Document summaries for the week of April 6, 2020
Tax document summaries for the week of April 6–10, 2020, covering employee benefits, individuals, and more.
SIFL cents-per-mile rates issued
The IRS issued the standard industry fare level (SIFL) cents-per-mile rates and terminal charge in effect for the first half of 2020 for purposes of the Regs. Sec. 1.61-21(g) rule for valuing noncommercial flights on employer-provided aircraft provided as an employee fringe benefit. Rev. Rul. 2020-10 (4/6/20).
IRS posts guidance on deferral of employment tax payments
The IRS posted informal guidance to its website regarding the deferral of employment tax payments and deposits under the Coronavirus Aid, Relief and Economic Security (CARES) Act, P.L. 116-136. Deferral of Employment Tax Deposits and Payments Through December 31, 2020 (4/10/20).
ESTATES, TRUSTS & GIFTS
Court rejects estate’s deduction for donation to a charitable trust
The Tax Court held that (1) the value of a farm a decedent transferred to a family limited partnership was includible in the decedent’s estate because he retained “possession or enjoyment” of it until his death; (2) the decedent’s transfers to his children within the three-year period preceding his death were gifts rather than loans, increasing the gross estate by their amount; and (3) the estate was not entitled to a charitable deduction for its transfer of assets to a charitable trust because the assets’ value was contingent on an examination by the IRS. The court also disallowed the estate’s deduction of attorney’s fees where there was no evidence that the fees were necessarily incurred in the administration of the estate and no explanation as to why the fees were so high. Estate of Howard V. Moore, T.C. Memo. 2020-40 (4/7/2020).
Couple not entitled to deduction for contribution of designer eyeglass frames
The Tax Court held that a couple were not entitled to a carryover charitable contribution deduction on their 2008 tax return with respect to a 2007 donation of 3,432 new designer eyeglass frames to Lions in Sight of California and Nevada because the appraisal that accompanied the tax return was not of the donated property. However, the court found that the couple were not liable for an accuracy-related penalty because the IRS failed to show that it had complied with the procedural requirements of Sec. 6751(b). Campbell, T.C. Memo. 2020-41 (4/7/20).
No alimony deduction where payments were subject to contingency involving a child
The Tax Court held that a taxpayer could not deduct alimony payments that would end when a child turned 18. The payments, although labeled as alimony in the divorce decree, were treated as nondeductible child support for tax purposes. Biddle, T.C. Memo. 2020-39 (4/6/20).
IRS launches online portal for nonfilers to receive economic impact payments
The IRS has launched an online portal for taxpayers who are eligible to receive an economic impact payment but who are not normally required to file an income tax return because their income is too low. Non-Filers: Enter Payment Info Here (4/10/20) (see related news story)
Couple cannot deduct losses for alleged false representations in real estate purchase
With respect to rental properties owned by a married couple, the court found that (1) approximately $4,000 of repair expenses had been substantiated for one property and were deductible for years 2010–2013, and (2) the couple could not increase the basis of the property of a second property by amounts not adequately substantiated. The court also concluded that the couple was not entitled to a theft loss deduction resulting from alleged fraudulent misrepresentations made by various parties concerning defects of a property the couple ended up purchasing for more than it was worth and for which a judgment was awarded to the couple but never paid. Littlejohn, T.C. Memo. 2020-42 (4/9/20).
IRS settlement officer did not abuse her discretion in collection actions against taxpayer
The Tax Court granted an IRS motion for summary judgment after finding that an IRS settlement officer (SO) did not abuse her discretion in dealing with a taxpayer and had presented the taxpayer with all his options at a collection due process hearing. In reaching its decision, the Tax Court noted that the taxpayer had agreed to enter into an installment agreement and the court found that the SO had (1) properly verified that the requirements of applicable law and administrative procedure had been met; (2) considered any relevant issues raised by the taxpayer; and (3) considered whether collection actions balanced the need for the efficient collection of taxes with legitimate concerns of the taxpayer. Crandall, T.C. Summ. 2020-13 (4/9/20).
Final regs. issued on hybrid arrangements
The IRS issued final regulations implementing Secs. 245A(e) and 267A regarding hybrid dividends and certain amounts paid or accrued in hybrid transactions or with hybrid entities. T.D. 9896 (4/7/20).
Proposed regs. on hybrid arrangements under GILTI
The IRS issued proposed regulations under Sec. 951A governing how hybrid deduction accounts are adjusted to take into account earnings and profits of a controlled foreign corporation that are included in income by a U.S. shareholder. REG-106013-19 (4/7/20)
Foreign tax credit intermediary transactions are no longer listed
The IRS withdrew Notice 2004-20, thereby removing transactions that are the same as, or substantially similar to, certain foreign tax credit intermediary transactions identified in that notice as listed transactions for purposes of Regs. Sec. 1.6011-4(b)(2) and Secs. 6111 and 6112. Notice 2020-19 (4/6/20).
