Document summaries for the week of July 13, 2020
Tax document summaries for the week of July 13–17, 2020, covering individuals, IRS procedure, partnerships, and more.
IRS issues monthly corporate yield curve and segment rates
The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2). In addition, the IRS provided guidance as to the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008, and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2020-57 (7/16/20).
Additional coronavirus-related deadline relief provided to hospital organizations
In response to the ongoing COVID-19 pandemic, the IRS issued a notice that extends the relief provided in Notice 2020-23 for hospital organizations that are required to meet the community health needs assessment (CHNA) requirements under Sec. 501(r)(3). Notice 2020-23 postponed until July 15, 2020, the deadline for performing any CHNA requirement due to be completed on or after April 1, 2020, and before July 15, 2020, and this notice provides a further postponement, until Dec. 31, 2020, of the deadline for performing any CHNA requirement due to be completed on or after April 1, 2020, and before Dec. 31, 2020. Notice 2020-56 (7/14/20).
Taxpayers cannot deduct property losses where basis of property was in doubt; penalties rejected
The Tax Court held that married taxpayers who owned rental properties were not entitled to deduct an ordinary loss of $971,988 from their sale of residential property in Gearhart, Ore., because they did not prove their basis in the property exceeded the sale proceeds; and they were required to include in their amount realized on the sale of the Gearhart property nonrecourse debt on the property that was discharged. The court also held that the taxpayers did not realize income from the cancellation of their debt to a bank to the extent they were insolvent when the debt was canceled; did not establish that a partnership in which the husband was a partner allocated a loss to the husband for 2012, but that the husband’s basis in the partnership in 2013 and 2014 was sufficient to allow a partnership loss deduction; and owed self-employment taxes on the guaranteed payments received by the husband in 2012, but not in 2013 and 2014 due to the reduction on net earnings for partnership losses. Finally, the court rejected penalties the IRS assessed after holding that the IRS did not meet its burden of establishing compliance with Sec. 6751(b)(1) because it did not demonstrate that the individual who signed the civil penalty approval form was “the immediate supervisor of the individual” who made the determination to assess penalties. Duffy, T.C. Memo. 2020-108 (7/13/20).
Canceled debt, unsecured by property, is not qualified principal residence indebtedness
The Tax Court held that, with respect to two loans made to a taxpayer by her employer in order to help her pay for a home upon moving to California for a new job, the cancellation of such debt was not excludible from the taxpayer and her husband’s income as qualified principal residence indebtedness because the loans were not secured by the California property purchased by the taxpayer. In addition, with respect to the taxpayer’s marketing and brand consulting activities, the court concluded that the taxpayer was not engaged in carrying on a trade or business for profit under Sec. 162 and was thus not entitled to any deductions for those activities. Weiderman, T.C. Memo. 2020-109 (7/15/20).
IRS did not abuse its discretion in rejecting OIC offer and making WSJ article part of taxpayer’s record
The Tax Court granted summary judgment to the IRS and upheld the filing of a notice of federal tax lien with respect to an individual whose unpaid federal income tax liabilities stemmed from computational adjustments made by the IRS after a Tax Court decision readjusting the tax reporting of a partnership in which he had participated. The court also concluded that, in rejecting the taxpayer’s offer-in-compromise on the ground that it was not in the best interests of the government, the IRS Office of Appeals did not abuse its discretion when it included, as part of the taxpayer’s record, a Wall Street Journal article detailing benefits the taxpayer received from a corporation of which he was an executive. Elkins, T.C. Memo. 2020-110 (7/16/20).
Mansion was capital asset
The Second Circuit upheld a Tax Court decision that the taxpayers’ historic Newport, R.I., mansion was a capital asset eligible for a capital loss deduction rather than real property used in a trade or business, which would be eligible for an ordinary loss deduction. The appeals court also upheld late-filing additions to tax and accuracy-related penalties against the taxpayers. Keefe, No. 18-2357-ag (2d Cir. 7/17/20).
The IRS provided specifications for the private printing of red-ink substitutes for the 2020 revisions of certain information returns. This procedure will be reproduced as the next revision of IRS Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain Other Information Returns. Rev. Proc. 2019-24 is superseded. Rev. Proc. 2020-35 (7/13/20).
IRS issues August 2020 applicable federal rates
The IRS issued a ruling which prescribes the applicable federal rates for August 2020. The ruling provides various prescribed rates under Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. Rev. Rul. 2020-15 (7/16/20).
Tax Court rejects partnership’s conservation easement donation deduction
In a case involving a partnership’s charitable deduction for the partnership’s donation of a conservation easement, the Tax Court held that the deed granting the conservation easement reduced the donee’s share of the proceeds in the event of extinguishment by the value of improvements (if any) made by the donor, and thus the taxpayer did not satisfy the perpetuity requirements of Sec. 170(h)(5)(A). Furthermore, the court rejected the partnership’s challenge to the validity of Regs. Sec. 1.170A-14(g)(6) and found that the construction of Sec. 170(h)(5) set forth in Regs. Sec. 1.170A-14(g)(6) is valid. Smith Lake, LLC, T.C. Memo. 2020-107 (7/13/20).
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.