Document summaries for the week of June 8, 2020
Tax document summaries for the week of June 8–12, 2020, covering individuals, IRS procedure, and more.
Guidance on employer leave-based donation programs aiding COVID-19 victims
The IRS issued guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the ongoing COVID-19 pandemic. The guidance provides that cash payments employers make to charitable organizations that provide relief to pandemic victims, in exchange for sick, vacation, or personal leave which their employees voluntarily forgo, will not be treated as wages (or compensation, as applicable). Notice 2020-46 (6/11/20) (see related news story).
Tax treatment of direct primary care arrangements and health care sharing ministries
The IRS issued proposed regulations on the tax treatment of amounts paid for certain medical care arrangements, including direct primary care arrangements and health care sharing ministries. REG-109755-19 (6/9/20) (see related news story).
ESTATES, TRUSTS & GIFTS
Chosen wording negates intent to value partnership interests at fixed dollar amounts
The Tax Court held that two gifts of limited partnership interests that were transferred by a taxpayer were not valued at fixed dollar amounts as the taxpayer had argued but were instead valued at percentage interests. The court noted that, while the intention may have been to transfer dollar values of the limited partner interests, that was not how the gift transfer document was written. Nelson, T.C. Memo. 2020-81 (6/10/20).
Couple liable for tax and penalties after failing to report wage and Subpart F income
The Tax Court held that a couple failed to report certain wage income, as well as Subpart F income, on their 2006 and 2007 tax returns. The court also agreed with the IRS that the couple were liable, under Sec. 6664, for substantial-understatement penalties because the IRS provided sufficient evidence showing that the couple’s understatement of income tax for each of the years at issue was due to negligence and the IRS proved it had gotten the requisite supervisory approval timely. The court rejected the taxpayers’ argument that they relied on the CPA they hired because they did not tell her about all their foreign bank accounts, among other omissions. Flume, T.C. Memo. 2020-80 (6/9/20).
Court takes midpoint of IRS and taxpayer’s valuations in determining easement’s value
In valuing a taxpayer’s conservation easement that covered part of a Colorado ranch he had purchased, the Tax Court relied on the midpoints of the valuations determined by each side’s experts and concluded that the diminution in the value of the taxpayer’s ranch was $648,776 and the conservation easement’s value was $372,919. The Tax Court also sustained the IRS’s adjustments to the taxpayer’s Schedule F travel-related and car and truck expenses deductions because the taxpayer failed to adequately substantiate his deductions. Johnson, T.C. Memo. 2020-79 (6/8/20).
IRS did not abuse its discretion in concluding couple was ineligible for an installment agreement
The Tax Court held that an IRS settlement officer did not abuse her discretion in concluding that a married couple, who owed the IRS over $1.1 million, was ineligible for an installment agreement because they appeared to have the means to satisfy their tax liability. The court noted that the couple made no showing of economic hardship or other special circumstances, reported annual wages exceeding $200,000, and were withdrawing an additional $19,000 per month (or $228,000 annually) from their cryptocurrency account. Strashny, T.C. Memo. 2020-82 (6/11/20).
Taxpayer did not meet requirements of equitable estoppel; deficiency notice is valid
The Tax Court held that there was no substantial evidence of unconstitutional conduct by the IRS, and therefore, the notice of deficiency issued by the IRS to a taxpayer was valid. The court also concluded that the taxpayer did not meet the requirements of equitable estoppel after noting that the taxpayer agreed to, and made, payments on a deficiency and that was not detrimental reliance for the purposes of equitable estoppel. Howe, T.C. Memo. 2020-78 (6/8/20).
Public invited to comment on 2020–2021 Priority Guidance Plan
The IRS is inviting the public to submit recommendations for items to be included in the 2020–2021 Priority Guidance Plan, which the IRS uses each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. While taxpayers are not required to submit recommendations for guidance in any particular format, they should briefly describe the recommended guidance and explain the need for the guidance. Notice 2020-47 (6/10/20).
IRS provides tax relief for new markets tax credit
The IRS is postponing until Dec. 31, 2020, the due dates for making investments, making reinvestments, and expending amounts for construction of real property under Sec. 45D due to be performed or expended on or after April 1, 2020, and before Dec. 31, 2020. Notice 2020-49 (6/12/20).
Automatic procedure extends empowerment zone designation
The IRS issued an automatic procedure for a state or local government in which an empowerment zone is located to extend the empowerment zone designation made under Sec. 1391(a). Specifically, the automatic procedure provides that a state or local government that nominated an empowerment zone is deemed to extend until Dec. 31, 2020, the termination date designated by that state or local government in its empowerment zone nomination (designated termination date), as described in Sec. 1391(d)(1)(B), and provides a procedure for such state or local government to decline this deemed extension of its designated termination date. Rev. Proc. 2020-16 (6/11/20).
Prop. regs. contain new like-kind exchange rules
The IRS issued proposed regulations to reflect statutory changes limiting Sec. 1031 to exchanges of real property. The proposed regulations also provide a rule addressing a taxpayer's receipt of personal property that is incidental to real property the taxpayer receives in the exchange. REG-117589-18 (6/12/20)
IRS issues adjusted applicable dollar amount for determining 2019–2020 PCORTF fee
The IRS issued a notice that provides that the adjusted applicable dollar amount that applies for determining the Patient-Centered Outcomes Research Trust Fund (PCORTF) fee for policy years and plan years ending on or after Oct. 1, 2019, and before Oct. 1, 2020, is equal to $2.54. The notice addresses the recent extension of the fee by the Further Consolidated Appropriations Act, 2020, P.L.116-94, and provides relief for calculating the average number of lives for policy years and plan years that end on or after Oct. 1, 2019, and before Oct. 1, 2020. Notice 2020-44 (6/8/20).
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.