Document summaries for the week of Sept. 23, 2019

Tax document summaries for the week of Sept. 23–27, 2019, covering individuals, IRS procedure, and tax accounting.

CORPORATIONS

 

Taxpayer cannot use amended returns to elect insurance reserve rate recomputation

The Office of Chief Counsel advised that an affiliated group of corporations with several life insurance company members cannot use amended returns to make an election under former Sec. 807(d)(4)(A)(ii) to recompute the applicable federal interest rate every five years for life insurance contracts issued during tax years beginning after Dec. 31, 1987. In addition, the Chief Counsel’s Office concluded that the affiliated group could not make an election under former Sec. 807(d)(4)(A)(ii) on its originally filed 2017 return with respect to contracts issued five or more years before 2017. CCA 201939003 (9/27/19).

 

Pending merger should be factored into stock valuation for gift tax

The Office of Chief Counsel advised that, under the fair-market-value standard, a hypothetical willing buyer and seller of shares in a publicly traded company would consider a pending merger when valuing stock for gift tax purposes. According to the Chief Counsel’s Office, determining the fair market value of property for federal transfer-tax purposes is a factual inquiry in which the trier of fact must weigh all relevant evidence and draw appropriate inferences. CCA 201939002 (9/27/19).

 

INDIVIDUALS

Couple too late to challenge year in which income was realized

The Tax Court denied a couple’s late-filed motion to amend an earlier petition. The couple asserted that an S corporation they owned had settled a lawsuit in October 2013 rather than 2011, and thus the reversal of an $11 million judgment in that lawsuit, which led to the S corporation realizing $11 million in income, really occurred in 2013 and not 2011. The court found that, by the time the couple filed their motion, the three-year period for assessing tax for the couple’s 2013 tax year had expired. Whitesell, T.C. Memo. 2019-126 (9/24/19).

Taxpayers had gain on the sale of their home and not a loss as they had claimed

The Tax Court held that a couple (1) had a gain of $72,500 from the sale of their home in Montreal, Canada, and not a loss as they had claimed; (2) could not deduct a foreign currency transaction loss under Sec. 988; (3) could deduct certain business expenses for which they had substantiation; and (4) were liable for the 10% penalty tax under Sec. 72(t) on an early retirement plan distribution from the husband’s retirement account. The court also rejected the couple’s request for monetary damages from the IRS based on the couple’s claim that the IRS knowingly misrepresented the facts, made intentional false statements, and concealed the truth, after the court found that there was no credible evidence in the record supporting the couple’s claims on these points. Nsame, T.C. Summ. 2019-26 (9/23/19).

Taxpayer who failed to file return may not itemize deductions for that year

The Tax Court held that, where a taxpayer received a taxable pension distribution in 2013 but did not file a return for that year, the taxpayer was liable for the tax deficiency shown on a substitute return the IRS prepared. The court also concluded that the taxpayer was not eligible to itemize his deductions for 2013 since he did not file a return. George, T.C. Memo. 2019-128 (9/25/19).

 

IRS PROCEDURE

Tax Court warns taxpayer about using delaying tactics

In a collection action, the Tax Court granted summary judgment to the IRS with respect to the taxpayer’s 2009 tax liabilities but declined to impose a penalty under Sec. 6673 after noting that the IRS had made concessions relating to one of the two tax years at issue. The court warned the taxpayer, however, that it would impose such a penalty if he continued to engage in litigation in the Tax Court primarily “for purposes of delay.” Campbell, T.C. Memo. 2019-127 (9/24/19).

Chief Counsel’s Office notifies its attorneys about rulemaking policy

The Office of Chief Counsel issued a notice advising Chief Counsel attorneys about a Policy Statement on the Tax Regulatory Process issued by the Treasury Department and the IRS on March 5, 2019. The policy statement addresses certain rulemaking requirements under the Administrative Procedure Act and the issuance of subregulatory guidance. CC-2019-006 (9/17/19).

2019–2020 per-diem rates issued

The IRS issued the per-diem rates to be used by taxpayers when substantiating certain expenses incurred after Sept. 30, 2019, for travel away from home. Notice 2019-55 (9/25/19) (see related news story).

 

TAX ACCOUNTING

IRS finalizes safe harbor under Sec. 199A for rental real estate enterprises

The IRS issued a procedure providing a safe harbor under which a rental real estate enterprise will be treated as a trade or business for purposes of Sec. 199A and Regs. Secs. 1.199A-1 through 1.199A-6. If an enterprise fails to satisfy the requirements of the safe harbor, it may still qualify as a trade or business for purposes of Sec. 199A if it otherwise meets the definition of trade or business in Regs. Sec. 1.199A-1(b)(14).  Rev. Proc. 2019-38 (9/24/19) (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.