Document summaries for the week of April 12, 2021
Tax document summaries for the week of April 12–16, 2021, covering employee benefits, individuals, and more.
IRS updates weighted average interest rates, yield curves, and segment rates
The IRS issued a notice providing 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).The notice also provides 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). In addition, the notice also provides the 24-month average segment rates for earlier periods for plan years beginning in 2020 and 2021, determined under Sec. 430(h)(2)(C)(iv), reflecting amendments made by Section 9706(a) of the American Rescue Plan Act, P L. 117-2. Notice 2021-27 (4/13/21).
Court upholds fraud penalties on taxpayer who failed to file returns
The Tax Court held that the IRS met its burden in proving that a taxpayer failed to file tax returns for 1999–2001 and that the IRS appropriately reconstructed the taxpayer’s gross income for those years in preparing substitutes for return. The court also concluded that the taxpayer’s failure to file those returns was fraudulent and the taxpayer was thus liable for the fraud penalty under Sec. 6651(f) as well as the penalty for failing to pay tax and the penalty for failure to pay estimated tax. Flynn, T.C. Memo. 2021-43 (4/13/21).
IRS announcement on excess premium tax credits for 2020
The IRS announced that taxpayers who may have had excess Sec. 36B premium tax credits to report for the 2020 tax year are not required to file Form 8962, Premium Tax Credit, or report an excess advance premium tax credit (APTC) repayment on their 2020 Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors, Schedule 2, line 2, when they file. IR-2021-84 (4/12/21) (see related news story).
Foreign person opportunity zone requirements proposed
The IRS issued proposed regulations with requirements that certain foreign persons and certain foreign-owned partnerships must meet in order to elect the opportunity zone income tax benefits provided by Sec. 1400Z-2. REG-121095-19 (4/14/21).
IRS provides relief from penalty for failure to deposit employment taxes
The IRS issued guidance supplementing previously issued guidance in Notice 2020-22, which provides for penalty relief under Sec. 6656 for an employer’s failure to timely deposit employment taxes with the IRS. The notice extends the penalty relief provided in Notice 2020-22 to apply to deposits of employment taxes reduced in anticipation of the following credits: (1) paid sick and family leave credits, as enacted under the Families First Coronavirus Response Act, P.L. 116-127, and subsequently amended, for the period beginning Jan. 1, 2021, and ending March 31, 2021; (2) paid sick and family leave credits under Secs. 3131, 3132, and 3133, as added by the American Rescue Plan Act (ARPA), P.L. 117-2, for qualified leave wages paid with respect to the period beginning April 1, 2021, and ending Sept. 30, 2021; (3) the employee retention credit, enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and subsequently amended, with respect to the period beginning Jan. 1, 2021, and ending June 30, 2021; (4) the employee retention credit under Sec. 3134, as added by ARPA, with respect to qualified wages paid with respect to the period beginning July 1, 2021, and ending Dec. 31, 2021; and (5) the credit for continuation coverage premium assistance under Sec. 6432, as added by ARPA, for COBRA continuation coverage premiums not paid by assistance-eligible individuals for that coverage during the period beginning April 1, 2021, and ending Sept. 30, 2021. Notice 2021-24 (4/13/21) (see related news story).
IRS nonacquiescence to Schieber decision
The IRS announced its nonacquiescence to the holding in the Tax Court decision in Schieber, T.C. Memo. 2017-32, that an interest in a defined benefit pension plan is not an asset for purposes of applying the insolvency exclusion in Sec. 108. Action on Decision 2021-1 (4/12/21).
IRS issues applicable federal rates for May 2021
The IRS issued a ruling containing the applicable federal rates for May 2021 for purposes of Sec. 1274(d), Sec. 1288(b), and Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Sec. 42(b)(1) for buildings placed in service during the current month, the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Sec. 7520. Rev. Rul. 2021-8 (4/15/21).
IRS seeks public input for its 2021–2022 Priority Guidance Plan
The IRS is inviting the public to submit recommendations for items to be included on its July 1, 2021, to June 30, 2022, Priority Guidance Plan. Treasury’s Office of Tax Policy and the IRS use the Priority Guidance Plan each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. Notice 2021-28 (4/14/21).
Shareholder realizes ordinary income on split-dollar life insurance arrangement
The Tax Court held that, because a compensatory split-dollar life insurance arrangement afforded benefits to the sole shareholder of an S corporation in his capacity as an employee of the S corporation, those benefits may not be characterized as a Sec. 301(a) distribution by the S corporation to the shareholder on its stock. The court also concluded that, for purposes of taxing employee fringe benefits, the sole shareholder is treated as a partner of a partnership and the economic benefits he realized from the compensatory split-dollar life insurance arrangement are therefore taxable under Sec. 707(c) as guaranteed payments and, thus, as ordinary income. De Los Santos, 156 T.C. No. 9 (4/12/21).