Document summaries for the week of Oct. 26, 2020
Tax document summaries for the week of Oct. 26–30, 2020, covering employee benefits, IRS procedure, and more.
IRS issues 2021 retirement-related COLAs
The IRS issued the 2021 cost-of-living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items. The limitation for defined contribution plans under Sec. 415(c)(1)(A) is increased for 2021 from $57,000 to $58,000; the limitation under Sec. 402(g)(1) on the exclusion for elective deferrals described in Sec. 402(g)(3) remains unchanged at $19,500; the dollar limitation under Sec. 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Sec. 401(k)(11) or Sec. 408(p) for individuals age 50 or over remains unchanged at $6,500; and the dollar limitation under Sec. 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Sec. 401(k)(11) or Sec. 408(p) for individuals age 50 or over remains unchanged at $3,000. Notice 2020-79 (10/26/20) (see related news story).
Company president was responsible person
The Third Circuit affirmed a district court grant of summary judgment against the president of a corporation that failed to pay federal withholding taxes on its employees, making him liable for trust fund recovery penalties. The court held that the IRS’s assessment against the taxpayer as a responsible person was supported by a strong record, and the taxpayer did not meet his burden to rebut that record. Samango, No. 19-2682 (3d Cir. 10/29/20).
IRA and pension income are not excludable in calculating MAGI for purposes of Sec. 469(i) phaseout
The Tax Court held that, in determining the deductible amount of rental real estate losses, a couple who actively participated in their rental real estate activity could not exclude individual retirement account (IRA) and pension income from the Sec. 469(i) phaseout-limitation calculation. The court rejected the couple’s argument that the instructions for Form 8582, Passive Activity Loss Limitations, direct taxpayers to exclude IRA and pension income from the Sec. 469(i) modified adjusted gross income (MAGI) calculation and concluded that the IRS’s MAGI calculation correctly included the full amount of the IRA and other retirement distributions that the couple received for 2014. Sharma, T.C. Memo. 2020-147 (10/29/20).
IRS provides tax-inflation adjustments and tax tables for tax year 2021
The IRS issued a revenue procedure listing the tax year 2021 inflation adjustments for more than 60 tax provisions, including the individual, estate, and trust tax tables. The IRS notes that the Further Consolidated Appropriation Act, 2020, P.L. 116-94, increased the amount of the minimum addition to tax under Sec. 6651(a) for failure to file a tax return within 60 days of the due date of the return (determined with regard to any extensions of time for filing) and, for returns with a due date (including extensions) after Dec. 31, 2019, the amount of the addition to tax is not less than the lesser of $435 (increased from $330) or 100% of the amount required to be shown as tax on those returns, and the $435 amount is adjusted for inflation. Rev. Proc. 2020-45 (10/26/20) (see related news story).
Tax Court stops accepting hand-delivered documents
The U.S. Tax Court announced that effective Oct. 30 and until further notice it is suspending in-person acceptance of hand-delivered documents. The Tax Court will continue to receive mail and other deliveries, and the court’s eAccess and eFiling systems remain operational. Tax Court Press Release (10/29/20).
Proposed regs. on low-income housing credit average income test
The IRS issued proposed regulations on the Sec. 42(g)(1)(C) average income test for the low-income housing credit. REG-119890-18 (10/29/20).
Determining fraud penalties in syndicated conservation easement cases — TEFRA partnerships
The Office of Chief Counsel advised that the procedures for determining the applicability of the civil fraud penalty against a partnership subject to the Tax Equity and Fiscal Responsibility Act (TEFRA) that participated in a syndicated conservation easement transaction are the same as those for establishing civil fraud penalties against a partnership subject to TEFRA generally; i.e., through all facts and circumstances that establish the willful intent to evade tax at the partnership level. The Chief Counsel’s Office noted that, under TEFRA, the IRS determines the applicability of the civil fraud penalty at the partnership level and then the penalty is directly assessed on the partners of the partnership through a notice of computational adjustment. CCA 202044010 (10/30/20).
Determining fraud penalties in syndicated conservation easement cases — BBA partnerships
The Office of Chief Counsel advised that procedures for determining the applicability of the civil fraud penalty against a partnership subject to the Bipartisan Budget Act of 2015 (BBA) that participated in a syndicated conservation easement transaction are the same as those for establishing a civil fraud against a partnership subject to the BBA generally; i.e., through all facts and circumstances that establish the willful intent to evade tax at the partnership level. Under the BBA, the Chief Counsel’s Office stated, if the IRS determines a civil fraud penalty at the partnership level, then the partnership is liable for the penalty on any imputed underpayment computed on the adjustments for that tax year, or, if the partnership elects to push out the adjustments, the reviewed-year partners are liable for the fraud penalty on any correction amount that is greater than zero. CCA 202044009 (10/30/20).
Advice on whether collection statute expiration date is tolled by probate proceeding
The Office of Chief Counsel was asked whether a collection statute expiration date (CSED) was properly tolled pursuant to Sec. 6503(b) due to an informal probate proceeding. In other words, were the deceased taxpayer’s assets deemed to be “in the control or custody of the court” during the informal probate proceeding such that the CSED was suspended pursuant to Sec. 6503(b)? According to the Chief Counsel’s Office, there is little guidance or authority specifically addressing the extent to which a suspension under Sec. 6503(b) applies, but the Chief Counsel’s Office did advise reviewing the Sixth Circuit’s decision in Estate of Chicorel, 907 F.3d 896 (6th Cir. 2018), which involves a situation that could be analogous. CCA 202044008 (10/30/20).
Taxpayer who claimed substantial amount of false withholdings is not protected by statute of limitation
The Office of Chief Counsel advised that the statute of limitation does not bar assessment of a Sec. 6676 penalty in a situation in which, more than three years ago, a taxpayer filed an income tax return claiming a substantial amount of false withholdings, resulting in an erroneous refund. Because the claiming of the withholdings was fraudulent, the Chief Counsel’s Office said, the statute of limitation does not bar assessment of the Sec. 6676 penalty. CCA 202044007 (10/30/20)