Document summaries for the week of March 1, 2021
Tax document summaries for the week of March 1–5 2021, covering individuals and IRS procedure.
Taxpayer’s team-roping activity was not engaged in for profit
The Tax Court held that a successful insurance businessman could not offset expenses from team roping, an activity that involves roping the head of a cow or steer, against his profitable insurance business. After examining the nine factors in Regs. Sec. 1.183-2(a) for determining whether a taxpayer intended to make a profit from an activity, the court concluded that the taxpayer did not engage in team roping with the intent to earn a profit and, for that reason, the related expenses were nondeductible. Gallegos, T.C. Memo. 2021-25 (3/2/21).
Attorney failed to appropriately document contributions; deductions disallowed
The Tax Court held that a taxpayer was not entitled to charitable contribution deductions taken on his returns because the Forms 8283, Noncash Charitable Contributions, that he submitted with his returns were almost entirely incomplete and lacked signatures from the donor, the donee, and the appraiser, and the taxpayer did not otherwise provide reliable written records credibly identifying the individual items donated, their values, their condition, and other relevant information. The court also sustained the accuracy-related penalties assessed by the IRS after noting that the taxpayer, as the return preparer and as an attorney, could not reasonably claim that his reliance on an appraiser constituted reasonable cause for omissions on his return when a mere cursory overview of the returns would have revealed the omission of the requisite complete appraisal summaries for the years at issue. Chiarelli, T.C. Memo. 2021-27 (3/3/21).
Taxpayer escapes most penalties by relying on competent advisers
The Tax Court held that a self-made millionaire with multiple types of businesses was not entitled to deductions for certain business expenses or deductions for charitable contributions of property for which appraisals were not obtained. In determining whether the taxpayer had reasonable cause for avoiding penalties on the resulting tax deficiencies, the Tax Court looked at the different sources of advice relied on by the taxpayer and concluded that (1) the taxpayer’s reliance on an accounting firm’s tax guidance was reasonable and in good faith and it thus immunized him against Sec. 6662 penalties relating to depreciation deductions taken in reliance on the accounting firm’s cost segregation studies, and (2) the taxpayer’s reliance on bookkeepers for two of his groups of businesses was reasonable, but his reliance on the bookkeeper for the third group of businesses was not reasonable and penalties therefore applied to deficiencies relating to those businesses. Pankratz, T.C. Memo. 2021-26 (3/3/21).
Government can garnish taxpayer’s retirement accounts
The Fifth Circuit held that the government could garnish the taxpayer’s retirement accounts because the money in the accounts does not qualify as “salary, wages, or other income . . . necessary to comply” with child-support orders under Sec. 6334(a)(8), which exempts certain property from levy. Clark, No. 19-10186 (5th Cir. 3/4/21).
IRS announces second quarter interest rates for tax overpayments and underpayments
The IRS issued the rates for interest on tax overpayments and underpayments for the second calendar quarter of 2021, beginning April 1, 2021. The interest rates will be 3% for overpayments (2% in the case of a corporation), 3% for underpayments, 5% for large corporate underpayments, and 0.5% on corporate overpayments exceeding $10,000. Rev. Rul. 2021-6 (3/2/21).
Taxpayer cannot challenge tax liability where it had prior opportunity to dispute liability
The Sixth Circuit affirmed a Tax Court decision that a taxpayer could not challenge its underlying tax liability. The court rejected the taxpayer’s argument that Sec. 6330(c)(2)(B) allows it to contest its liability, even though it had a prior opportunity to dispute its liability, because it did not receive a statutory notice of deficiency. Patrick’s Payroll Services, Inc., No. 20-1772 (6th Cir. 3/3/21).
IRS issues employee retention credit guidance relating to wages paid before 2021
The IRS issued guidance on the employee retention credit provided under Section 2301 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, as amended by Section 206 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted as part of the Consolidated Appropriations Act, 2021, P.L. 116-260, on Dec. 27, 2020. The guidance addresses the employee retention credit as it applies to qualified wages paid after March 12, 2020, and before Jan. 1, 2021. Notice 2021-20 (3/1/21) (see related news story).
Taxpayer allowed to withdraw Tax Court petition involving abatement of interest
The Tax Court held that it had discretion to allow a taxpayer to withdraw a petition seeking judicial review of the IRS’s failure to abate interest because the petition did not invoke the court’s jurisdiction to redetermine a deficiency. In ordering the petition withdrawn and the case dismissed, the Tax Court cited its decisions in Jacobson, 148 T.C. 68 (2017); Davidson, 144 T.C. 273 (2015); and Wagner, 118 T.C. 330 (2002). Mainstay Business Solutions, 156 T.C. No. 7 (3/4/21).
Division Counsel for Tax Exempt & Government Entities Division announced
William Paul, the acting Chief Counsel of the Treasury Department, announced the selection of Mark Hulse to the position of Division Counsel, Tax Exempt & Government Entities Division in Washington, D.C. The TEGE Division Counsel provides legal services on program matters, including tax issues relating to employee benefit programs (including qualified retirement plans, deferred compensation arrangements, and health and welfare programs), executive compensation, exempt organizations, federal, state, local and Indian tribal governments, tax exempt bonds, and employment tax. CC-2021-006 (2/26/21).
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.