Document summaries for the week of March 9, 2020
Tax document summaries for the week of March 9–13, 2020, covering individuals and IRS procedure.
IRS addresses HDHPs and COVID-19 testing
To facilitate the nation’s response to the 2019 novel coronavirus (COVID-19), the IRS issued guidance providing that a health plan that otherwise satisfies the requirements to be a high-deductible health plan (HDHP) under Sec. 223(c)(2)(A) will not fail to be an HDHP under Sec. 223(c)(2)(A) merely because the health plan provides benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self-only or family) for an HDHP. Therefore, an individual covered by such an HDHP will not be disqualified from being an eligible individual under Sec. 223(c)(1) who may make tax-favored contributions to a health savings account. Notice 2020-15 (3/11/20) (see related news story).
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 on 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), as reflected by the application of Sec. 430(h)(2)(C)(iv). Notice 2020-16 (3/12/20).
Penalty tax under Sec. 72(t) does not violate the Constitution
The Tax Court held that the Sec. 72(t) additional 10% penalty tax on early retirement plan distributions does not violate the equal protection component of the Due Process Clause of the Fifth Amendment to the U.S. Constitution. The court concluded that the age and disability classifications under Sec. 72(t)(2) involve neither a substantive constitutional right or freedom nor a suspect classification and, as applied to a taxpayer who received early distributions from her retirement plan, Sec. 72(t) is valid because the age and disability classifications established by the statute bear a reasonable relationship to a legitimate government purpose. Conard, 154 T.C. No. 6 (3/10/20).
Taxpayer can deduct rental expenses for home in which he operated a picture-framing business
The Tax Court held that a taxpayer who operated a picture-framing business in a house in a residential community was entitled to deduct over $38,000 that he paid in rent for the house. The court rejected the IRS’s reliance on Sec. 280A in disallowing the rental expense after noting that the taxpayer did not use the house as a residence, and thus Sec. 280A was inapplicable. Benton, T.C. Summ. 2020-12 (3/11/20).
Couple cannot challenge tax liability they had an opportunity to dispute
The Tax Court held that a couple seeking relief from a federal tax lien could not challenge the underlying tax liability in a Collection Due Process proceeding because the couple had a prior opportunity to dispute the tax liability within the meaning of Sec. 6330(c)(2)(B). The court noted that the couple were offered administrative review in Appeals, which they accepted, and the Appeals officer had relieved them of some of their income tax liability. Lander, 154 T.C. No. 7 (3/12/20).
Taxpayer cannot deduct loss of unrealized income
The Tax Court held that a taxpayer was not entitled to a loss deduction on account of his Federal Employees Retirement System disability annuity benefits’ being reduced by the amount he received as Social Security Disability Insurance benefits. The court noted that it is well established that no deduction is allowed under any Code section for the loss of unrealized income by a cash-basis taxpayer. Staples, T.C. Memo. 2020-34 (3/11/20).
Court rejects postage meter mark in favor of USPS postmark, making petition untimely
With respect to a couple’s Tax Court petition, which was in an envelope bearing a postage meter mark dated one day earlier than the U.S. Postal Service postmark on the envelope, the Tax Court held that the petition was not timely filed under Sec. 6213(a) or Sec. 7502. However, the court said, the couple could still pay the determined amount, file a claim for refund, and then (if the claim is denied or not acted on within six months) bring a suit for refund in the appropriate federal court. Thomas, T.C. Memo. 2020-33 (3/11/20).
IRS allows high-deductible plans to cover coronavirus testing
The IRS issued guidance providing that a health plan that otherwise satisfies the requirements to be a high-deductible health plan (HDHP) under Sec. 223(c)(2)(A) will not fail to be an HDHP merely because it provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self-only or family) for an HDHP. Notice 2020-15 (3/11/20) (see related news story).
PRACTICE & STANDARDS
Chief Counsel’s Office revises form and appearance of Tax Court submissions
The Office of Chief Counsel announced new and revised Chief Counsel guidelines regarding the form and appearance of all documents filed with the Tax Court, including 14-point Times New Roman as the standard font for all such documents. In an era when most court papers are drafted, filed, and viewed electronically, the Chief Counsel’s Office remarked, the Courier font currently being used, which was originally designed in the 1950s for electric typewriters, is outdated. CC-2020-004 (3/12/20).
Tax Court closes building, cancels trial sessions
The Tax Court announced that the Tax Court building is closed to visitors until further notice. Petitions can be hand-delivered, and the court will continue to receive and process mail. Trial sessions around the country through the end of April have been canceled. U.S. Tax Court Press Release (3/13/20).