Document summaries for the week of April 13, 2020
Tax document summaries for the week of April 13–17, 2020, covering corporations, individuals, procedure, and more.
Corporation barred from challenging underlying employment tax liabilities
The Tax Court held that a corporation that had failed to timely request a conference with the IRS Appeals Office was barred from challenging its underlying employment tax liabilities and associated penalties and additions to tax. The court upheld the IRS’s notice of intent to levy to collect the corporation’s outstanding 2010 and 2011 liabilities and, further, concluded that the IRS settlement officer acted within his discretion in upholding the levy action. Patrick’s Payroll Services, Inc., T.C. Memo. 2020-47 (4/14/20).
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(e)(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(e)(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)(E)(ii)(I). Notice 2020-27 (4/15/20).
IRS launches ‘Get My Payment’ website
The IRS launched a website that lets taxpayers check on when they can expect to receive their economic impact (or recovery rebate) payment and update their direct deposit information. Get My Payment (4/15/20) (see related news story).
Failure to show husband was a real estate professional precludes treating losses as nonpassive
The Tax Court held that a married couple cannot treat as nonpassive certain rental real estate losses they previously treated as passive under Sec. 469 because they failed to prove that the husband was a real estate professional. The court refused to rely on the couple’s “self-serving and uncorroborated testimony” and concluded that their explanation of the work done by the husband and the hours spent on that work was untrustworthy. Hakkak, T.C. Memo. 2020-46 (4/13/20).
Whistleblower Office did not abuse its discretion in rejecting taxpayer’s claim
The Tax Court held that the IRS Whistleblower Office did not abuse its discretion in rejecting a taxpayer’s claim on the ground that the claim was speculative and did not provide specific or credible information regarding any federal tax violation. The court noted that the IRS could not verify that the target taxpayers had misclassified employees as independent contractors, as the whistleblower had alleged based on information he received from his girlfriend who ran a competing business. Kansky, T.C. Memo. 2020-43 (4/13/20).
Court sustains collection action against taxpayer who owed trust fund recovery penalties
The Tax Court sustained an IRS collection action against a taxpayer for trust fund recovery penalties (TFRPs) assessed against the taxpayer for six quarterly periods ending Sept. 30, 2010, through Dec. 31, 2011. According to the court, the IRS Appeals Office correctly determined that the taxpayer was barred from challenging his liability for the TFRPs in accordance with Sec. 6330(c)(2)(B). Shepherd, T.C. Memo. 2020-45 (4/13/20).
Couple entitled to startup deductions and goodwill amortization, but deductions denied for numerous unsubstantiated expenses
With respect to a married couple’s 2010–2014 tax returns, the Tax Court held that the couple (1) had $5,936 of short-term capital gain income attributable to the exercise of stock options by the wife and not reported on the couple’s return; (2) were entitled to amortization deductions for startup costs relating to a company purchased by the husband; (3) failed to adequately substantiate numerous deductions relating to car and truck expenses, travel expenses, and meals and entertainment expenses and thus could not deduct those expenses; and (4) were entitled to amortization of goodwill with respect to the purchase of an insurance business. Finally, with respect to early withdrawals from the couple’s retirement accounts, the court found the couple liable for the Sec. 72(t) penalty for the portion of the withdrawals that were unrelated to tuition payments made by the couple. Williams, T.C. Memo. 2020-48 (4/16/20).
VA benefit recipients to automatically receive economic impact payments
IRS waives Sec. 911(d) minimum time requirements for certain countries
The IRS added the Democratic Republic of the Congo, Haiti, Iraq, Sudan, and Venezuela to the list of countries for which the minimum time requirements under Sec. 911(d) are waived for tax year 2019. Rev. Proc. 2020-14 (4/13/20).
