refund after satisfying her ex-husband’s tax lien/liabilities, because the exclusive remedy for obtaining a refund in such situations is in Sec. 6325(b)(4) and Sec. 7426(a)(4), and she did not follow the appropriate rules. According to the Chief Counsel’s Office, the ex-wife should have requested a discharge under Sec. 6325(b)(4), which allows nontaxpayers who own property encumbered with a federal tax lien to pay the amount of the lien as determined by the IRS, and then filed a refund suit under Sec. 7426. CCA 201922028 (5/31/19).
If Forms 2848 are invalid, the IRS should stop communicating with individual involved
The Office of Chief Counsel advised that, with respect to an unidentified disclosure issue, if the Forms 2848, Power of Attorney and Declaration of Representative, are invalid, then revenue agents should not continue to communicate with the individual involved. CCA 201922027 (5/31/19).
In agency relationship that begins midyear, each entity should file a W-2 for wages it paid
The Office of Chief Counsel was asked for non–taxpayer-specific legal advice regarding the information return obligations of a common law employer after entering into an agency relationship pursuant to Regs. Sec. 31.3504-1 midyear. The Chief Counsel’s Office advised that when an agency relationship begins midyear, each entity that paid wages during the calendar year should issue Forms W-2 reflecting the wages it paid. CCA 201922026 (5/31/19).
TIGTA: IRS needs to improve tax fraud referral processes
The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS needs to correct continued deficiencies in how it processes taxpayer referrals of suspected tax fraud. TIGTA Rep’t No. 2019-40-040 (5/29/19).
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.