Document summaries for the week of Sept. 7, 2020
Tax document summaries for the week of Sept. 7–11, 2020, covering individuals, IRS procedure, and more.
IRS was correct in revoking funeral organization’s tax-exempt status
The Tax Court held that a New York nonprofit organization, The Korean-American Senior Mutual Association Inc. (KASMA), is not operated exclusively for one or more exempt purposes as set forth in Sec. 501(c)(3) and the IRS was therefore correct in revoking KASMA’s tax-exempt status. The court concluded that, because KASMA provided burial benefits to its members but did not provide burial benefits to nonmembers of the community, its primary activity conferred a private benefit. The Korean-American Senior Mut. Ass’n, Inc., T.C. Memo. 2020-129 (9/9/20).
IRS to send letters to nonfilers regarding economic impact payment eligibility
The IRS announced that it will start mailing letters to roughly 9 million Americans who typically do not file federal income tax returns and who may be eligible for, but have not registered to claim, an economic impact payment. The IRS is urging those people to register by Oct. 15 to receive the payment by the end of the year. IR-2020-203 (9/8/20).
Tax Court rejects taxpayer’s request to have her case remanded to IRS Appeals Office
The Tax Court, noting that it has previously declined to remand stand-alone innocent spouse cases under Sec. 6015(f), denied a request by a taxpayer seeking innocent spouse relief to have her case remanded to the IRS Appeals Office so that she could submit additional evidence into the administrative record. The Tax Court held that Sec. 6015(e)(7), which was enacted by the Taxpayer First Act, P.L. 116-25, and is effective on or after July 1, 2019, did not apply to the taxpayer’s situation and, therefore, the taxpayer is free to introduce at trial any competent evidence she desires. Sutherland, 155 T.C. No. 6 (9/8/20).
Taxpayer stationed in Afghanistan was not entitled to foreign earned income exclusion
The Eleventh Circuit affirmed a Tax Court decision that a taxpayer who worked in Afghanistan was not entitled to the foreign earned income exclusion under Sec. 911(a) for 2011 and 2012 because her tax home was in the United States during those years and she thus did not have a foreign tax home. Haskins, No. 20-10692 (11th Cir. 9/8/20).
Taxpayer liable for fraud penalties for failing to report income from construction business
The Tax Court held that (1) an individual who ran a construction business as a sole proprietorship failed to report all of the business’s income on his 1999 and 2000 tax returns, and (2) the notice of deficiency sent by the IRS with respect to the related underpayments of tax was timely mailed. The court also concluded that the taxpayer was liable for the civil fraud penalties under Sec. 6663(b) for the years at issue after noting that he dealt extensively in cash, did not maintain adequate books and records, and had been found guilty by a jury in 2009 of corruptly endeavoring to obstruct and impede the tax laws. Belanger, T.C. Memo. 2020-130 (9/10/20).
IRS issues 2020–2021 special per diem rates
The IRS issued the following 2020–2021 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home: (1) the special transportation industry meal and incidental expenses rates; (2) the rate for the incidental-expenses-only deduction; and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method. The rates are effective for per diem allowances for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that are paid to any employee on or after Oct. 1, 2020, for travel away from home on or after Oct. 1, 2020. For purposes of computing the amount allowable as a deduction for travel away from home, the rates are effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after Oct. 1, 2020. Notice 2020-71 (9/10/20) (see related news story).
COVID-19 testing is not minimum essential coverage
The IRS issued interim guidance that addresses whether certain Medicaid coverage of COVID-19 testing and diagnostic services is minimum essential coverage for purposes of the Sec. 36B premium tax credit. The IRS also announced that it intends by regulation to add Medicaid coverage of COVID-19 testing and diagnostic services to the list of health care coverage that is not minimum essential coverage under a government-sponsored program. Notice 2020-66 (9/9/20) (see related news story).
Tax liability not dischargeable in bankruptcy
The Eleventh Circuit affirmed a district court decision that the taxpayers’ tax liability was not dischargeable in bankruptcy because the taxpayers willfully attempted to evade or defeat that liability. Feshbach, No. 19-10060 (11th Cir. 9/9/20).
IRS provides asset/liability percentages needed by foreign insurance companies
The IRS issued guidance providing the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Sec. 842(b) for tax years beginning after Dec. 31, 2018. Instructions are provided for computing foreign insurance companies’ liabilities for the estimated tax and installment payments of estimated tax for tax years beginning after Dec. 31, 2018. Rev. Proc. 2020-41 (9/8/20).
IRS posts interest rates on Farm Credit System loans
The IRS issued a list of the average annual effective interest rates on new loans under the Farm Credit System. This revenue ruling also contains a list of the states within each Farm Credit System Bank Territory. Rev. Rul. 2020-17 (9/8/20).
IRS allows e-signatures on more forms
The IRS added six forms to the list of forms that are temporarily permitted to be filed using e-signatures due to the coronavirus pandemic. IR-2020-206 (9/10/20) (see related news story).
IRS postpones due date for reporting and paying certain Sec. 4971 excise taxes
The IRS announced the postponement, until Jan. 15, 2021, of the due dates for reporting and paying the excise taxes under Sec. 4971(a)(1) and Sec. 4971(f)(1) with respect to certain delayed minimum required contributions to a single-employer defined benefit plan. The postponement applies with respect to a required contribution to which the extended due date under Section 3608(a) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, applies. Announcement 2020-17 (9/10/20).
Return filed without IP PIN started limitation period
The Tax Court held that, when a taxpayer e-filed his 2013 tax return on Oct. 15, 2014, that submission triggered the running of the Sec. 6501(a) limitation period even though the IRS’s software rejected the return for failure to include an identity protection personal identification number (IP PIN) and the taxpayer refiled the return on April 30, 2015. The court concluded that the return filed in 2014 without the IP PIN was a properly filed return and, thus, there was no reason to allow the IRS to toll the statute of limitation. Fowler, 155 T.C. No. 7 (9/9/20).
Ruling analyzes whether insurance company has a change in basis of computing reserves
The IRS issued a ruling involving a life insurance company that issues life insurance and annuity contracts directly, and also reinsures the risks on such contracts issued by other companies, and is required to determine life insurance reserves under Sec. 807(d) with respect to both directly written and reinsured contracts and to take net increases or decreases in the reserves into account in computing life insurance company taxable income. In the ruling, the IRS describes 10 situations and then rules on whether there is a change in basis of computing life insurance reserves under Sec. 807(f), as amended by the law known as the Tax Cuts and Jobs Act, P.L. 115-97, with respect to each situation. Rev. Rul. 2020-19 (9/9/20).
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.