Document summaries for the week of April 20, 2020

Tax document summaries for the week of April 20–24, 2020, covering corporations, individuals, and more.

CORPORATIONS

FAQs on taxability of payroll support for air carriers

The IRS posted FAQs regarding the taxability of payments to passenger air carriers, cargo air carriers, and certain contractors under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The payments must be exclusively used for the continuation of payment of employee wages, salaries, and benefits. As compensation, Treasury may receive warrants, options, preferred stock, debt securities, notes, or other financial instruments issued by a company receiving the payments. Payroll Support for Air Carriers and Contractors under the CARES Act Frequently Asked Questions (4/21/20).

FAQs for taxpayers with Sec. 965 inclusions and NOLs

The IRS posted FAQs for taxpayers who may make an election under Sec. 172(b)(1)(D)(v)(I) for net operating losses (NOLs) arising in a tax year beginning after Dec. 31, 2017, and before Jan. 1, 2021, to exclude tax years in which they have Sec. 965(a) inclusions from the carryback period. Frequently Asked Questions About Carrybacks of NOLs for Taxpayers Who Have Had Section 965 Inclusions (4/23/20).

 

EXEMPT ORGANIZATIONS

UBTI silo rules proposed

The IRS issued proposed regulations on the requirement that tax-exempt organizations subject to tax on unrelated business taxable income (UBTI) calculate UBTI separately with respect to each business. REG-106864-18 (4/23/20) (see related news story).

 

INDIVIDUALS

IRS issues procedures for nonfilers to claim economic impact payment

The IRS is providing two 2019 tax return filing procedures for eligible individuals who voluntarily wish to file a federal income tax return only for the purpose of receiving the 2020 economic impact payment provided for in Sec. 6428 as a result of the Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136 — a simplified procedure and a special procedure for people with zero adjusted gross income. According to the IRS, because certain individuals entitled to the payments might not be required to file tax returns, the IRS lacks the necessary information to make the allowed payments in calendar year 2020 to those eligible individuals. Rev. Proc. 2020-28 (4/20/20) (see related news story).

Court sustains levy on taxpayer’s state income tax refund

The Tax Court granted summary judgment to the IRS and sustained a levy on a delinquent taxpayer’s state income tax refund. The court rejected the taxpayer’s suggestion that the court possibly abate the interest assessment on her delinquent taxes or enter into an installment agreement after noting that she had not requested interest abatement or proposed an installment agreement during her Collection Due Process hearing and thus those matters were not subject to court review. Etoty, T.C. Memo. 2020-49 (4/20/20).

Taxpayer who received retirement plan distribution at age 59 is subject to Sec. 72(t) penalty

The Tax Court held that a couple were liable for the 10% additional tax under Sec. 72(t) as a result of the husband’s receiving a distribution from a qualified retirement plan when he was age 59 but had not yet reached age 59½. The court rejected the couple’s argument that the exception in Sec. 72(t)(2)(A)(v) for distributions to an employee who separates from service after attaining age 55 applied after noting that the taxpayer had been generally unemployed since age 46. Laue, T.C. Summ. 2020-14 (4/20/20).

IRS guidance provides relief with respect to ‘substantial presence test’

The IRS is providing relief to certain individuals who did not anticipate meeting the “substantial presence test” under Sec. 7701(b)(3) to become residents of the United States for federal income tax purposes during 2020 because of travel and related disruptions resulting from the global outbreak of the COVID-19 virus. The IRS is providing procedures for eligible individuals to (1) claim a COVID-19 medical condition travel exception and (2) determine whether they qualify for benefits under a U.S. income tax treaty with respect to income from dependent personal services performed in the United States. Rev. Proc. 2020-20 (4/21/20) (see related news story).

Certain VA and SSI beneficiaries must register eligible children by May 5

The IRS announced that recipients of Veterans Affairs benefits and Supplemental Security Income who did not file tax returns in 2018 or 2019 and have qualified dependents have until May 5 to register to have $500 per eligible child added automatically to their $1,200 economic impact payment. IR-2020-81 (4/24/20).

