Document summaries for the week of June 14, 2021

CORPORATIONS

Corporation cannot avoid employment taxes by using offshore employee leasing transactions

The Tax Court held that the IRS properly determined that an individual, who incorporated a corporation and owned all of the corporation’s stock, was legally classified as an employee of the corporation, despite a change in the compensation structure under which the owner’s services were leased through offshore employee leasing (OEL) transactions, and no income or employment taxes were withheld. As a result, the court concluded that the corporation was liable for the employment taxes it failed to withhold and, because the corporation fraudulently failed to withhold taxes with respect to the OEL payments, the court found the corporation liable for fraud and failure-to-deposit penalties assessed by the IRS. Bell Capital Management, Inc., T.C. Memo. 2021-74 (6/14/21).

EMPLOYEE BENEFITS

SIFL cents-per-mile rates increased substantially for first half of 2021

The IRS issued the standard industry fare level (SIFL) cents-per-mile rates and terminal charge in effect for the first half of 2021 for purposes of Regs. Sec. 1.61-21(g), relating to the rule for valuing noncommercial flights provided as an employee fringe benefit on employer-provided aircraft. The IRS noted that, because airline seat miles were reduced faster than airline industry expenses as a result of COVID-19, the SIFL rate for the 6-month tax period effective Jan. 1, 2021, increased substantially. Rev. Rul. 2021-11 (6/14/21).

IRS updates weighted average interest rates, yield curves, and segment rates

The IRS issued a notice that (1) 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), and (2) 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). In addition to providing these rates for current periods, the notice provides 24-month average segment rates for earlier periods for plan years beginning in 2020 and 2021, determined under Sec. 430(h)(2)(C)(iv), reflecting amendments made by Section 9706(a) of the American Rescue Plan Act, P. L. No. 117-2. Notice 2021-37 (6/16/21).

Supreme Court dismisses suit against health care law

The U.S. Supreme Court held that several states and other plaintiffs who were asking the federal courts to declare unconstitutional the so-called individual mandate in the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, did not have standing to sue because they could not show that they had suffered or would suffer an injury. California v. Texas, No. 19-840 (U.S. 6/17/21) (see related news story).

EMPLOYMENT TAXES

IRS issues nonacquiesce in Eleventh Circuit’s TriNet decision

The IRS issued a nonacquiescence to the Eleventh Circuit’s holding in TriNet Group, Inc., 979 F.3d 1311 (11th Cir. 2020), in which the court held that a professional employer organization (PEO) was entitled to claim tax credits based on its payment of FICA taxes on the tip income of its clients’ employees because the PEO was the statutory employer, as it controlled payment of the wages subject to withholding. However, the IRS said it will recognize the precedential impact of the opinion on cases arising within the Eleventh Circuit. AOD 2021-3 (6/14/21).

INDIVIDUALS

Taxpayer cannot deduct loss of unrealized income

The Tenth Circuit affirmed a Tax Court decision that held that a taxpayer was not entitled to a loss deduction on account of his Federal Employees Retirement System disability annuity benefits’ being reduced by the amount he received as Social Security Disability Insurance benefits. Staples, No. 20-9006 (10th Cir. 6/15/21).

IRS unveils online tool to register for advance child tax credit payments

The IRS opened an online site that allows taxpayers who are not required to file a 2019 or 2020 individual income tax return to sign up to receive advance child tax credit payments. IR-2021-129 (6/14/21) (see related news story).

Tax Court has discretion to grant couple’s motion to dismiss

Where a married couple petitioned the Tax Court to review the IRS’s denial of their application for an award of administrative costs under Sec. 7430(a) but subsequently moved to dismiss their petition, the Tax Court held that it had discretion to grant the taxpayers’ motion to dismiss. The petition did not invoke the Tax Court’s jurisdiction to redetermine a deficiency under Sec. 6213(a). Thus, the court said, it was not required to enter a decision under Sec. 7459(d) or any similar provision. Stein, 156 T.C. No. 11 (6/17/21).

IRS PROCEDURE

IRS issues applicable federal rates for July 2021

The IRS issued a ruling containing the applicable federal rates for July 2021 for purposes of Sec. 1274(d), Sec. 1288(b), and Sec. 382(f), as well as the blended annual rate for 2021 for purposes of Sec. 7872. The ruling also contains the appropriate percentages for determining the low-income housing credit described in Sec. 42(b)(1) and 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. Rev. Rul. 2021-12 (6/15/21).

PARTNERSHIPS

Eligible partnerships can use Form 1065 to file 2018, 2019, and 2020 amended returns

The IRS issued a revenue procedure that allows eligible partnerships to (1) file amended partnership returns for tax years beginning in 2018, 2019, and 2020 using a Form 1065, U.S. Return of Partnership Income, with the “Amended Return” box checked, and (2) issue an amended Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., to each of its partners. The option to file amended returns only applies to partnerships satisfying the requirements of Section 3 of the revenue procedure. Rev. Proc. 2021-29 (6/17/21).

TAX ACCOUNTING

Exchanges of cryptoassets prior to 2018 do not qualify as like-kind exchanges

The Office of Chief Counsel advised that, if completed before Jan. 1, 2018, an exchange of (1) Bitcoin for Ether, (2) Bitcoin for Litecoin, or (3) Ether for Litecoin does not qualify as a like-kind exchange under Sec. 1031. The Chief Counsel’s Office noted that, after Dec. 31, 2017, like-kind exchanges no longer apply to exchanges of personal property. CCA 202124008 (6/18/21).

IRS issues procedures for changing depreciation method to comply with law change

The IRS issued a procedure in which it explains how a taxpayer changes its method of computing depreciation to comply with a change enacted in the Taxpayer Certainty and Disaster Tax Relief Act of 2020, as part of the Consolidated Appropriations Act, 2021, P. L. 116-260. That tax law change retroactively provides a 30-year recovery period under the alternative depreciation system (ADS) in Sec. 168(g) for certain residential rental property placed in service before 2018 and held by an electing real property trade or business and not previously subject to the ADS. Rev. Proc. 2021-28 (6/17/21).