Document summaries for the week of Aug. 23, 2021
Tax document summaries for the week of Aug. 23–27, 2021, covering international tax, individuals, and more.
IRS to amend applicability date of certain foreign withholding regulations
The IRS issued a notice announcing that it intends to amend regulations under Sec. 1446(a) and Sec. 1446(f) to defer the applicability date to Jan. 1, 2023, for provisions relating to: (1) withholding under Sec. 1446(f) on transfers of interests in publicly traded partnerships (PTP interests); (2) withholding under Sec. 1446(a) on distributions made with respect to PTP interests; and (3) withholding under Sec. 1446(f)(4) by partnerships on distributions to transferees. Until the IRS issues these amendments, taxpayers may rely on the provisions in the notice regarding the modified applicability date. Notice 2021-51 (8/24/21).
Chief Counsel addresses foreign withholding tax treatment of payments to microcaptive
The IRS Office of Chief Counsel responded to a request for assistance regarding a proposed withholding tax adjustment in abusive foreign microcaptive cases. The Chief Counsel’s Office noted that if payments by a taxpayer to a microcaptive are not for insurance, then the microcaptive does not qualify as an insurance company under Secs. 831(c) and 816(a) because more than half of the business of the microcaptive was not insurance. In such cases, payments made by a taxpayer to the microcaptive may be properly asserted by a revenue agent to be amounts for which the taxpayer has a burden to prove that it does not have a withholding liability under Sec. 1461. CCA 202134017 (8/27/21).
Tax Court has jurisdiction to review IRS denial of innocent spouse relief
The Tax Court held that when the IRS issues a final determination denying innocent spouse relief on the merits, the court has jurisdiction to determine the appropriate relief available, even if the IRS previously denied relief. Further, because the final IRS determination at issue unambiguously denied innocent spouse relief to the taxpayer on the merits for the two years before the court, the Tax Court found that it had jurisdiction over both years. Vera, 157 T.C. No. 6 (8/23/21).
Taxpayer’s search for new trade or business does not qualify as an active trade or business
The Tax Court held that (1) a taxpayer was not carrying on a trade or business during the year in issue and thus was not entitled to deductions claimed on Schedule C, Profit or Loss From Business, and Schedule E, Supplemental Income and Loss; (2) the taxpayer and his wife were not entitled to a net operating loss (NOL) deduction attributable to an alleged NOL carryover from tax years 2010 and 2011; and (3) the taxpayer and his wife were not liable for an accuracy-related penalty under Sec. 6662(a) because they reasonably relied on a CPA and his firm for their tax return preparation. In so holding, the court found that, after the taxpayer’s homebuilding business went into receivership in 2009, he was no longer carrying on a homebuilding trade or business and rejected the argument that the taxpayer’s search for a new trade or business to acquire was itself an active trade or business. Estate of Morgan, T.C. Memo. 2021-104 (8/23/21).
Absence of records documenting time spent on rental property precludes rental loss deduction
The Tax Court held that a husband and wife were not entitled to deduct mortgage interest expense of $5,533 and $22,310 for tax years 2015 and 2016, respectively, because they did not present any documentary evidence regarding the amounts reported, what portion applied to each of three residences, or what portion of one property that they also partially rented out served as their qualified residence. The Tax Court also held that, although the husband held a real estate license, that did not qualify him for the real estate professional exception under Sec. 469(c)(7) and, due to a lack of records proving that the couple performed more than 750 hours of services in real property trades or businesses, the court disallowed a more than $42,000 rental real estate loss deduction claimed on the couple’s Schedule E, Supplemental Income and Loss, for tax year 2016. Whoriskey, T.C. Summ. 2021-30 (8/23/21).
Interest rates remain the same for the fourth quarter of 2021
The IRS issued the rates for interest on tax overpayments and underpayments for the fourth calendar quarter of 2021, beginning Oct. 1, 2021. The interest rates, which are the same as they were for the third quarter of 2021, will be 3% for overpayments (2% in the case of a corporation), 3% for underpayments, and 5% for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 0.5%. Rev. Rul. 2021-17 (8/25/21).
Disaster relief for victims of severe storms and flooding in Tennessee
The IRS announced that victims of the severe storms and flooding that occurred on Aug. 21, 2021, in Tennessee now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. TN-2021-01 (8/27/21).
Tax relief for victims of wildfires in California
The IRS announced that victims of wildfires in California that began July 14, 2021, now have until Nov. 15, 2021, to file various individual and business tax returns and make tax payments. CA-2021-03 (8/27/21).
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.