Document summaries for the week of Aug. 31, 2020
Tax document summaries for the week of Aug. 31–Sept. 4, 2020, covering individuals, IRS procedure, and more.
IRS addresses extension of certain plan amendment deadlines
The IRS issued a revenue procedure that expands the situations in which a plan amendment deadline for discretionary amendments made to qualified pre-approved plans and Sec. 403(b) pre-approved plans may be extended. These modifications are consistent with the extensions of the plan amendment deadlines for discretionary amendments set forth in Rev. Proc. 2016-37 with respect to qualified individually designed plans and Rev. Proc. 2019-39 with respect to Sec. 403(b) individually designed plans. Rev. Proc. 2020-40 (9/3/20).
IRS issues Q&A guidance on recent tax law changes
The IRS issued guidance, in the form of questions and answers, with respect to certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the Bipartisan American Miners Act of 2019 (Miners Act), and with respect to deadlines for plan amendments. Specifically, the notice addresses issues dealing with (1) the small employer automatic enrollment credit; (2) the repeal of maximum age for traditional IRA contributions; (3) the participation of long-term, part-time employees in Sec. 401(k) plans; (4) qualified birth or adoption distributions; (5) the provision permitting excluded difficulty of care payments to be taken into account as compensation for purposes of determining certain retirement contribution limitations; and (6) the reduction in minimum age for in-service distributions. Notice 2020-68 (9/2/20).
Settlement not excludable from gross income
The Eleventh Circuit held, in a case of first impression, that taxpayers failed to show they were entitled to exclude from gross income an $800,000 legal settlement they received. The court also held that they could not deduct their litigation expenses as a business expense. McKenny, No. 18-10810 (11th Cir. 9/1/20).
IRS cannot recharacterize stock donations as taxable redemptions
The Tax Court held that the IRS could not recharacterize as taxable redemptions stock donations a married couple made to a Sec. 501(c)(3) nonprofit organization. The court cited Humacid Co., 42 T.C. 894 (1964), and its progeny in concluding that the gifts of the stock were made before the stock gave rise to income by way of a sale of the stock by the nonprofit. Dickinson, T.C. Memo. 2020-128 (9/3/20).
Court denies deductions for numerous unsubstantiated expenses
The Tax Court held that a taxpayer who provided real estate-related services for several different entities was not entitled to deduct travel, meal and entertainment expenses because the court did not find the taxpayer’s travel log and testimony credible and thus concluded that he had not substantiated those deductions. The court also held that the taxpayer could not deduct business losses relating to (1) certain alleged business loans for which he made no collection efforts; (2) computer software for which no basis was substantiated; and (3) an abandoned timeshare for which the taxpayer failed to establish was used in his trade or business or was held for the production of income. Franklin, T.C. Memo. 2020-127 (9/3/20).
Final regs. issued on the BEAT
The IRS issued final regulations on the Sec. 59A base erosion and anti-abuse tax (BEAT). The regulations provide guidance on certain BEAT calculations for groups of related taxpayers, rules permitting taxpayers to waive deductions for purposes of the BEAT, and additional guidance regarding partnerships and anti-abuse rules. T.D. 9910 (9/1/10) (see related news story).
Tax relief for Hurricane Laura victims
The IRS announced that victims of Hurricane Laura, beginning Aug. 22, now have until Dec. 31, 2020, to file various individual and business tax returns and make tax payments. LA-2020-03 (9/1/20).
Settlement offers were not an initial determination of a penalty
The Tax Court held that two settlement offers an IRS revenue agent sent to taxpayers, which required the taxpayers to accept penalties calculated at reduced rates on any subsequently determined underpayments and which the taxpayers rejected, did not constitute an initial determination of a penalty assessment and therefore did not require prior supervisory approval under Sec. 6751(b)(1). The court also concluded that Sec. 6751(b)(1) was satisfied when the revenue agent’s immediate supervisor later approved different penalties, calculated at the statutory rate, even though that supervisor held the position on an interim basis. Thompson, 155 T.C. No. 5 (8/31/20).
IRS settlement officer acted within her discretion in sustaining NFTL
The Tax Court held that an IRS settlement officer acted within her discretion in sustaining a Notice of Federal Tax Lien (NFTL) against a taxpayer who owed the IRS more than $58,000 for her 2013, 2014, and 2016 tax years. The court rejected the taxpayer’s contention that she did not receive proper service of the NFTL filing and that the Office of Appeals abused its discretion in its ultimate determination sustaining the NFTL. Savedoff, T.C. Memo. 2020-125 (8/31/20).
IRS updates specifications for private printing of substitute Forms W-2 and W-3
The IRS provided specifications for the private printing of red-ink substitutes for the 2020 Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements. The revenue procedure will be produced as the next revision of IRS Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3. Rev. Proc. 2019-28 is superseded. Rev. Proc. 2020-38 (8/31/20).
IRS issues quarterly interest rates for tax overpayments and underpayments
The IRS issued the rates for interest on tax overpayments and underpayments for the fourth calendar quarter of 2020, beginning Oct. 1, 2020. The interest rates will be 3% for overpayments (2% in the case of a corporation), 3% for underpayments, 5% for large corporate underpayments, and 0.5% on corporate overpayments exceeding $10,000. Rev. Rul. 2020-18 (9/3/20).
Nuclear decommissioning funds regulations issued
The IRS issued final regulations under Sec. 468A relating to deductions for contributions to trusts maintained for decommissioning nuclear power plants and the use of the amounts in those trusts to decommission nuclear plants. The IRS says the regulations revise and clarify certain provisions in existing regulations to address issues that have arisen as more nuclear plants have begun the decommissioning process. T.D. 9906 (9/3/20).
IRS announces centralized partnership audit regime webpage
The IRS has launched a page on its website with information about the centralized partnership audit regime, which was instituted by the Bipartisan Budget Act of 2015, P.L. 114-74. BBA Centralized Audit Regime (9/1/20).
Court rejects loss deduction from circular asset flow through couple’s S corporation
The Tax Court held that a married couple were not entitled to a more than $2 million short-term capital loss deduction in connection with the dissolution of an S corporation to which the couple had transferred personal assets of cash and marketable securities. The court also upheld penalties assessed on the couple after concluding that the transaction at issue did not have economic substance, as it was nothing more than a prepackaged tax strategy designed to create an artificial loss through a circular flow of assets. Daichman, T.C. Memo. 2020-126 (8/31/20).
IRS issues S corporation guidance under foreign-related provisions
The IRS announced it would issue regulations addressing the application of Secs. 951 and 951A to certain S corporations with accumulated earnings and profits, as described in Sec. 316(a)(1). Regulations will also address the treatment of qualified improvement property under the alternative depreciation system of Sec. 168(g) in calculating qualified business asset investment to determine foreign-derived intangible income and global intangible low-taxed income. Notice 2020-69 (9/1/20) (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.