Document summaries for the week of Sept. 2, 2019

CORPORATIONS

Annual health insurance providers fee for 2020

The IRS issued a notice to explain the calculation of the fee imposed by the Patient Protection and Affordable Care Act, P.L. 111-148, on health insurance providers for the 2020 fee year. Although Congress passed legislation in 2018 to suspend the fee for 2019, the fee will resume in 2020 absent legislative action. Notice 2019-50 (9/3/19).

 

EXEMPT ORGANIZATIONS

IRS provides penalty relief for tax-exempt organizations that did not report donor names

The IRS provided penalty relief for organizations exempt from tax under Sec. 501(a), other than organizations described in Sec. 501(c)(3), that did not report the names and addresses of their contributors on the Schedule B of a required Forms 990, Return of Organization Exempt From Income Tax, or 990-EZ filed for a tax year ending on or after Dec. 31, 2018, and on or prior to July 30, 2019. The relief relates to taxpayer reliance on Rev. Rul. 2018-38, which was set aside by an order in Bullock, No. CV-18-103 (D. Mont. 7/30/19). Notice 2019-47 (9/6/19).

 

INDIVIDUALS

Substitute returns are not required before IRS can assess frivolous return penalties

The Tax Court held that, with respect to a couple who had omitted income from their 2013 and 2014 tax returns, the IRS was not required to prepare Sec. 6020(b)(1) substitute returns before it could assess Sec. 6702 frivolous return penalties. The court also rejected the couple’s argument that the income tax is an excise tax that they are not subject to, and upheld Sec. 6651(a)(1) and Sec. 6673(a)(1) penalties against them. Smith, T.C. Memo. 2019-111 (9/3/19).

Court sustains collection action after finding taxpayer’s arguments frivolous

The Tax Court found frivolous a taxpayer’s argument that he was not obligated to pay tax liabilities he reported on his 2013–2015 tax returns because of legal claims he had advanced against the U.S. government in unrelated litigation. The court granted the IRS’s motion for summary judgment and sustained a collection action against the taxpayer. Tartt, T.C. Memo. 2019-112 (9/3/19).

Lawyer fails to substantiate various deductions

The Tax Court held that, for the 2013 tax year, a self-employed lawyer (1) could not deduct personal funds he advanced to his business; (2) was limited to a deduction of the $3,319 of self-employed health insurance expenses he could substantiate; (3) was not entitled to any business-related automobile expense deductions because he did not substantiate them under Sec. 274(d); (4) was entitled to deduct mortgage interest and property taxes as home office expenses but was not entitled to deduct a $50 per month “home office fee”; (5) was not entitled to a deduction for bad debts because he failed to present any objective evidence that the alleged debts were bona fide or became worthless in 2013; and (6) was not entitled to deductions claimed for travel, meals, and entertainment due to lack of substantiation. The court also upheld various penalties for failing to timely file, make estimated payments, and timely pay taxes. Mendelson, T.C. Summ. 2019-25 (9/4/19).

Court rejects plea for innocent spouse relief

The Tax Court held that a taxpayer who filed joint returns with her husband was not entitled to innocent spouse relief under Sec. 6015(f) with respect to tax underpayments that the taxpayer claimed were due to “phantom income” caused by investment partnerships that her husband owned and that she described as tax shelters. While the court expressed sympathy for the taxpayer’s circumstances, which included her husband’s incapacity, it concluded that they were not compelling or justify relief from the joint liabilities. Welwood, T.C. Memo. 2019-113 (9/4/19).

Court awards costs after SSA incorrectly reported a couple received workers’ compensation

The Tax Court granted a couple an award of reasonable litigation and administrative costs and fees for expenses incurred when the Social Security Administration incorrectly reported to the IRS that the couple had received workers’ compensation income. However, the court refused the couple’s request to adopt a rule preventing the IRS from seeking a deficiency and providing other relief when (1) two or more federal agencies provide conflicting information to a taxpayer; (2) the taxpayer discloses the conflict in his or her tax return; (3) the taxpayer provides documentation supporting his or her position; and (4) the taxpayer timely responds to the IRS. Wagstaff, T.C. Memo. 2019-114 (9/5/19).

Relief announced for certain expatriates

The IRS announced procedures for certain individuals who have relinquished (or intend to relinquish) their U.S. citizenship and who wish to avoid being taxed as a covered expatriate under Sec. 877A. Relief Procedures for Certain Former Citizens (9/6/19) (see related news story).

 

TAX ACCOUNTING

Prop. regs. on income recognition for advance payments

The IRS issued proposed regulations that clarify how the Sec. 451(b) rule requiring taxpayers that use the accrual method and have an applicable financial statement (AFS) applies. Such taxpayers must recognize income when the all-events test is met or when the item of income is included in revenue in their AFS. REG-104870-18 (9/5/19) (see related news story).

Prop. regs. on timing of income inclusion for advance payments

The IRS issued proposed regulations providing that an accrual-method taxpayer with an applicable financial statement includes an advance payment in gross income in the tax year of receipt, unless the taxpayer uses the deferral method in Sec. 451(c)(1)(B) and Prop. Regs. Sec. 1.451-8(c). REG-104554-18 (9/5/19) (see related news story).

Taxpayers may obtain automatic consent for accounting method change under Sec. 451

The IRS issued a revenue procedure under which taxpayers may obtain the automatic consent of the IRS under Sec. 446 and Regs. Sec. 1.446-1(e) to change a method of accounting to comply with Sec. 451 and Prop. Regs. Secs. 1.451-3 and 1.451-8. The guidance also provides procedures for certain qualifying taxpayers to make a method change to comply with the proposed regulations without filing a Form 3115, Application for Change in Accounting Method. Rev. Proc. 2019-37 (9/6/19) (see related news story).

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.