Document summaries for the week of Dec. 20, 2021
Tax document summaries for the week of Dec. 20–24, 2021, covering individuals, IRS procedure, and more.
Additional child tax credit and earned income tax credit qualify as federal aid assistance in bankruptcy
The Ninth Circuit Bankruptcy Appellate Panel affirmed that the portion of a debtor’s tax refund consisting of the additional child tax credit and earned income tax credit is “federal aid assistance” under Wash. Rev. Code Section 74.04.280 and therefore exempt from turnover to a bankruptcy trustee. In re Moreno, Bk. No. 20-42855-BDL (9th Cir. BAP 12/23/21).
Automatic extension for furnishing health coverage statements proposed
The IRS issued proposed regulations that would permanently allow an automatic extension of time for employers to furnish employees with statements about their health insurance coverage. REG-109128-21 (12/20/21) (see related news story).
Chief Counsel specifies when rental income is includable in self-employment income
The IRS Office of Chief Counsel advised that whether an activity is a "rental activity" under Sec. 469(c)(2) is not determinative of whether income from real estate rentals is excluded from net earnings from self-employment (NESE). However, according to the Chief Counsel's Office, if services are rendered for the occupants of rental real estate and the services rendered (1) are not clearly required to maintain the space in a condition for occupancy, and (2) are of such a substantial nature that the compensation for these services can be said to constitute a material portion of the rent, then the net rental income received is includible in NESE. CCA 202151005 (12/24/21).
Couple had honest profit objective in breeding miniature donkeys
The Tax Court held that a wealthy couple, who in order to supplement the income of their adult daughter began breeding miniature donkeys, engaged in the donkey-breeding activity with an actual and honest objective of making a profit and therefore could deduct the losses incurred in that activity. Based primarily on the husband's testimony, the court was convinced that the couple believed that the breeding operation, once established, would consistently turn a profit and thereby supplement their daughter's income, and, the court noted, the couple pursued this objective with an approach similar to that used with other successful investments. Huff, T.C. Memo. 2021-140 (12/21/21).
Forms 1099-C for cancellation of debt should not be filed for certain student loans
The IRS announced that lenders or servicers of certain student loans should not file Forms 1099-C, Cancellation of Debt, or submit payee statements, for student loan debt described in Section 9675 of the American Rescue Plan Act of 2021 (ARPA), P.L. 117-2. That debt discharge is excluded from gross income under Sec. 108(f)(5), as amended by ARPA, for tax years 2021 to 2025. Notice 2022-1 (12/21/21) (see related news story).
IRS renews adequate disclosure revenue procedure
The IRS issued a revenue procedure that updates Rev. Proc. 2020-54 and identifies circumstances under which the disclosure on a taxpayer's income tax return with respect to an item or position is adequate for the purpose of reducing the understatement of income tax under Sec. 6662(d) (relating to the substantial understatement aspect of the accuracy-related penalty), and for the purpose of avoiding the tax return preparer penalty under Sec. 6694(a) (relating to understatements due to unreasonable positions) with respect to income tax returns. The revenue procedure will apply to any income tax return filed on 2021 tax forms for a tax year beginning in 2021 and to any income tax return filed in 2022 on 2021 tax forms for short tax years beginning in 2022. Rev. Proc. 2021-52 (12/17/21).
IRS gives tax relief to Illinois and Tennessee tornado victims
The IRS announced that victims of this month's tornadoes in parts of Illinois and Tennessee will have until May 16, 2022, to file various individual and business tax returns and make tax payments. IR-2021-252 (12/20/21).
IRS issues adjusted applicable dollar amount for determining 2019–2020 PCORTF fee
The IRS announced that the adjusted applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee imposed by Sec. 4375 (on the issuer of a specified health insurance policy) and Sec. 4376 (on the plan sponsor of an applicable self-insured health plan) for policy years and plan years that end on or after Oct. 1, 2021, and before Oct. 1, 2022, is $2.79, an increase from the prior amount of $2.66. The fee helps to fund the Patient-Centered Outcomes Research Trust Fund (PCORTF) and is calculated using the average number of lives covered under the policy or plan and the applicable dollar amount for that policy year or plan year. Notice 2022-4 (12/21/21).
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.