Document summaries for the week of Sept. 9, 2019

CORPORATIONS

Prop. regs. issued on determining NUBIG and NUBIL

The IRS issued proposed regulations that provide a safe harbor for computing net unrealized built-in gains (NUBIG) and net unrealized built-in losses (NUBIL) when applying Sec. 382(h). REG-125710-18 (9/10/19) (see related news story).

IRS opens CAP program to new applicants

The IRS announced that it is opening the Compliance Assurance Process (CAP) program to new applicants for the first time since 2015. Applications for the 2020 program year must be received between Sept. 16, 2019, and Oct. 31, 2019. IR-2019-154 (9/12/19) (see related news story).

 

EXEMPT ORGANIZATIONS

Exempt organization reporting requirements clarified

The IRS issued proposed regulations that consolidate existing guidance on exempt organization reporting requirements and allow many tax-exempt organizations to stop reporting the names and addresses of their substantial donors. REG-102508-16 (9/10/19) (see related news story).

 

INDIVIDUALS

Couple who ran tax prep business failed to report diverted funds and income from bartering

The Tax Court found clear and convincing evidence that a husband and wife who operated a tax preparation business understated their gross income by failing to report (1) funds diverted from the company to the couple and entities they owned or controlled, as well as (2) amounts the couple received  from bartering transactions. The court also upheld fraud penalties assessed against the husband and the couple’s business, but said there was not enough evidence to sustain fraud penalties against the wife. Benavides & Co., P.C., T.C. Memo. 2019-115 (9/9/19).

Contentious interaction with couple’s attorney, documented in IRS file, did not constitute ex parte communication

The Tax Court sustained the filing of a notice of federal tax lien and a proposed levy regarding a couple’s unpaid income tax liabilities for 2015 and 2016. The court held that there was no abuse of discretion by the IRS settlement officer (SO) in sustaining the lien and rejected the couple’s argument that contentious communications by the SO with the couple’s attorney, which was documented in the IRS’s administrative file, constituted an ex parte communication. Stewart, T.C. Memo. 2019-116 (9/10/19).

Couple entitled to business bad debt deduction for loan to furniture manufacturer

The Tax Court held that a couple were entitled to a business bad debt deduction for a loan made by the husband to a furniture manufacturer, where the loan had only partially been repaid and had become worthless in 2014. The court concluded that the husband was engaged in a distinct trade or business of lending money, that his lending activity was substantial, and that he engaged in this activity with the intent of making a profit. Bercy, T.C. Memo. 2019-118 (9/11/19).

 

IRS PROCEDURE

IRS’s failure to timely sign Form 872 due to government shutdown invalidates the consent form

The Office of Chief Counsel advised that, where the IRS did not timely sign a Form 872, Consent to Extend the Time to Assess Tax, due to a government shutdown at the time, the consent is invalid, regardless of whether the taxpayer signed the form. However, a prior consent signed by a power of attorney (POA) remains valid even though the POA (1) lists a date range that includes all years at issue but does not mention them explicitly, and (2) conveys only the boilerplate POA authorities and does not go beyond that to list authority to sign consent forms. CCA 201937017 (9/13/19).

IRS did not abuse its discretion by denying taxpayers a face-to-face CDP hearing

The Tax Court held that an IRS settlement officer did not abuse her discretion by denying a couple a face-to-face Collection Due Process (CDP) hearing or else a collection alternative, such as an offer in compromise or currently not collectible status. While the taxpayer’s representative requested a face-to-face hearing, the settlement officer advised him that the taxpayers did not qualify for such a hearing and offered an opportunity for a telephone CDP hearing, which the parties chose not to accept. Roberts, T.C. Memo. 2019-117 (9/11/19).

Taxpayer did not qualify for a streamlined installment agreement because his unpaid balance exceeded $50,000

The Tax Court held that an IRS settlement officer (SO) did not abuse her discretion in concluding that a taxpayer who originally owed about $44,000 in taxes and penalties for tax years 2009 and 2010 was ineligible for a streamlined installment agreement. The court noted that, because the taxpayer’s total unpaid assessed balance exceeded $50,000 as of when the SO made her determination, he did not qualify for a streamlined installment agreement under the applicable Internal Revenue Manual provisions, despite the fact that his liability was less than $50,000 five years previously. Rayle, T.C. Memo. 2019-119 (9/12/19).

 

TAX ACCOUNTING

Bonus depreciation rules finalized

The IRS issued final regulations that provide operational rules for the 100% first-year depreciation provisions under Sec. 168(k) and that address how to compute bonus depreciation and make elections under Sec. 168(k). T.D. 9874 (9/13/19) (see related news story).

Bonus depreciation rules proposed

The IRS issued proposed regulations containing guidance on additional aspects of bonus depreciation including: (1) certain property not eligible for the additional first-year depreciation deduction; (2) a de minimis–use rule for determining whether a taxpayer previously used property; and (3) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017. REG-106808-19 (9/13/19) (see related news story).

Chief Counsel advises on volume cap allocation needed for an issue of Tribal Economic Development Bonds

The Office of Chief Counsel was asked what amount of volume cap allocation is needed for an issue of Tribal Economic Development Bonds that will currently refund the outstanding stated principal amount of an issue of original Tribal Economic Development Bonds and also finance issuance costs of the refunding issue. The Chief Counsel’s Office concluded that a Tribal Economic Development Bond volume cap allocation is needed in an amount equal to the amount by which the issue price of the refunding bond issue exceeds the outstanding stated principal amount of the refunded bonds. CCA 201937016 (9/13/19).

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.