Taxes and penalties upheld on couple with unreported income and unsubstantiated deductions

The Tax Court held that a husband and wife (1) were liable for taxes on unreported income as a result of an IRS bank analysis of money deposited into 22 accounts at five banks for 2009–2012; (2) were not entitled to deductions for unreimbursed employee business expenses incurred by the wife where she did not produce a copy of her employer’s reimbursement policy or otherwise establish that any of the reported expenses were not reimbursed by her employer; (3) were not entitled to expenses attributable to the wife’s rental of space in the basement of the marital residence, which she owned, to the husband for his tax preparation business; and (4) were not entitled to deduct unsubstantiated expenses relating to the  tax preparation business. In addition, the court agreed with the IRS that (1) the couple were liable for penalties for failing to timely file their 2009 and 2010 joint returns and to timely pay their taxes due or pay estimated taxes for 2011 and 2012; and (2) the husband was liable for fraud penalties for 2009 and 2010. Collins, T.C. Memo. 2020-50 (4/23/20).

IRS addresses payments for pyrrhotite damage

The IRS issued an announcement addressing the federal income tax treatment of financial assistance provided to Connecticut homeowners to repair concrete foundations deteriorating due to pyrrhotite, a mineral that oxidizes in the presence of water and oxygen and that leads to the formation of expansive minerals. According to the IRS, if a Connecticut homeowner has not claimed a federal income tax deduction for amounts paid to repair damage to a principal residence under the safe harbors in Rev. Proc. 2017-60 and Rev. Proc. 2018-14 or otherwise, or to the extent such a deduction did not result in a federal income tax benefit, then (1) payments from the Connecticut Foundation Solutions Indemnity Co. Inc. to contractors (on behalf of the homeowner) or reimbursements paid to the homeowner will not be treated as includible in gross income of the homeowner in the year the payment or reimbursement is made, and (2) reimbursed repair costs cannot be deducted or included in the basis of a home. Announcement 2020-5 (4/22/20).

 

INTERNATIONAL

IRS waives Sec. 911 time requirements for certain individuals for 2019 and 2020

As a result of the COVID-19 pandemic’s creating an adverse condition that precludes the normal conduct of business globally, the IRS is waiving the time requirements in Sec. 911(d)(1) that determine whether an individual is qualified to elect to exclude from gross income the individual’s foreign earned income and housing cost amount. The waiver applies to any individual who reasonably expected to meet the eligibility requirements of Sec. 911(d)(1) during 2019 or 2020 but failed to do so because the individual departed a foreign country on or after a specified date. Rev. Proc. 2020-27 (4/21/20) (see related news story).

Court strikes down foreign tax credits from STARS transaction

The Eighth Circuit affirmed a district court’s decision that a U.S. bank was not entitled to claim a foreign tax credit arising from a structured trust advantaged repackaged securities (STARS) transaction it entered into with a British bank, which the appeals court characterized as a sham. The court also upheld the imposition of a Sec. 6662 negligence penalty. Wells Fargo & Co., No. 17-3578 (8th Cir. 4/24/20).

 

IRS PROCEDURE

Action on decision in Rothkamm case

The IRS announced its acquiescence to the holding in Rothkamm, 802 F.3d 699 (5th Cir. 2015), that the term “taxpayer” in Sec. 7811 can be broadly interpreted to include a wrongful-levy claimant. However, the IRS did not acquiesce to the holding in that case that Sec. 7811(d) suspends the running of the limitation period for third parties to file wrongful-levy claims or suits. Action on Decision 2020-3 (4/20/20).

IRS announces improvements to Get My Payment online site

The IRS says it has improved the Get My Payment tool on its website, which is designed to permit people who filed tax returns to enter their direct deposit information and check the status of their $1,200 stimulus economic impact. IR-2020-82 (4/25/20).

Newsletter Articles

50th ANNIVERSARY

50 years of The Tax Adviser

The January 2020 issue marks the 50th anniversary of The Tax Adviser, which was first published in January 1970. Over the coming year, we will be looking back at early issues of the magazine, highlighting interesting tidbits.

TAX RELIEF

Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.