IRS identifies procedures for identifying FATCA certification noncompliance
The IRS Large Business and International Division issued a memorandum to its employees regarding procedures for identifying entities’ noncompliance with the Foreign Account Tax Compliance Act (FATCA) certification requirement. LB&I-04-0120-0002 (4/7/20).
IRS issues APA report
The IRS issued its annual report on advance pricing agreements (APAs) and the Advance Pricing and Mutual Agreement Program. Announcement 2020-2 (4/6/20).
Office of Professional Responsibility announces disciplinary sanctions
The IRS Office of Professional Responsibility announced recent disciplinary sanctions involving attorneys, CPAs, enrolled agents, and unenrolled/unlicensed return preparers. Announcement 2020-3 (4/6/20).
IRS issues more COVID-19-related filing and payment deadline extensions
The IRS issued a notice that provides that any person with a federal tax payment obligation specified in the notice, or a federal tax return or other form filing obligation specified in the notice, which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is affected by the COVID-19 emergency for purposes of tax filing relief outlined in the notice. For an affected taxpayer with respect to specified filing and payment obligations outlined in the notice, the filing and payment due dates are automatically postponed to July 15, 2020. Notice 2020-23 (4/9/20) (see related news story).
IRS extends deadline for filing tentative NOL carrybacks
The IRS is providing relief for certain taxpayers to allow them to take advantage of amendments made to the net operating loss (NOL) provisions set forth in Sec. 172 by Section 2303 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. Specifically, the relief extends the deadline for filing an application for a tentative carryback adjustment under Sec. 6411 with respect to the carryback of an NOL that arose in any tax year that began during calendar year 2018 and that ended on or before June 30, 2019. Notice 2020-26 (4/9/20) (see related news story).
IRS outlines procedures for taxpayers to follow to take advantage of CARE Act NOL changes
The IRS issued guidance under Sec. 172(b)(1) and Sec. 172(b)(3), as amended by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, which describes how taxpayers with net operating losses (NOLs) arising in tax years 2018, 2019, or 2020 can elect to either waive the carryback period for those losses entirely or to exclude from the carryback period for those losses any years in which the taxpayer has an inclusion in income as a result of Sec. 965(a). Rev. Proc. 2020-24 (4/9/20) (see related news story).
Procedures provided for electing real property trade or businesses and electing farm businesses
The IRS issued guidance on how to elect under Sec. 163(j)(7)(B) to be an electing real property trade or business and how to elect under Sec. 163(j)(7)(C) to be an electing farming business for purposes of the business interest expense deduction limitation under Sec. 163(j). Under this guidance, certain taxpayers can make a late election, or can withdraw an election, under Sec. 163(j)(7)(B) or Sec. 163(j)(7)(C), as applicable, on an amended federal income tax return, an amended Form 1065, U.S. Return of Partnership Income, or an administrative adjustment request under Sec. 6227. Rev. Proc. 2020-22 (4/10/20) (see related news story).
Whistleblower’s award is subject to budget sequester provisions
The Tax Court held that a determination by the IRS Whistleblower Office that a whistleblower’s award was subject to the budget sequester provisions of the Budget Control Act of 2011, P.L. 112-25, in effect for the fiscal year that the award was paid was not arbitrary or capricious and had a sound basis in law. The court also concluded that the IRS did not abuse its discretion by determining that there was no possibility of future proceeds relating to the deceased target taxpayer’s estate where the estate tax return had been filed, showed no tax due, and had been accepted as correct. Lewis, 154 T.C. No. 8 (4/8/20).
Partnerships subject to centralized partnership audit regime can file amended returns for 2018 and 2019
As a result of retroactive tax relief included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, the IRS is allowing partnerships subject to the centralized partnership audit regime to (1) file amended partnership returns for tax years beginning in 2018 and 2019 using a Form 1065, U.S. Return of Partnership Income, with the “Amended Return” box checked, and (2) issue an amended Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., to each of its partners. Without the option to file amended returns, those partnerships that already filed their Forms 1065 for the affected years would generally be unable to take advantage of the CARES Act relief for partnerships except by filing administrative adjustment requests under Sec. 6227 and that would result in the partners’ only being able to receive any benefits from that relief on the current tax year’s federal income tax return. Rev. Proc. 2020-23 (4/8/20) (see related news story).
Business meal deductions after the TCJA
This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.
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.