Document summaries for the week of Dec. 13, 2021
Tax document summaries for the week of Dec. 13–17, 2021, covering corporations, individuals, and more.
Insurance loss and salvage discount factors for 2021 accident year issued
The IRS issued the discount factors for the 2021 accident year for use by certain insurance companies in computing discounted unpaid losses for purposes of reserve deductions under Sec. 846 and discounted estimated salvage recoverable under Sec. 832. The IRS also issued discount factors for losses incurred in the 2020 and earlier accident years for use in tax years beginning in 2021. Rev. Proc. 2021-54 (12/13/21).
IRS addresses reinstatement of Superfund chemical taxes
The IRS issued guidance relating to Section 80201 of the Infrastructure Investment and Jobs Act, P.L. 117-58, which reinstates, effective July 1, 2022, the excise taxes imposed on certain chemicals by Sec. 4661 and Sec. 4671 and modifies their rates and other provisions. In the guidance, the IRS provided (1) the initial list of taxable substances under Sec. 4672(a); (2) addressed the registration requirements imposed by Sec. 4662(b)(10)(C) and Sec. 4662(c)(2)(B) to exempt certain sales and uses of taxable chemicals from the tax; (3) provided procedural rules that apply to taxpayers subject to the reinstated Superfund chemical taxes; (4) suspended Notice 89-61, which prescribed the former process for certain persons to request additions or removals from the list of taxable substances; and (5) requested comments on whether any issues related to the reinstated Superfund chemical taxes require clarification or additional guidance. Notice 2021-66 (12/14/21).
IRS updates weighted average interest rates, yield curves, and segment rates
The IRS issued a notice that provides 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). In addition, the notice 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). Notice 2022-2 (12/17/21).
Taxpayer cannot deduct expenses for venture that was not an active business
The Tax Court held that a taxpayer who purchased real property with the intent of developing its natural resources, procuring a certification for organic farming, and then renting out parcels, was not entitled to deductions on his 2015 tax return for expenses incurred in developing the property because the taxpayer failed to complete any steps in his business plan and his venture was not an active trade or business in 2015 for purposes of Sec. 162. According to the court, while the taxpayer explored the property and conducted experiments on it, those actions do not indicate that a business has actually begun and is operating as a going concern. Antonyan, T.C. Memo. 2021-138 (12/13/21).
Court rejects horse activity deductions, but reliance on expert advice negates some penalties
The Tax Court held that a married couple who took deductions on their joint tax return for expenses incurred in a horse-breeding activity were not engaged in that activity for profit during 2010–2013 and thus could not deduct the related expenses; nor did they properly substantiate loss carryforwards taken on their returns. However, while the court concluded that the couple were liable for late-filing penalties for 2010, they were not liable for accuracy-related penalties because they relied on expert advice. Skolnick, T.C. Memo. 2021-139 (12/16/21).
IRS issues 2022 standard mileage rates; business and medical rates increase
The IRS issued the optional standard mileage rates for 2022 for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes, and to use in calculating reductions to basis for depreciation taken under the business standard mileage rate. The rates are (1) 58.5 cents per mile driven for business use, up 2.5 cents from the 2021 rate; (2) 18 cents per mile driven for medical or moving purposes, up 2 cents from the 2021 rate; and (3) 14 cents per mile driven in service of charitable organizations, a rate that remained unchanged and is set by Sec. 170(i). Notice 2022-03 (12/17/21) (see related news story).
Tax relief for victims of Kentucky tornadoes
The IRS announced that victims of severe storms, straight-line winds, flooding, and tornadoes in designated Kentucky counties beginning Dec. 10, 2021, now have until May 16, 2022, to file various individual and business tax returns and make tax payments. KY-2021-02 (12/14/21).
OPR announces recent disciplinary sanctions
The IRS Office of Professional Responsibility (OPR) announced recent disciplinary sanctions involving attorneys, CPAs, and enrolled agents. The OPR noted that these individuals are subject to regulations governing practice before the IRS that prescribe duties, restrictions, and disciplinary sanctions. Announcement 2021-16 (12/13/21).
