Document summaries for the week of Aug. 3, 2020
Prop. regs. on grandfathered group health plans
The IRS issued proposed regulations to provide additional flexibility for grandfathered group health plans and issuers of grandfathered group health plans to make certain changes without losing their grandfathered status under the regulations. REG-130081-19 (8/3/20).
Guidance provided on special funding and benefit limitation rules under the CARES Act
The IRS issued guidance regarding the special rules relating to single-employer defined benefit pension plans under Sec. 3608 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. Under these special rules, (1) a contribution that would otherwise be required to be made to such a plan during 2020 is required to be made by Jan. 1, 2021, and special interest adjustment rules apply to a contribution that is made after the otherwise applicable deadline; and (2) an employer may elect to apply the benefit restrictions for underfunded plans under Sec. 436 for the 2020 plan year (or a fiscal plan year that contains any part of 2020) using the plan’s funded status for the last plan year ending in 2019. Notice 2020-61 (8/6/20).
IRS provides safe harbor explanations relating to eligible rollover distributions
The IRS issued a notice providing that administrators of qualified retirement plans are required to provide a written explanation (i.e., a Sec. 402(f) notice) of tax consequences when making distributions that are eligible for rollover. The notice modifies the two model notices in Notice 2018-74 that may be provided to recipients of eligible rollover distributions to satisfy the notice requirements under Sec. 402(f). The model notices, as modified by this new notice, also take into consideration certain legislative changes, including those of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, P.L. 116-94. Notice 2020-62 (8/6/20).
Marine can deduct half of basic housing allowance paid to ex-spouse as alimony
The Tax Court held that a taxpayer was entitled to deduct as alimony $17,820 of the $24,000 he paid to his former spouse in 2015. The court noted that the taxpayer, a Marine who paid two-thirds of his basic housing allowance to his former spouse for her and their child, was thus entitled to deduct half of that amount, or $17,820, as alimony. Winslow, T.C. Summ. 2020-22 (8/3/20).
Partnership’s conservation easement fails perpetuity requirement
The Tax Court held that a partnership was not entitled to an almost $4.6 million charitable contribution deduction for the donation of a conservation easement because the deed granting the conservation easement reduced the donee’s share of the proceeds in the event of extinguishment by the value of improvements made by the donor and thus did not satisfy the perpetuity requirement of Sec. 170(h)(5)(A). The court also rejected the taxpayer’s challenge to the validity of the proceeds regulation in Regs. Sec. 1.170A-14(g)(6)(ii) and concluded that the construction of Sec. 170(h)(5) as set forth in Regs. Sec. 1.170A-14(g)(6) is valid under Chevron, U.S.A., Inc., 467 U.S. 837 (1984). Cottonwood Place, LLC, T.C. Memo. 2020-115 (8/4/20).
Partnership cannot deduct donation of conservation easement
The Tax Court held that a partnership was not entitled to a $4.1 million charitable contribution deduction for the donation of a conservation easement because the deed granting the conservation easement reduced the donee’s share of the proceeds in the event of extinguishment by the value of improvements made by the donor and thus did not satisfy the perpetuity requirement of Sec. 170(h)(5)(A). The court also rejected the taxpayer’s challenge to the validity of the proceeds regulation in Regs. Sec. 1.170A-14(g)(6)(ii) and concluded that the construction of Sec. 170(h)(5) as set forth in Regs. Sec. 1.170A-14(g)(6) is valid under Chevron, U.S.A., Inc., 467 U.S. 837 (1984). Red Oak Estates, LLC, T.C. Memo. 2020-116 (8/4/20).
Cancellation of debt leads to ordinary income, not capital gain
The Third Circuit affirmed a Tax Court decision, holding that $3 million in cancelled debt resulted in ordinary income and not capital gain. The court held that the Tax Court did not err in its application of the origin-of-the-claim test. Connell, No. 19-2668 (3d Cir. 8/6/20).
Taxpayer’s payments to ex-wife and divorce lawyer didn’t increase basis in LLC interest
The Tax Court held that payments a taxpayer made to his ex-wife and his divorce lawyer did not increase the basis of his interest in a limited liability company that was considered marital property and that was subsequently sold to provide the ex-wife with her proportionate share of the marital assets. Matzkin, T.C. Memo. 2020-117 (8/5/20).