Taxpayers can temporarily fax Forms 1139 or 1045 due to COVID-19
The IRS announced that taxpayers who are claiming a refund under Sections 2303 or 2305 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, which provide for the carryback of certain net operating losses and accelerated recovery of corporate minimum tax credits, can temporarily submit those claims by fax on Form 1139, Corporation Application for Tentative Refund, or Form 1045, Application for Tentative Refund. Normally, those forms must be mailed to the IRS or delivered via private delivery service. Temporary Procedures to Fax Certain Forms 1139 and 1045 Due to COVID-19 (4/13/20).
IRS posts FAQs on estate tax return filing delays
The IRS posted FAQs on its website regarding problems encountered in the delivery of estate tax returns to the Kansas City Service Center using private delivery services. FAQs: Estate Tax Form 706 Deliveries Returned Due to COVID-19 (4/13/20).
IRS issues May 2020 applicable federal rates
The IRS issued a ruling that prescribes the applicable federal rates for May 2020. 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. 2020-11 (4/15/20).
FAQs about COVID-19 sick and family leave credits
The IRS posted 67 FAQs about the employer tax credits for paid sick and family leave enacted in the Families First Coronavirus Response Act. COVID-19–Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs (4/17/20) (see related news story).
Building facade easement not protected in perpetuity
The Sixth Circuit affirmed a Tax Court decision that a facade easement was not protected in perpetuity, as required by Sec. 170(h)(5)(A), when the donation agreement allowed the donor to make changes to the facade of the building if the donee did not act within 45 days to stop the changes. Hoffman Properties II, LP, No. 19-1831 (6th Cir. 4/14/20).
IRS adjustment to couple’s depreciation method resulted in a Sec. 481 adjustment
The Tax Court denied a couple’s motion for summary judgment and held that IRS adjustments to the couple’s depreciation methods with respect to rental property constituted a change in method of accounting that resulted in a Sec. 481 adjustment. In auditing the couple’s rental property deductions, the IRS reallocated a larger portion of the couple’s cost basis to nondepreciable land for one rental property and reclassified most of their cost basis on a second rental property into a MACRS class with a much longer recovery period. Pinkston, T.C. Memo. 2020-44 (4/13/20).
IRS procedure addresses mortgage modifications under CARES Act
The IRS issued a revenue procedure that provides safe harbors under which modifications to certain mortgage loans in connection with a forbearance program enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, are not treated as replacing the unmodified obligation with a newly issued obligation, as giving rise to prohibited transactions, or as manifesting a power to vary for purposes of determining the federal income tax status of certain securitization vehicles that hold the loans. The revenue procedure also describes a safe harbor under which certain securitization vehicles, such as real estate mortgage investment conduits (REMICs), are not treated as having improper knowledge of an anticipated default on the grounds that they acquired a mortgage loan with respect to which the borrower had participated in a forbearance program. Rev. Proc. 2020-26 (4/14/20)
Bonus depreciation available for qualified improvement property for 2018–2020
Following changes made by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, to the classification of qualified improvement property (QIP), which allow such property to be depreciated faster and to qualify for bonus depreciation, the IRS issued guidance allowing a taxpayer to change its depreciation under Sec. 168 for QIP placed in service by the taxpayer after Dec. 31, 2017. Additionally, with respect to bonus depreciation elections and alternative depreciation system elections, a taxpayer can make a late election, or revoke or withdraw an election, under Sec. 168(g)(7), (k)(5), (k)(7), or (k)(10) for the taxpayer’s 2018, 2019, or 2020 tax year. Rev. Proc. 2020-25 (4/17/20) (see related news story).
IRS is reconsidering special rules applicable to credit against foreign taxes
The IRS is suspending Rev. Rul. 71-533, in which it ruled that the 10-year limitation period provided by Sec. 6511(d)(3)(A) applies to claims for refund or credit of an overpayment resulting from a foreign tax credit carryback arising as a result of a net operating loss (NOL) carryback from a subsequent year. As part of this reconsideration, Rev. Rul. 68-150 is also being reconsidered and is suspended with respect to adjustments that arise from a change to the foreign tax credit limitation, including as the result of the correction of mathematical errors or the application of an NOL carryback. Rev. Rul. 2020-8 (4/17/20).