IRS issues applicable federal rates for January 2022
The IRS issued a ruling providing tables of various prescribed rates for federal income tax purposes for January 2022. Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of Sec. 1274(d); Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of Sec. 1288(b); Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in Sec. 382(f); Table 4 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 (although under Sec. 42(b)(2), the applicable percentage for non–federally subsidized new buildings placed in service after July 30, 2008, cannot be less than 9%); Table 5 contains 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; Table 6 contains the deemed rate of return for transfers made during calendar year 2022 to pooled income funds described in Sec. 642(c)(5) that have been in existence for less than three tax years immediately preceding the tax year in which the transfer was made; and Table 7 contains the average of the applicable federal mid-term rates (based on annual compounding) for the 60-month periods ending Dec. 31, 2019, Dec. 31, 2020, and Dec. 31, 2021, for purposes of Sec. 7702(f)(11). Rev. Rul. 2022-1 (12/15/21).
Receiver’s fee cannot be paid before satisfying IRS claims
The IRS Office of Chief Counsel advised that, with respect to allowable expenses incurred in connection with the sale of property that may be paid before satisfying IRS claims, the receiver’s fee here was not such an allowable expense. The Chief Counsel’s Office noted that a lien analyst indicated that the amount of the fee at issue did not seem reasonable. CCA 202150017 (12/17/21).
Returns of a debtor in bankruptcy may be disclosed to bankruptcy trustee in some cases
The IRS Office of Chief Counsel advised that, under Sec. 6103(e)(5)(A) and upon written request, the tax returns of a debtor (for the tax year in which the debtor’s bankruptcy case begins or any preceding tax year) may be disclosed to the bankruptcy trustee. According to the Chief Counsel’s Office, return information can also be disclosed to the trustee (for those same tax years) but does not require a written request, and the only potential issue that may exist would be in the case of an involuntary bankruptcy, which would require court approval for disclosure. CCA 202150016 (12/17/21).
Former employees are prohibited from disclosing confidential return information
In a highly redacted memorandum, the IRS Office of Chief Counsel discussed Sec. 6103(a) and the fact that it prohibits former employees from disclosing confidential return information obtained in the course of their employment. The Chief Counsel’s Office also noted that with respect to an unidentified individual, certain information was not obtained in connection with his employment. CCA 202150015 (12/17/21).
Appeals court upholds Tax Court jurisdiction and IRS administrative proceedings
The Ninth Circuit upheld a Tax Court decision, finding that the Tax Court had jurisdiction in the case and that the IRS was correct in sending notices of deficiency instead of final partnership administrative adjustments because the taxpayer’s partnership was not covered by the Tax Equity and Fiscal Responsibility Act of 1982. Goddard, No. 20-73023 (9th Cir. 12/17/21).
New procedure updates rules for IRS consent to accounting method changes
The IRS issued a revenue procedure that provides the procedures under Sec. 446 and Regs. Sec. 1.446-1(e) to obtain automatic IRS consent to change methods of accounting to comply with the final regulations under Secs. 263A, 448, 460, and 471 that were issued on Jan. 5, 2021, in T.D. 9942. The revenue procedure also modifies Rev. Proc. 2018-40 to remove the option of netting the remaining portion of a Sec. 481(a) adjustment that resulted from a prior method change, and provides procedures for taxpayers to revoke an election made under Prop. Regs. Sec. 1.448-2(b)(2)(i)(B) for tax years beginning on or after Jan. 5, 2021, or in the case of a taxpayer that applies the final regulations early, for tax years in which the final regulations are applicable. Rev. Proc. 2022-9 (12/17/21) (see related news story).
IRS revokes guidance on tax-exempt organizations' reporting of compensation
The IRS revoked Announcement 2001-33, which deemed organizations exempt from taxation under Sec. 501 to have reasonable cause for purposes of relief from the penalty imposed under Sec. 6652(c)(1)(A)(ii) if they reported compensation on their annual information returns in the manner described in Announcement 2001-33 instead of in accordance with certain form instructions. The revocation is effective for annual information returns required to be filed for tax years beginning on or after Jan. 1, 2022. Announcement 2021-18 (12/14/21).