Document summaries for the week of Aug. 2, 2021
Tax document summaries for the week of Aug. 2–6, 2021, covering individuals, IRS procedure, and more.
Sec. 280E does not violate Eighth or Sixteenth Amendment
The Tax Court held that Sec. 280E does not violate the Eighth or Sixteenth Amendment to the U.S. Constitution. In so holding, the court rejected challenges to tax deficiencies and penalties by a corporation that grew, produced, and sold medical marijuana products. Today’s Health Care II LLC, T.C. Memo. 2021-96 (8/2/21).
Best-selling author is liable for self-employment taxes
The Eleventh Circuit upheld a Tax Court decision that a best-selling author, Karin Slaughter, owed self-employment taxes for 2010 and 2011. The appeals court found no error in the Tax Court’s determination that her trade or business included promotional activities and that all of her publishing income was derived from her trade or business. Slaughter, No. 20-10786 (11th Cir. 8/3/21).
Couple’s high disposable income precludes OIC
The Tax Court upheld an IRS Notice of Federal Tax Lien with respect to a married couple’s unpaid 2012–2016 federal income tax liabilities and upheld the IRS’s rejection of their offer in compromise (OIC). The court concluded that the IRS settlement officer’s rejection of the couple’s $50,000 OIC was justified in light of the couple’s high disposable income and assets. Abraham, T.C. Memo. 2021-97 (8/3/21).
IRS did not abuse its discretion in filing lien
The Tax Court held that the IRS’s filing of a Notice of Federal Tax Lien with respect to a taxpayer’s delinquent taxes was not an abuse of discretion. The court also held that, in a Collection Due Process nonliability case such as this, its decision turns on whether the administrative record shows an abuse of discretion, and the traditional rules of summary judgment are generally not appropriate. Belair, 157 T.C. No. 2 (8/2/21).
IRS Whistleblower Office abused its discretion in rejecting claim
The Tax Court held that a rejection by the IRS Whistleblower Office (WBO) of a whistleblower’s claim was an abuse of discretion. The court found that neither the rationale in the WBO’s rejection letter nor the letter coupled with the administrative record provided a coherent account of the WBO’s determination that was consistent with the regulations. Rogers, 157 T.C. No. 3 (8/2/21).
OPR announces disciplinary sanctions
The IRS Office of Professional Responsibility (OPR) announced recent disciplinary sanctions involving attorneys, CPAs, and enrolled agents. These individuals are subject to the regulations governing practice before the IRS that prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. Announcement 2021-12 (8/2/21).
IRS lists county populations in qualified disaster zones
The IRS advised state and local housing credit agencies that allocate low-income housing tax credits under Sec. 42 of the county and parish-level populations residing in a qualified disaster zone to use in calculating the applicable dollar limitation for 2021 and 2022 as provided in Section 305 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, Division EE of the Consolidated Appropriations Act, 2021, P.L. 116-260. Notice 2021-45 (8/2/21).
Chief Counsel’s memorandum describes IRS’s IVES program
The Office of Chief Counsel issued a memorandum addressing whether the IRS Information Technology’s planned “Solution Concept” for automation of the IRS’s Income Verification Express Service (IVES) (1) meets the requirements of Section 2201 of the Taxpayer First Act, or (2) conforms to the legislative intent underlying Section 2201. The memorandum discusses the IVES program, how a prospective user registers for IVES, and the process for IVES’s disclosures, but redacts the conclusion as well as a description of the Section 2201 “Solution Concept.” PMTA 2021-04 (8/6/21).
Chief Counsel addresses probate court order that extinguished power to add beneficiaries
The Office of Chief Counsel issued a highly redacted memorandum concerning unidentified taxpayers and a probate court order that extinguished such taxpayers’ power to add beneficiaries. The Chief Counsel’s Office cited Rev. Rul. 73-142, in which the IRS ruled that the value of trust property is not includible in the grantor-decedent's gross estate where his power to appoint himself as trustee was effectively extinguished by a lower court decree that was not appealed even though the decree was inconsistent with decisions of the state's highest court, and Rev. Rul. 93-79, relating to retroactive reformation of a trust not binding on third parties. PMTA 2021-05 (8/6/21).
IRS notice addresses employee retention credit applicable to second half of 2021
The IRS issued a notice providing additional guidance for the second half of 2021 on the employee retention credit. The notice (1) amplifies prior guidance provided under Notice 2021-20 and Notice 2021-23, and (2) addresses issues regarding the employee retention credit and recovery startup businesses, severely financially distressed employers, the Paycheck Protection Program, the shuttered venue operators grant, and other miscellaneous issues. Notice 2021-49 (8/4/21) (see related news story).
IRS releases annual automobile depreciation limitation amounts
The IRS issued a revenue procedure which reflects the automobile price inflation adjustments required by Sec. 280F(d)(7) and which provides: (1) two tables of limitations on depreciation deductions for owners of passenger automobiles placed in service by the taxpayer during calendar year 2021; and (2) a table of dollar amounts that must be used to determine income inclusions by lessees of passenger automobiles with a lease term beginning in calendar year 2021. For purposes of this revenue procedure, the term “passenger automobiles” includes trucks and vans. Rev. Proc. 2021-31 (8/6/21) (see related news story).
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.