Document summaries for the week of Dec. 28, 2020
Tax document summaries for the week of Dec. 28, 2020–Jan. 1, 2021, covering individuals, IRS procedure, and more.
ESTATES, TRUSTS & GIFTS
IRS proposes $67 fee for estate tax closing letters
The IRS proposed to start charging a $67 fee to issue an estate tax closing letter. The fee requirement would be effective 30 days after the proposed regulations are finalized. REG-114615-16 (12/31/20).
Taxpayer’s refund claim was timely based on COVID-related guidance extending certain deadlines
The Office of Chief Counsel advised that, while a taxpayer’s 2016 refund claim on a delinquent return was originally due by April 15, 2020, Notice 2020-23 postponed the due date for the claim to July 15, 2020. Thus, the Chief Counsel’s Office concluded, when the taxpayer filed his refund claim in June 2020, the claim was timely. CCA 202053015 (12/31/20).
Payments received under Seafood Trade Relief Program are excludible from income
The Office of Chief Counsel advised that members of a federally recognized Indian tribe who are excluding income from fishing rights-related activity under Sec. 7873 may also exclude payments received under the Seafood Trade Relief Program (STRP) from income. The Chief Counsel’s Office said that it believed the STRP payments received by the tribal fisherman are income derived from a fishing rights-related activity of the tribe, as described in Sec. 7873(a), and are meant to offset the loss of income from fish exports due to retaliatory tariffs imposed by foreign governments. CCA 202053014 (12/31/20).
Taxpayer cannot deduct premium on policy relating to conservation easement donation
The Office of Chief Counsel advised that a taxpayer could not deduct an insurance premium payment relating to a policy issued in connection with the donation of a conservation easement because the payment was not directly or proximately connected to any trade, business, or income-producing activity of the taxpayer. The Chief Counsel’s Office concluded that the premium was not deductible under Sec. 162(a) or Secs. 212(1) or 212(2) and, because the premium was part of a contractual arrangement to pay a nondeductible tax, it was also not deductible under Sec. 212(3). CCA 202053010 (12/31/20).
Safe harbor allows qualified residential living facilities to be treated as real property trades or businesses
The IRS issued a safe-harbor procedure that allows a trade or business that manages or operates a qualified residential living facility to be treated as a real property trade or business, solely for purposes of qualifying to make the election under Sec. 163(j)(7)(B) to be an electing real property trade or business. For this purpose, a “qualified residential living facility” is defined as a residential living facility that: (1) consists of multiple rental dwelling units within one or more buildings or structures that generally serve as primary residences on a permanent or semipermanent basis to individual customers or patients; (2) provides supplemental assistive, nursing, or other routine medical services; and (3) has an average period of customer or patient use of individual rental dwelling units of 30 days or more. Rev. Proc. 2021-9 (12/29/20).
IRS extends safe harbor for renewable energy projects
The IRS provided an extension of the safe harbor for taxpayers developing renewable energy projects offshore or on federal land. Notice 2021-05 (12/31/20).
IRS updates adequate disclosure rules
The IRS identified circumstances under which the disclosure on a taxpayer’s income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under Sec. 6662(d) (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under Sec. 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. Rev. Proc. 2020-54 (12/28/20).
IRS posts specifications for substitute forms and schedules
The IRS provided guidelines and general requirements for the development, printing, and approval of the 2020 substitute tax forms. This procedure will be reproduced as the next revision of Publication 1167, General Rules and Specifications for Substitute Forms and Schedules. Rev. Proc. 2019-35 is superseded. Rev. Proc. 2020-55 (12/28/20).
Extension allowed for filing 2019 tax returns does not affect refund claims for 2019 taxes
The Office of Chief Counsel advised that, although Notice 2020-23 gives taxpayers until July 15, 2020, to file their 2019 returns, it does not affect the date on which any withheld tax or estimated tax for 2019 is deemed paid. Thus, if a taxpayer wants to claim a refund of estimated tax or withheld tax for 2019, the taxpayer cannot wait until July 17, 2023, to file a claim, but instead must file that refund claim on or before April 17, 2023. CCA 202053013 (12/31/20).
Chief Counsel’s Office confirms that no additional documents need to be executed
The Office of Chief Counsel addressed a previous discussion regarding an unidentified sales disclosure form and confirmed that the IRS had satisfied the statutory requirements when providing a deed relating to the disclosure form. According to the Chief Counsel’s Office, the IRS did not need, and should not, execute additional documents. CCA 202053012 (12/31/20).
Chief Counsel’s Office addresses recovery period criteria for solar property qualifying for bonus depreciation
In response to a question regarding the recovery period requirement for purposes of determining whether a solar energy system is eligible for the additional first year depreciation deduction under Sec. 168(k) (bonus depreciation), the Office of Chief Counsel noted that, pursuant to Sec. 168(k)(2)(A)(i)(I), one of the requirements to be eligible for bonus depreciation is that the property must have a recovery period of 20 years or less under Sec. 168. Accordingly, the Chief Counsel’s Office advised that, if the solar energy system at issue is described in Sec. 48(a)(3)(A), it will have a five-year recovery period under Sec. 168(c) and would thus meet the 20-year-or-less recovery period requirement under Sec. 168(k)(2)(A)(i)(I) for purposes of qualifying for bonus depreciation. CCA 202053011 (12/31/20).
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.