Document summaries for the week of Oct. 14, 2019

Tax document summaries for the week of Oct. 14–18, 2019, covering employee benefits, individuals, IRS procedure, partnerships, and more.

C CORPORATIONS

Tax Court weighs in on proper method for computing Sec. 199 deduction for nonexempt Subchapter T cooperative

The Tax Court held that payments made by a nonexempt cooperative to its members in tax years 2006 through 2009 for products that it processed and marketed for the members, and similar payments received by the cooperative from a cooperative of which it is a member, are per-unit retain allocations paid in money (PURPIMs) for purposes of Sec. 1382(b)(3) and Sec. 1388(f), and the cooperative must treat them as such in computing its domestic production activities deduction (DPAD) under former Sec. 199. The court also held that (1) former Sec. 199(d)(3) does not require the cooperative to compute separate DPAD amounts for its patronage and nonpatronage activities; (2) once the DPAD is computed under former Sec. 199, it must be allocated under the rules of Subchapter T between the cooperative's patronage and nonpatronage accounts; and (3) under the general rules of Sec. 172(d)(7), the cooperative's DPAD cannot be used to create or increase a net operating loss. AG Processing, Inc., 153 T.C. No. 3 (10/16/19).

Finder's fee paid in connection with a corporate acquisition is not a deductible business expense

The Tax Court held that a payment made by Plano Molding Co. (Plano), an Illinois plastics manufacturer, to a company that helped the Ontario Teachers' Pension Plan Board (OTPP) acquire Plano was not deductible as a trade or business expense because the company to whom the payment was made had not provided any services to either Plano or OTPP. The Tax Court noted that, while OTPP had agreed to the payment that was made and deducted by Plano, the payment was in the nature of a finder's fee that OTPP agreed to for its own reasons and on its own behalf. Plano Holding LLC, T.C. Memo. 2019-140 (10/16/19).

 

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 2019-56 (10/15/19).

 

INDIVIDUALS

Court rejects innocent spouse relief claim

The Tax Court held that a taxpayer was not entitled to innocent spouse relief under Sec. 6015(f) for underpayments of tax for years 2009 and 2010. Jones, T.C. Memo. 2019-139 (10/16/19).

Taxpayer not liable for deficiencies relating to ex-husband’s business and his share of tax refunds

The Tax Court held that a taxpayer, who filed a joint return for 2010 and 2011 with her then-husband, was entitled to innocent spouse relief under Sec. 6015(c) for deficiencies and accuracy-related penalties allocable to her ex-husband despite her ex-husband’s objections as an intervenor. The court concluded that the taxpayer was entitled to innocent spouse relief for (1) all items giving rise to the 2010 and 2011 deficiencies that were attributable to her ex-husband’s business; (2) the portions of the deficiencies attributable to her ex-husband’s half of the state tax refunds the couple received; and (3) the accuracy-related penalties. Kruja, T.C. Memo. 2019-136 (10/15/19).

Court denies innocent spouse relief to taxpayer unwilling to confront financial problems

The Tax Court rejected a taxpayer’s request for innocent spouse relief, which was supported by her former spouse with whom she filed many years of joint tax returns, after concluding that the taxpayer’s unwillingness to confront the financial problems she and her former spouse faced weighed strongly against relief. The court found that the taxpayer cooperated in her ex-spouse’s practice of simply not paying taxes, and the court said that her assumption that her former spouse would pay the tax on the returns was unreasonable and not credible. Sleeth, T.C. Memo. 2019-138 (10/15/19).

Regs. allow casualty loss deduction in preceding year

The IRS issued final regulations that allow taxpayers to elect to deduct a disaster loss in the tax year preceding the year in which the disaster actually occurred. The regulations finalize without change proposed regulations (REG-150992-13) issued in 2016. T.D. 9878 (10/14/19) (see related news story).

 

IRS PROCEDURE

IRS issues November 2019 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for November 2019. The ruling provides various prescribed rates under Sec. 1274 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. Rev. Rul. 2019-25 (10/16/19).

TIGTA reports on IRS challenges for FY 2020

The Treasury Inspector General for Tax Administration (TIGTA) reported on the most serious management and performance challenges facing the IRS for fiscal year 2020. Memorandum for Secretary Mnuchin (10/15/19) (see related news story).

IRS properly sent notices of deficiency

The Tenth Circuit affirmed a district court decision that the IRS properly sent required notices of deficiency to a taxpayer before it levied on her income to collect taxes and penalties, despite the taxpayer's argument that the IRS's proof of mailing was inadmissible hearsay. Walcott, No. 18-1491 (10th Cir. 10/18/19).

IRS properly sustained notice of intent to levy

The Tax Court held that an IRS settlement officer (SO) properly sustained a notice of intent to levy on a taxpayer who failed to pay his taxes for 2011 and 2012. The court found that the SO verified that the requirements of applicable law and administrative procedure had been met and had balanced the need for efficient collection of taxes with the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary. Schuman, T.C. Memo. 2019-137 (10/15/19).

IRS did not err in sending taxpayer a math error notice for social security income

The Tax Court held that the IRS Appeals Office did not err in its determination that a math error notice sent to the taxpayer for the amount of Social Security income she included on her tax return was not in error because she had improperly excluded her Social Security disability benefits. Therefore, the amount of tax the IRS assessed was proper. As a result, the court sustained the IRS’s notice of determination against the taxpayer. Murphy, T.C. Summ. 2019-32 (10/15/19).

 

INTERNATIONAL

Third Circuit upholds IRS third-party summons under US–Poland tax treaty

The Third Circuit affirmed a lower court’s partial denial of a Polish company’s petition to quash an IRS third-party summons, issued on behalf of the government of Poland under the United States–Poland tax treaty. The court held that the company did not have to receive notice before the IRS served the summons on a third party and that the IRS did not fail to follow the procedures of the Hague Service Convention. G2A.com SP Z.O.O. (Ltd.), No. 18-3401 (3d Cir. 10/15/19).

 

PARTNERSHIPS

Nonacquiescence in GreenTeam Materials Recovery Facility decision

The IRS announced that it does not acquiesce to the holding in GreenTeam Materials Recovery Facility PN, T.C. Memo. 2017-122, that the transfer of a noncapital asset is treated as the sale or exchange of a capital asset under Sec. 1253(a) if the transferor does not retain any significant power, right, or continuing interest in the asset. AOD 2019-3 (10/15/19).

Newsletter Articles

TAX REFORM

Traps for the unwary: Tax Cuts and Jobs Act changes

By now many of us are familiar with the various provisions of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. Here is a list of changes together with (perhaps) unexpected nuances.

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.