Tax Court lacked jurisdiction to hear certain employment tax claims against taxpayer
In an employment tax case involving a medical staffing agency, the Tax Court held that it lacked jurisdiction over five employment tax quarters and thus only had jurisdiction over 11 of the 16 employment tax quarters at issue. The court reached this conclusion after finding that the IRS’s issuance of a purported “determination” on a Section 530 issue for five of the taxpayer’s self-reported quarters addressed an uncontroverted matter and, since there was no actual controversy, the court did not have jurisdiction over those quarters. Reflectxion Resources, Inc., T.C. Memo. 2020-114 (8/3/20).
IRS makes minor corrections to Rev. Proc. 2020-35
The IRS amended Rev. Proc. 2020-35 (“Return requirements — substitute information returns”) to correct certain information. Specifically, the IRS stated that (1) in Section 2.1.1, Online Fillable Forms, under the heading “Specifications,” Form 1099-NEC should be deleted from the first paragraph, and (2) in Section 4.5.3, Perforations, under the heading “Miscellaneous Instructions for Copies B, C, D, E, 1, and 2,” the instructions should indicate that instructions for perforation can be found in Section 2.1.9. Announcement 2020-8 (8/3/20).
OPR announces recent disciplinary sanctions
The Office of Professional Responsibility (OPR) announced recent disciplinary sanctions involving attorneys, certified public accountants, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and appraisers. Announcement 2020-9 (8/3/20).
TIGTA reports on IRS’s protection of taxpayer data
The Treasury Inspector General for Tax Administration (TIGTA) issued a report on the IRS’s efforts to ensure its various applications provide complete and accurate audit trails. TIGTA Rep’t No. 2020-20-033 (8/4/20) (see related news story).
IRS withdraws, reproposes regs. on nongovernment attorneys’ participation in examinations
The IRS withdrew proposed regulations first issued in 2018 regarding nongovernment persons who are authorized to participate in examinations of books and witnesses as a Sec. 6103(n) contractor. It issued new proposed regulations on the subject, which incorporate changes enacted in Sec. 7602(f). REG-132434-17 (8/6/20).
Relief granted under Sec. 6015(c) precludes taxpayer’s obtaining credit or refund
The Tax Court held that a taxpayer was not entitled to a $2,500 credit or refund after the IRS allowed her partial relief under Sec. 6015(c) with respect to her 2011 taxes. The court noted that the taxpayer paid the entire 2011 tax liability before filing the claim for relief, and Sec. 6015(g)(3) is clear that no credit or refund is allowed as a result of the election under Sec. 6015(c). Yiu, T.C. Summ. 2020-23 (8/5/20).
COVID-19-related relief announced for sport fishing and archery equipment excise taxes
The IRS expanded COVID-19 disaster relief by postponing until Oct. 31, 2020, certain federal excise tax filing and payment deadlines and associated interest, penalties, and additions to tax for taxpayers who owe a federal excise tax for sales of sport fishing or archery equipment for the first quarter of 2020. Notice 2020-48 previously postponed filing and payment deadlines for second-quarter 2020 sport fishing and archery equipment excise taxes. Notice 2020-55 (8/7/20).
Carried interests proposed regulations issued
The IRS issued proposed regulations on the tax treatment of carried interests. REG-107213-18 (8/3/20) (see related news story).
Tax Court rejects numerous partnership deductions taken by couple
The Tax Court held that one of three partnerships in which a husband and wife were partners was a “small partnership” as defined by Sec. 6231(a)(1)(B)(i) for some of the years at issue. The court also (1) sustained an IRS deficiency resulting from the taxpayers’ failure to substantiate a loss they reported in 2006 for two of the partnerships; (2) concluded that Sec. 6234 did not apply for 2007 or 2009 through 2012 but did apply for 2008; (3) determined that, because the notices of deficiency for 2007 and 2009 through 2012 advised the taxpayers that the IRS had determined deficiencies, those notices were valid; (4) found that it had jurisdiction to redetermine the deficiencies at issue; (5) concluded that a 2008 notice of deficiency is treated as a notice of adjustment under Sec. 6234(a), and the taxpayers’ petition is treated as filed for redetermination of adjustments to nonpartnership items under Sec. 6234(c); (6) held that the taxpayers did not provide grounds for challenging the IRS's determination of their capital gain from nonpartnership sources for 2008 or for challenging its disallowance of the couple’s deduction for a partnership loss or net farm rental loss for that year. As a result, the court upheld a declaratory judgment under Sec. 6234(c) for 2008 with respect to those items. Stevens, T.C. Memo. 2020-118 (8/6/20).
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.