Document summaries for the week of Aug. 24, 2020

C CORPORATIONS

Company’s processed marine seismic data is not qualifying production property under former Sec. 199

The Tax Court held that a company’s processed marine seismic data is not qualifying production property within the meaning of former Sec. 199(c)(5) because it is neither tangible personal property nor a sound recording. The court further held that (1) the company’s processing of marine seismic data constitutes engineering services performed in the United States with respect to the construction of real property under former Sec. 199(c)(4), but its gross receipts from such services are domestic production gross receipts (DPGR) only to the extent that such construction activities are within the United States; and (2) to the extent that the company received gross receipts from its parent company for processing services of its parent’s data for the parent’s clients, such revenue does not constitute DPGR. TGS-NOPEC Geophysical Co., 155 T.C. No. 3 (8/26/20). 

EMPLOYEE BENEFITS

IRS extends deadline for statutory hybrid plan amended determination letter documentation

The IRS extended until Dec. 31, 2020, the deadline to submit supplemental documents and information supporting determination letter applications for amended individually designed statutory hybrid plans submitted for the 12-month period ending on Aug. 31, 2020. Employee Plans News: Statutory Hybrid Plans Amended Determination Letter Requests (8/24/20).

INDIVIDUALS

Tax Court dismisses taxpayer's late petition

The Tax Court granted an IRS motion to dismiss a taxpayer's case because the taxpayer failed to file her Tax Court petition within 90 days after the IRS issued the notice of deficiency at issue. The court rejected the taxpayer's assertion that the deadline is a "claims processing rule" to which equitable tolling applies. Rivas, T.C. Memo. 2020-124 (8/25/20).

Court approves IRS intent to levy on taxpayer who failed to pay 2013 taxes

The Tax Court granted an IRS motion to uphold a notice of intent to levy on a taxpayer who failed to pay his 2013 taxes in full. The court held that the IRS settlement officer did not err in (1) declining to offset alleged overpayment credits from other years against the taxpayer's 2013 tax liability and (2) determining the taxpayer was not eligible for an installment agreement. Swanberg, T.C. Memo. 2020-123 (8/25/20).

Virtual currency for performing a microtask is ordinary income

The Office of Chief Counsel advised that an individual who receives convertible virtual currency for performing a microtask through a crowdsourcing or similar platform has received consideration in exchange for performing a service, and the convertible virtual currency received is taxable as ordinary income. According to the Chief Counsel’s Office, such compensation may also be subject to self-employment tax. CCA 202035011 (8/28/20).

Children were not qualifying children for purposes of taxpayer’s child-related deductions and credits

The Tax Court held that a taxpayer was not entitled to dependency exemptions for his girlfriend’s two children because the children did not satisfy the five requirements that would have made them qualifying children for purposes of the dependency exemptions. Similarly, because the children were not the taxpayer’s qualifying children, the court also concluded that the taxpayer did not qualify for head-of-household filing status, the child tax credit, or the earned income credit. Brzyski, T.C. Summ. 2020-25 (8/27/20).

Tax Court rejects motions by whistleblowers challenging reduced awards

After decisions previously entered by the Tax Court in favor of two whistleblowers, the whistleblowers filed motions asking the court to order the IRS to pay the award amounts without sequester reductions. The Tax Court denied the motions as they ignored the terms of a partial settlement and misinterpreted the prior decisions. In addition, the court held that it had jurisdiction to enter the prior decisions because a remand to the IRS Whistleblower Office for further proceedings would have been futile as only one disposition was possible as a matter of law on the issue before the court. The court further held that, as a court of record, it has jurisdiction to enforce the prior decisions under longstanding Supreme Court precedent. Whistleblower 21276-13W, 155 T.C. No. 2 (8/26/20).

Fifth Circuit vacates bankruptcy plan over tax refund provision

The Fifth Circuit vacated a bankruptcy court’s confirmation of a debtor’s revised Chapter 13 bankruptcy plan because the plan required the debtor to turn over to the bankruptcy trustee any tax refund amounts in excess of $2,000. The court held that this abridged the debtor’s substantive rights and conflicted with Supreme Court precedent. In re Diaz, No. 19-50982 (5th Cir. 8/26/20).

INTERNATIONAL

Final regs. issued on dividends-received deduction

The IRS issued final regulations that limit the deduction for certain dividends U.S. persons receive from foreign corporations under Sec. 245A and govern the exception to Subpart F income under Sec. 954(c)(6) for certain dividends received by controlled foreign corporations. T.D. 9909 (8/24/20) (see related news story).

IRS PROCEDURE

IRS grants tax relief to Iowa derecho victims

The IRS announced that victims of the Aug. 10 derecho storm in Iowa may qualify for tax relief. For affected taxpayers, tax deadlines falling on or after Aug. 10, 2020, and before Dec. 15, 2020, are postponed to Dec. 15, 2020. IA-2020-05 (8/26/20).

IRS announces tax relief for victims of California wildfires

The IRS announced that victims of the California wildfires that began on Aug. 14 may qualify for tax relief. For affected taxpayers, tax deadlines falling on or after Aug. 14, 2020, and before Dec. 15, 2020, are postponed to Dec. 15, 2020. CA-2020-06 (8/26/20).

Fifth Circuit denies award of litigation costs where IRS position was substantially justified

The Fifth Circuit affirmed a Tax Court decision denying the taxpayers' motion for the award of costs under Sec. 7430. The taxpayers won their suit in Tax Court but were denied litigation costs because the IRS's position was "substantially justified." Johnson, No. 20-60054 (5th Cir. 8/24/20).

Whistleblower’s claim rejected, even after allowing additional documents to be added to record

The Tax Court upheld the IRS Whistleblower Office’s (WBO) rejection of a whistleblower’s claim after allowing the whistleblower to supplement the record. The case involved the whistleblower’s submission to the IRS of Form 211, Application for Award for Original Information. The Tax Court granted the whistleblower’s request to supplement the administrative record with a prior 2012 submission that had been made to the IRS but denied the whistleblower’s motion to supplement the record with respect to a 2019 document. The court also concluded that (1) the WBO’s exercise of discretion in not asking for additional assistance from the whistleblower or his attorney was immune from judicial review; and (2) the WBO Director did not improperly redelegate his authority to analyze the whistleblower’s information. The court granted summary judgment to the IRS. Van Bemmelen, 155 T.C. No. 4 (8/27/20).

Guidance issued on payroll tax deferral

The IRS issued guidance on the payroll tax deferral that was ordered by President Donald Trump in a presidential memorandum on Aug. 8. The IRS notice allows employers to defer withholding on affected employees’ compensation during the last four months of 2020 and then withhold those deferred amounts during the first four months of 2021. Notice 2020-65 (8/28/20) (see related news story).

IRS allows e-signatures on certain forms

The IRS announced that it will temporarily allow the use of digital signatures on certain forms that cannot be filed electronically. IR-2020-194 (8/28/20) (see related news story).