Document summaries for the week of May 17, 2021
Tax document summaries for the week of May 17–21, 2021, covering individuals, IRS procedure, and more.
Taxpayer cannot make separate election to carry back specified liability losses
The Office of Chief Counsel advised that a taxpayer, who elected to waive its right to carry back its entire net operating loss (NOL) under Sec. 172(b)(3) and Regs. Sec. 1.1502-21(b)(3)(i), may not make a separate election to carry back specified liability losses 10 years under Sec. 172(b)(1)(C) where such specified liability losses are not composed of product liability losses. In addition, the Chief Counsel’s Office noted, no provision in the Code or the regulations suggests that there can be multiple NOLs in a tax year for purposes of the election under Sec. 172(b)(3). TAM 202120015 (5/21/21).
IRS updates weighted average interest rates, yield curves, and segment rates
The IRS issued a notice providing 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 2021-33 (5/19/21).
IRS provides guidance on new credit available for providing COBRA coverage
The IRS issued guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA. The guidance provides information regarding the calculation of the credit, the eligibility of individuals, the premium assistance period, and other information vital to employers, plan administrators, and insurers to understand the credit. Notice 2021-31 (5/18/21) (see related news story).
IRS procedures affect certain individuals eligible for new tax benefits
The IRS announced two procedures that affect individuals not otherwise required to file 2020 federal income tax returns and that deal with the filing of returns to receive advance child tax credit payments, 2020 recovery rebate credit payments, additional 2020 recovery rebate credit payments, and third-round economic impact payments. The first procedure permits these individuals to file simplified returns and the second procedure enables these individuals to file complete returns electronically even if they have zero adjusted gross income. Rev. Proc. 2021-24 (5/18/21) (see related news story).
Taxpayer cannot deduct Schedule C expenses he failed to adequately explain
The Tax Court held that a taxpayer could not deduct various purported business expenses on his Form 1040, Schedule C, Profit or Loss From Business, because he failed to tie the expenses to either his credit card statements or his bank statements. Similarly, the court noted, the taxpayer and his wife highlighted more than 100 purchases listed on their bank statements and credit card statements but failed to adequately explain how each charge or withdrawal was an “ordinary and necessary” business expense. Frederick-Bey, T.C. Summ. 2021-11 (5/17/21).
Tax Court dismisses as moot a case involving certification of individual with seriously delinquent tax status
The Tax Court agreed with the IRS that a case, in which a taxpayer had asked the court to reverse an IRS certification that the taxpayer was an individual with a seriously delinquent tax debt under Sec. 7345, was moot. The court thus dismissed the case as moot with respect to the certification issue and dismissed the case for lack of jurisdiction with respect to other challenges by the taxpayer. Shitrit, T.C. Memo. 2021-63 (5/20/21).
Failure to document business expenses and tax prep fees precludes deductions
The Tax Court held that a taxpayer was not entitled to deduct certain unreimbursed employee business expenses and tax preparation fees on his 2014 tax return because he failed to substantiate those deductions. The court noted that the taxpayer reported that he drove 32,640 business miles in 2014 but did not establish the distance from his home to his original job assignment or to any of the other business locations he traveled to and did not keep a log, calendar, or any records of the locations he worked at during the year and for how long he worked at each location or of how many miles he drove between the various locations he worked. Peeples, T.C. Summ. 2021-12 (5/19/21).
Taxpayer’s receipt of lump-sum social security makes her ineligible for premium tax credit
The Tax Court held that, because a taxpayer who received advance premium tax credits (APTCs) during 2017 failed to include all the lump-sum Social Security distributions she received in 2017 (including back payments) in the calculation of her modified adjusted gross income, her household income exceeded the allowable limits for the premium tax credit (PTC) under Sec. 36B. As a result, the court agreed with the IRS that the taxpayer had to repay the excess APTCs of $1,275 and was also not entitled to the net PTC of $327 for 2017. Heston, T.C. Summ. 2021-13 (5/19/21).
Court rejects innocent spouse request; gives little weight to abuse complaint
The Tax Court held that, after considering the various factors outlined in Rev. Proc. 2013-43 and weighing all the facts and circumstances, a taxpayer was not eligible for innocent spouse relief under Sec. 6015(f). In so holding, the court gave little weight to the taxpayer’s complaint of abuse after noting that the taxpayer allowed her daughters to stay with her ex-husband after she moved out. Ginos, T.C. Summ. 2021-14 (5/19/21).
Appeals court dismisses FIRPTA and FDAP suit
The Ninth Circuit affirmed a district court’s dismissal, for lack of jurisdiction, of the taxpayer’s action for a declaratory judgment on the effect of the Foreign Investment in Real Property Tax Act and the fixed, determinable, annual, or periodical income rules on a contract to purchase real property from a foreign entity. The court said the taxpayer sought a declaratory judgment related to a federal tax obligation, which is forbidden by the Declaratory Judgment Act (28 U.S.C. §2201(a)). Gilbert, No. 18-17004 (9th Cir. 5/20/21).
Anti-Injunction Act does not bar suit for injunction
The Supreme Court overruled the Sixth Circuit and held that a lawsuit against the IRS’s requirement that taxpayers using certain microcaptive insurance arrangements and their material advisers must report the arrangement to the IRS is not barred by the Anti-Injunction Act and therefore may proceed. CIS Services, LLC, No. 19-930 (U.S. 5/17/21) (see related news story).
IRS issues applicable federal rates for June 2021
The IRS issued a ruling containing the applicable federal rates for June 2021 for purposes of Sec. 1274(d), Sec. 1288(b), and Sec. 382(f). The ruling also 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, 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, and the deemed rate of return for transfers made during calendar year 2021 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. Rev. Rul. 2021-9 (5/18/21).
IRS settlement officer abused her discretion by not first independently reviewing couple’s offer
The Tax Court held that, where a couple who was delinquent on their taxes requested a hearing with the IRS Appeals Office and submitted a compromise offer, but their request was routed to the IRS Centralized Offer in Compromise Unit which did not consider the offer and returned it to the couple, the IRS Appeals Office abused its discretion by reviewing the Centralized Unit’s decision for abuse of discretion instead of reviewing the couple’s offer on its merits. The court concluded that the IRS settlement officer handling the case abused her discretion by sustaining a proposed collection action against the couple without first independently reviewing their compromise offer. Mason, T.C. Memo. 2021-64 (5/20/21).
Tax Court refuses to certify conservation easement question to Alabama Supreme Court
With respect to a charitable contribution deduction claimed by a limited liability company (LLC) for a conservation easement donation, the Tax Court rejected the LLC’s motion that the court certify to the Supreme Court of Alabama whether, under Alabama law, the LLC would be entitled to the full proceeds of any sale if the easement were extinguished. The court concluded that Alabama law was unambiguous on this point. Montgomery-Alabama River, LLC, T.C. Memo. 2021-62 (5/17/21).
Former state senator is a disqualified person with respect to a nonprofit
The Tax Court held that a former Pennsylvania state senator who was convicted of mail and wire fraud was a “disqualified person” with respect to a nonprofit he was responsible for organizing because he was in a position to exercise substantial influence over the organization’s affairs. However, the court denied an IRS motion for summary judgment on whether the former senator received “excess benefits” from the nonprofit during 2002-2004, saying that was better determined later, along with their amount, if any. Fumo, T.C. Memo. 2021-61 (5/17/21).