Document summaries for the week of June 22, 2020

Tax document summaries for the week of June 22–26, 2020, covering employee benefits, individuals, IRS procedure,and more.

CORPORATIONS

Supreme Court denies cert. in Altera case

The U.S. Supreme Court denied a petition for certiorari in a case in which the Ninth Circuit upheld the validity of Regs. Sec. 1.482-7A(d)(2), which requires related entities to share the cost of employee stock compensation. Altera Corp., No. 19-1009 (U.S. 6/22/20) (cert. denied).

 

EMPLOYEE BENEFITS

Guidance on RMD rollovers

The IRS issued guidance allowing taxpayers who took a required minimum distribution (RMD) in 2020 from certain retirement accounts to roll those funds back into a retirement account. The guidance provides relief for taxpayers who had already taken RMDs in 2020 before coronavirus legislation suspended the RMD requirement for 2020. Notice 2020-51 (6/23/20) (see related news story).

Prop. regs. issued on qualified transportation fringe benefits

The IRS issued proposed regulations implementing changes to Sec. 274 that disallow a deduction for the expense of any Sec. 132(f) qualified transportation fringe benefit provided to an employee. REG-119307-19 (6/22/20) (see related news story).

 

INDIVIDUALS

RIC shareholders can claim a Sec. 199A deduction for REIT dividends

The IRS issued final regulations allowing taxpayers who are shareholders of regulated investment companies (RIC) that receive qualified real estate investment trust (REIT) dividends to treat the dividends the RIC pays to them as Sec. 199A dividends. T.D. 9899 (6/24/20) (see related news story).

Taxpayer cannot claim exemption from taxes for Bible business

The Tax Court held that a taxpayer who operated several Bible-focused websites and internet-based radio stations was liable for income and self-employment taxes, and substantial penalties for failing to file income tax returns and pay income and self-employment taxes for years 2005–2010. The court rejected the taxpayer’s argument that he was a functioning church entitled to a religious exemption after noting that the income tax laws contain no exemption from tax for an individual “functioning as a church.” Lloyd, T.C. Memo. 2020-92 (6/22/20).

Tax Court holds that taxpayer’s case is moot since no live controversy remained

The Tax Court dismissed a taxpayer’s challenge to an IRS certification with the secretary of State that the taxpayer’s delinquent tax liability was a “seriously delinquent tax debt” under Sec. 7345 because the IRS subsequently reversed the certification as being erroneous and thus the issue was moot. The court also concluded that it did not have jurisdiction under Sec. 7345 or otherwise to consider the taxpayer’s challenge to her underlying liability for penalties the IRS assessed and, because there remained no live controversy between the taxpayer and the IRS over which the court had jurisdiction, the court held that the case was moot. Ruesch, 154 T.C. No. 13 (6/25/20).

 

IRS PROCEDURE

Relief from penalties and interest tied to disruptions in mailing notice and demand letters

The Office of Chief Counsel was asked whether, if the IRS sends notice and demand letters under circumstances where it will not be feasible to determine the precise date that the letters were issued, the IRS has legal authority to grant relief from penalties and interest tied to the mailing of the letters. The Chief Counsel’s Office advised that Sec. 7508A would authorize this relief if the need for the relief is identified in a publicly issued notice. The question relates to notice and demand letter disruption due to the COVID-19 emergency. PMTA-2020-07 (6/22/20).

Sport fishing and archery equipment excise taxes postponed

The IRS postponed 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 second quarter of 2020. Notice 2020-48 (6/23/20).

IRS postpones deadlines for tornado victims

The IRS announced that victims of the April tornadoes, severe storms, and flooding that took place in parts of Mississippi, South Carolina, and Tennessee will have until Oct. 15, 2020, to file various individual and business tax returns and make tax payments. IR-2020-126 (6/23/20).

Tax Court to start receiving mail again on July 10

The U.S. Tax Court announced that it will resume receiving mail on July 10. Items being held by the U.S. Postal Service and private delivery services will be delivered on that day. U.S. Tax Court Press Release (6/19/20).

Chief Counsel addresses effect of superseding returns on the statute of limitation

The Office of Chief Counsel advised that, for purposes of Sec. 6501 and the determination of when the statute of limitation begins in a situation where a return is filed and then a second return is subsequently filed before the return due date (i.e., a superseding return), the statute of limitation is not affected because a return filed before the last day prescribed for filing is deemed filed on the last day. However, the Chief Counsel’s Office noted, where the first return is filed before the last date prescribed for filing, and a second return is subsequently filed during the extension period, the statute would begin running on different dates and, under Zellerbach Paper Co., 293 U.S. 172 (1934), the original return, not the superseding return, starts the limitation periods under both Sec. 6501 and, for refunds, Sec. 6511. CCA 202026002 (6/26/20).

IRS need not show reasonable basis for investigation for summons to be enforced

The Sixth Circuit upheld a district court’s order enforcing the IRS’s third-party summonses seeking a taxpayer’s records and dismissing her petitions to quash those summonses. The court rejected the taxpayer’s argument that the IRS must establish a “reasonable basis” for its investigation, which normally applies to John Doe summonses, before its summonses can be enforced. Byers, No. 19-1893 (6th Cir. 6/26/20).

 

PARTNERSHIPS

Guidance addresses statute of limitation for Sec. 965 adjustments for partnerships

The Office of Chief Counsel provided guidance on the statute of limitation for adjustments relating to Sec. 965 for various types of partnerships. PMTA-2020-08 (6/22/20).

Court rejects partners’ deductions for easement contribution and their challenge to proceeds regulation

In two related cases, the Tax Court held that, because a deed of easement transferred by a partnership to a Sec. 170 charitable organization reduced the donee’s share of the proceeds in the event of extinguishment by the value of improvements (if any) made by the donor, the partnership did not satisfy the perpetuity requirement of Sec. 170(h)(5)(A) and no charitable deduction was allowed for the transfer. The court rejected the taxpayers’ challenge to the proceeds regulation (Regs. Sec. 1.170A-14(g)(6)(ii)). The taxpayers had argued that (1) the requirement that an easement deed allocate the economic benefit of subsequent improvements made (and paid for) by the landowner to the donee upon termination of the easement lacked a rational basis, and (2) the “proportionate value” provision in the regulation was ambiguous. Lumpkin One Five Six, LLC, T.C. Memo. 2020-94, and Lumpkin HC, LLC, T.C. Memo. 2020-95 (6/23/20).

Conservation easement denied; court upholds 40% gross valuation misstatement penalty

The Tax Court held that the IRS properly disallowed a charitable deduction claimed by a partnership for conservation easements where the conservation purpose underlying the easements was not protected in perpetuity as required by Sec. 170(h)(5)(A) because the charitable grantee was not absolutely entitled to a proportionate share of the proceeds in the event the property was sold following a judicial extinguishment of the easement. The court also upheld the IRS’s assessment of a 40% gross valuation misstatement penalty. Plateau Holdings, LLC, T.C. Memo. 2020-93 (6/23/20).

Newsletter Articles

50th ANNIVERSARY

50 years of The Tax Adviser

The January 2020 issue marks the 50th anniversary of The Tax Adviser, which was first published in January 1970. Over the coming year, we will be looking back at early issues of the magazine, highlighting interesting tidbits.

PRACTICE MANAGEMENT

2019 tax software survey

This annual survey shows how CPAs rate the tax preparation software they used during last tax season and how it handled the recent tax law changes.