Document summaries for the week of Oct. 7, 2019

Tax document summaries for the week of Oct. 7–11, 2019, covering individuals, IRS procedure, partnerships, and more.

C CORPORATIONS

Following expiration of Sec. 385 temporary regulations, taxpayers may rely on proposed regulations

The IRS announced that, following the expiration of the temporary regulations under Sec. 385, taxpayers may rely on the notice of proposed regulations that cross-reference the temporary regulations. The temporary regulations expire on Oct. 13, 2019, while the proposed regulations are proposed to apply to tax years ending on or after Jan. 19, 2017, and do not expire. Notice 2019-58 (10/11/19).

 

INDIVIDUALS

Employee who worked in Saudi Arabia was not entitled to foreign earned income exclusion

The Tax Court held that a taxpayer who worked in Saudi Arabia on a repeating schedule of 28 days on duty followed by 28 days off duty and who returned to his family in the United States during his days off was not entitled to the Sec. 911 foreign earned income exclusion for the years at issue because he was not a “qualified person” eligible for the exclusion. The taxpayer failed to show that his home was outside the United States and that he was a bona fide resident of Saudi Arabia for purposes of Sec. 911(d)(1)(A). Bellwood, T.C. Memo. 2019-135 (10/7/19).

Tax Court fines couple $10,000 for making frivolous arguments

The Tax Court held that a couple were liable for income taxes where they both worked for major corporations yet reported zero wages and zero income and sought refunds for the full amounts of tax withheld from their paychecks on the basis that they were not employees and their wages did not constitute taxable income. The court found that the couple’s arguments were groundless or frivolous, and, because they had been warned before about making such arguments, assessed a penalty against them of $10,000 under Sec. 6673. Wells, T.C. Memo. 2019-134 (10/7/19).

Failure to reconstruct business records after wildfire precludes deductions

The Tax Court held that a taxpayer who failed to report over $10,000 of nonemployee compensation, but subsequently agreed to an IRS adjustment for that omitted income, was not entitled to purported business expenses in excess of those the IRS had allowed. Although the court was sympathetic to the fact that many of the taxpayer’s business records were lost when his CPA’s house was destroyed in a wildfire, the court found that the taxpayer had not undertaken a detailed reconstruction of the records needed to substantiate the deductions and thus was not entitled to deduct additional gift, meals, entertainment, or office expenses for the tax year at issue. Katusha, T.C. Summ. 2019-31 (10/10/19).

IRS rules on the taxability of a ‘hard fork’ of a cryptocurrency

The IRS ruled that, with respect to virtual currency, (1) a taxpayer does not have gross income under Sec. 61 as a result of a “hard fork” of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency, and (2) a taxpayer has gross income, ordinary in character, under Sec. 61 as a result of an “airdrop” of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency. Rev. Rul. 2019-24 (10/9/19) (see related news story).

Final regs. govern election to take disaster loss for preceding year

The IRS issued final regulations governing the election to accelerate the timing of a loss attributable to a federally declared disaster. T.D. 9878 (10/11/19) (see related news story).

 

IRS PROCEDURE

IRS announces tax relief for Texas victims of Tropical Storm Imelda

The IRS announced that victims of Tropical Storm Imelda, which took place from Sept. 17–23, 2019, in Texas may qualify for tax relief. TX-2019-12 (10/7/19)

Treasury publishes list of boycott countries

The Treasury Department published the current list of countries that require or may require participation in, or cooperation with, an international boycott (within the meaning of Sec. 999(b)(3)). 84 Fed. Reg. 54730 (10/10/19).

 

PARTNERSHIPS

Ninth Circuit rejects challenge to final partnership administrative adjustment

The Ninth Circuit held that a couple could not contest adjustments made in a final partnership administrative adjustment involving their partnership. Although they insisted the IRS had initiated the partnership proceeding after the relevant statute of limitation expired, they should have raised the timeliness challenge in the partnership-level proceeding itself, and failure to do so meant they forfeited the argument and could not assert it in this deficiency proceeding. The Tax Court correctly dismissed their case for lack of jurisdiction. Bedrosian, No. 18-70066 (9th Cir. 10/8/19).

 

TAX ACCOUNTING

Prop. regs. on transition from interbank offered rates to other reference rates

The IRS issued proposed regulations that provide guidance on the tax consequences of the transition to the use of reference rates other than interbank offered rates (IBORs) in debt instruments and non-debt contracts. REG-118784-18 (10/9/19).

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.