Document summaries for the week of Sept. 14, 2020

Tax document summaries for the week of Sept. 14–18, 2020, covering employee benefits, IRS procedure, and more.

CORPORATIONS

Final regs. on the rehabilitation credit

The IRS issued final regulations regarding the rehabilitation credit and the provision that allows taxpayers to now claim the credit over a five-year period, which was enacted in the law known as the Tax Cuts and Jobs Act, P.L. 115-97. T.D. 9915 (9/15/20).

 

EMPLOYEE BENEFITS

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 as to 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). Notice 2020-72 (9/15/20).

 

EXEMPT ORGANIZATIONS

Final regs. on the Sec. 4968 excise tax on college net investment income

The IRS issued final regulations on the Sec. 4968 excise tax, which applies to the net investment income of certain private colleges and universities. T.D. 9917 (9/18/20).

 

INDIVIDUALS

Premium tax credit unaffected by zeroing of personal exemptions

The IRS clarified in final regulations that a taxpayer’s ability to claim the health care premium tax credit is unaffected by the reduction of the personal exemption deduction to zero for tax years beginning after 2017 and before 2026, if the taxpayer is not the dependent of another taxpayer and is allowed a personal exemption deduction for individuals in the taxpayer’s family who are properly listed on the taxpayer’s return. T.D. 9912 (9/16/20) (see related news story).

Final regulations define ‘qualifying relative’

The IRS issued final regulations under which the reduction in the personal exemption amount to zero for tax years 2018–2025 will not be taken into account in determining whether a person is a qualifying relative under Sec. 152(d)(1)(B). T.D. 9913 (9/16/20) (see related news story).

No deduction allowed of purported unreimbursed employee business expenses

The Tax Court held that a taxpayer who worked as an outside sales representative for a global shipping company was not entitled to deduct claimed unreimbursed employee business expenses relating to travel, a cell phone, the use of her home, meals, grocery items, clothing, grooming, and postage. The court found that the expenses were personal or that the taxpayer either did not adequately substantiate them or did not request reimbursement from her employer to which she would have been entitled. Armstrong, T.C. Summ. 2020-26 (9/17/20).

Incarcerated taxpayer liable for tax deficiency in year he did not file return

The Third Circuit affirmed a Tax Court decision holding that a taxpayer who received a taxable pension distribution in 2013 but did not file a return for that year was liable for the tax deficiency shown on a substitute return the IRS prepared. The taxpayer argued that his incarceration should excuse his failure to file a return or to pay tax beyond the amount withheld from his pension payment. George, No. 20-1023 (3d Cir. 9/17/20).

 

INTERNATIONAL

IRS defers applicability dates for foreign currency guidance

The IRS announced in a notice it intends to amend regulations under Sec. 987 to defer by one additional year the applicability of certain final regulations under Sec. 987 and certain related final regulations. As a result, the regulations would apply to tax years beginning after Dec. 7, 2021. Notice 2020-73 (9/18/20).

 

IRS PROCEDURE

IRS issues October 2020 applicable federal rates

The IRS issued a ruling that prescribes the applicable federal rates for October 2020. The ruling provides various prescribed rates under Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. Rev. Rul. 2020-20 (9/15/20).

Court rejects whistleblower claim involving German court, judges, and prosecutors

The Tax Court held that the IRS did not abuse its discretion when it rejected a whistleblower claim by a foreign national because the person making the claim did not provide specific or credible information regarding a federal tax violation. The court noted that the foreign national did not provide support for his proposition that a German court was required to file with the IRS Form 1099-OID, Original Issue Discount, or that German judges or prosecutors were required to file Forms 1040. Friedel, T.C. Memo. 2020-131 (9/17/20).

IRS did not abuse its discretion in rejecting whistleblower claim involving German insurer

The Tax Court held that the IRS Whistleblower Office did not abuse its discretion in rejecting a whistleblower claim by a foreign national on the ground that the claim did not provide information regarding any federal tax violation. The claim identified as targets a German insurance company and its managing director. The court noted that none of the parties involved in the claim was a U.S. person or entity. Damiani, T.C. Memo. 2020-132 (9/17/20).

State and local governments are eligible for Section 530 relief

The Office of Chief Counsel advised that relief under Section 530 of the Revenue Act of 1978 (Section 530) is available to state and local governments with respect to workers who perform services that are included under an agreement entered into pursuant to Section 218 of the Social Security Act (Section 218 agreement), for both federal income tax withholding and Federal Insurance Contributions Act tax purposes. According to the Chief Counsel’s Office, the mere fact that the workers at issue are workers who perform services that are included under a Section 218 agreement does not prohibit the application of Section 530 relief if the state or local government meets all the requirements of Section 530. CCA 202038010 (9/18/20).

Tax relief for victims of Oregon wildfires

The IRS announced that victims of Oregon wildfires and straight-line winds that began Sept. 7 have until Jan. 15, 2021, to file various individual and business tax returns and make tax payments. OR-2020-03 (9/16/20).

 

S CORPORATIONS

Final regs. issued on eligible terminated S corporations

The IRS issued final regulations under Secs. 481(d) and 1371(f) regarding the treatment of “eligible terminated S corporations” (ETSCs), a new provision added by the law known as the Tax Cuts and Jobs Act, P.L. 115-97. T.D. 9914 (9/15/20) (see related news story).

State nonprofit law precludes passthrough of corporation’s losses

The Tax Court held that an officer/director of a corporation, which was organized under the Kentucky Nonprofit Corporation Act and for which a retroactive S corporation election had been made, was not entitled to claim passthrough losses from the corporation on his individual tax return. The court found that, subject to Kentucky law and the corporation’s articles of incorporation, the taxpayer held no ownership interest in the corporation equivalent to that of a shareholder for purposes of applying Subchapter S. Thus, the court stated that it need not address the IRS’s additional contention that the corporation’s S election was invalid. Deckard, 155 T.C. No. 8 (9/17/20).

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.

TAX RELIEF

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.