Document summaries for the week of Nov. 25, 2019

Tax document summaries for the week of Nov. 25-29, 2019, covering employee benefits, individuals, IRS procedure, and more.


IRS publishes Tier 2 tax rates for 2020

The IRS announced that the rate of Tier 2 tax on employees for 2020 under Sec. 3201(b) is 4.9% of compensation. The rate on employers under Sec. 3221(b) is 13.1% of compensation. The rate on employee representatives is under Sec. 3211(b) is also 13.1% of compensation. Publication of the Tier 2 Tax Rates (11/25/19).



Final regs. address clawback of estate and gift tax exclusion

The IRS issued final regulations addressing issues around the temporary increase in the unified estate and gift tax exclusion amount, including what happens when the new, higher exclusion amount reverts to $5 million in 2026 if decedents have already used up more than that amount when making previous gifts. T.D. 9884 (11/25/19) (see related news story).



Taxpayer's cutting horse activity was operated with a profit motive

The Tax Court held that an individual who operated a cutting horse activity, which included breeding, raising, boarding, training, and selling registered cutting horses, engaged in that activity for profit, and the taxpayer was thus entitled to deduct losses from the activity against income from a seed business he also operated. However, the court also concluded that the taxpayer failed to meet his burden of establishing the existence and amount of certain net operating loss carryforward deductions but, because the taxpayer established that he acted with reasonable cause and in good faith and reasonably relied on his CPA to prepare his returns, the court found that he was not liable for the accuracy-related penalties assessed by the IRS. Den Besten, T.C. Memo. 2019-154 (11/25/19).



Tax Court has jurisdiction to review for abuse of discretion the rejection of a whistleblower's claim

The Tax Court held that it has jurisdiction to review, for abuse of discretion, a decision by the IRS Whistleblower Office to reject a whistleblower's claim for failing to meet certain threshold requirements. The court also held that a genuine dispute of material fact existed as to whether the Whistleblower Office considered a resubmitted claim by the whistleblower and rejected the IRS's request for summary judgment on the question of whether the Whistleblower Office abused its discretion. Lacey, 153 T.C. No. 8 (11/25/19).

Guidance on unused housing credit carryovers

The IRS published the method by which qualified states can request an allocation of unused housing credit carryover under Sec. 42(h)(3)(D). Rev. Proc. 2019-45 (11/25/19).



Appeals court holds transactions lacked economic substance

The D.C. Circuit held that paired foreign currency option transactions lacked economic substance, and it disallowed losses from the transactions. Endeavor Partners LLC, No. 18-1275 (D.C. Cir. 11/26/19).



IRS updates per diem guidance to incorporate TCJA changes

The IRS issued a new revenue procedure that provides rules for using a per-diem rate to substantiate the amount of an employee's expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payer (an employer, its agent, or a third party) reimburses. The procedure modifies Rev. Proc. 2011-47 to incorporate changes made by the law known as the Tax Cuts and Jobs Act of 2017 (TCJA), P.L. 115-97, and provides rules for using a per-diem rate to substantiate, under Sec. 274(d) and Regs. Sec. 1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Rev. Proc. 2019-48 (11/26/19) (see related news story).

Tax Insider Articles


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.