Document summaries for the week of Nov. 9, 2020
Tax document summaries for the week of Nov. 9-13, 2020, covering individuals, IRS procedure, and more.
Failure to substantiate, and request reimbursement of, business expenses precludes deduction
The Tax Court held that a journeyman carpenter who worked for a power company and had to travel to various job sites to perform maintenance at those locations could not deduct unreimbursed employee business expenses because he failed to adequately substantiate the deductions and did not request reimbursement from his employer. In addition, the court found that the taxpayer was not entitled to claim a filing status of single for the years at issue because he was still legally married in those years. Santillan, T.C. Summ. 2020-28 (11/9/20).
Taxpayer’s unfettered control over SEP-IRA caused distribution to be taxable
The Tax Court held that a taxpayer who caused his SEP-IRA to lend $209,600 to a limited liability company that he controlled had to include the loan in gross income, even though it was repaid with interest, because the taxpayer had unfettered control over the distribution. Further, because the taxpayer was not 59½ years of age when the distribution was made, he was liable for the 10% additional tax under Sec. 72(t), as well as an accuracy-related penalty. Ball, T.C. Memo. 2020-152 (11/10/20).
Couple entitled to lower charitable deduction for easements that imposed material restrictions
For a husband’s and wife’s contribution of façade easements on three commercial buildings, the Tax Court held that the easements imposed material restrictions that lowered the value of the buildings and, thus, the taxpayers were entitled to a charitable deduction for the contribution. Additionally, because the Tax Court determined that the value of the easements claimed on the taxpayers’ returns was only 15% more than the value determined by the Tax Court, the taxpayers were not liable for Sec. 6662(h) penalties. Kissling, T.C. Memo. 2020-153 (11/12/20).
Because couple were not the prevailing parties, reasonable litigation costs denied
The Tax Court held that, although the government conceded that the IRS Appeals Office abused its discretion in rejecting a married couple's offer to pay a tax deficiency in full via a levy on the couple's individual retirement account, the government's position in the couple's court proceeding was substantially justified because the government admitted its mistake early in the proceedings. As a result, the husband and wife were not the prevailing parties in the court proceeding and consequently were not entitled to reasonable litigation costs under Sec. 7430. Dang, T.C. Memo. 2020-150 (11/9/20).
Signature was not required on notice of deficiency
The Tax Court held that a distribution from a qualified retirement plan a taxpayer who had not yet reached 59½ years of age received was a taxable distribution and the taxpayer was subject to additional tax under Sec. 72(t). The court further held that the IRS notice of deficiency sent to the taxpayer was valid even though it was not signed by an authorized IRS official because, the court noted, those notices are not required to have a signature. Lashua, T.C. Memo. 2020-151 (11/9/20).
Tax Court to resume accepting hand deliveries
The Tax Court announced that it will resume accepting hand-delivered documents at its main courthouse starting Monday, Nov. 16, 2020. It suspended acceptance of hand-delivered documents on Oct. 30. Press Release (11/12/20).
IRS to mask business taxpayer identifying data in transcripts
The IRS announced that to fight identity theft for business taxpayers it will begin masking sensitive identifying data on business tax transcripts, starting Dec. 13. IR-2020-254 (11/13/20) (see related news story).
STATE & LOCAL TAXES
State and local income tax deduction limitation does not apply to partnership and S corporation income
The IRS announced that it intends to issue proposed regulations to clarify that state and local income taxes imposed on, and paid by, a partnership or an S corporation on its income are allowed as a deduction by the partnership or S corporation in computing its non–separately stated taxable income or loss for the tax year of payment. Therefore, the state and local tax deduction limitation does not apply to state and local tax deductions passed through to partners and shareholders who itemize deductions. Notice 2020-75 (11/9/20) (see related news story).
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.