Document summaries for the week of April 5, 2021
Court rejects deductions and credits taken in solar power tax shelter scheme
The Tax Court held that investors in a solar power tax shelter scheme were not entitled to depreciation deductions and tax credits attributable to light-concentrating Fresnel lenses, which were supposedly going to be used as components of a system to generate electricity, because the solar power project never got past the research and development stage and the lenses were never placed in service to produce energy. Olsen, T.C. Memo. 2021-41 (4/6/21).
IRS clarifies when 100% business deduction for certain food and beverages applies
The IRS issued guidance regarding the 100% deduction for expenses that are paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023, for food or beverages provided by a restaurant. In particular, the notice explains when the temporary 100% deduction applies and when the 50% limitation continues to apply for purposes of Sec. 274, which was amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted on Dec. 27, 2020, as part of the Consolidated Appropriations Act, 2021, P.L. 116-260. Notice 2021-25 (4/8/21) (see related news story).
IRS explains suspension of requirement to repay excess advance premium tax credits
The IRS issued a news release to explain the suspension by the American Rescue Plan Act of 2021, P.L. 117-2, of the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the premium tax credit for 2020. IR-2021-84 (4/9/21) (see related news story).
Administration tax proposals released
Treasury released a report describing the Biden Administration’s tax proposals. The Made in America Tax Plan (4/7/21).
Receipt of bitcoin cash as a result of a hard fork is gross income to taxpayer
The Office of Chief Counsel advised that a taxpayer who received bitcoin cash as a result of an Aug. 1, 2017, bitcoin “hard fork” (which occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger) has gross income, because the taxpayer had an accession to wealth under Sec. 61. According to the Chief Counsel’s Office, the date of receipt and the fair market value to be included in income are dependent on when the taxpayer obtained dominion and control over the bitcoin cash. CCA 202114020 (4/9/21).
Chief Counsel addresses costs permissibly capitalized to reseller’s inventory
The Office of Chief Counsel advised that, where a taxpayer has inventories composed solely of goods that are purchased and resold by the taxpayer and is not applying Sec. 263A or Sec. 471(c) in determining the cost of its inventory, the taxpayer may only capitalize to goods in its inventory the invoice price of the resale goods (less trade or other discounts, except strictly cash discounts approximating a fair interest rate, which may be deducted or not at the option of the taxpayer, provided a consistent course is followed) and the transportation or other necessary charges incurred in acquiring possession of the goods. According to the Chief Counsel’s Office, all other amounts incurred by the taxpayer, including the purchasing costs, the storage and handling costs, the costs of preparing the goods for resale, including any inspection costs, packaging costs, and the labor associated with these activities, and selling expenses, including the associated labor, are not considered to be part of the “cost” of the merchandise under Regs. Sec. 1.471-3(b), and, as such, these amounts are not permissibly capitalizable, as they are not part of the “cost” of the goods as defined under Regs. Sec. 1.471-3(b), but may instead be deducted as period costs assuming that such costs have been incurred under Sec. 461 and are otherwise permissibly deductible. CCA 202114019 (4/9/21).
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.