Document summaries for the week of May 31, 2021
Tax document summaries for the week of May 31–June 4, 2021, covering corporations, employee benefits, and more.
Acquiring corporation cannot change reporting of an asset sale after target’s tax year closed
The Tax Court held that a corporation, which acquired appreciated assets upon a merger with a target corporation, was estopped under the doctrine of equitable estoppel from changing the reporting of its bases in the acquired target’s assets because the statute of limitations barred assessment of tax against the target. The court also rejected the taxpayer’s position, taken on an amended return, that it did not realize the capital gains originally reported on the sale of the target’s assets. New Capital Fire, Inc., T.C. Memo. 2021-67 (6/2/21).
Appeals court affirms payment services company is not a bank
The Fifth Circuit affirmed a Tax Court decision that the taxpayer, a global payment services company, is not a bank under Sec. 581 because it does not meet the requirement that a bank accept deposits. MoneyGram International, Inc., No. 20-60146 (5th Cir. 6/1/21).
Appeals court strikes down Tax Court’s use of substance-over-form doctrine
The Ninth Circuit reversed a Tax Court decision, holding that the Tax Court erred when it invoked the substance-over-form doctrine to disallow Roth IRA contributions from the taxpayers’ foreign sales corporation, which the appeals court said the statute at issue plainly allowed. Mazzei, No. 18-72451 (9th Cir. 6/2/21).
Partnership adjustment originated with taxpayer and not another partnership
The Tax Court held that an IRS adjustment to the 2011 gross income of a limited liability company taxed as a partnership was properly classified as a partnership item and rejected the partnership’s assertion that the adjustment was a partnership item that originated at the level of another partnership in which the taxpayer had an interest. The Tax Court also found that the IRS convincingly demonstrated that there was a genuine dispute of material fact involving the partnership’s entitlement to a flowthrough compensation deduction equal to the value of a membership interest it received in exchange for services provided (or to be provided), and the court thus concluded that summary judgment was inappropriate with respect to this issue. ES NPA Holding, LLC, T.C. Memo. 2021-68 (6/3/21).
S corporation cannot take compensation deduction for withdrawals by cofounder
The Tax Court held that a taxpayer, who co-founded an S corporation with another individual whom he subsequently accused of embezzling funds from the S corporation, was not entitled to a theft loss deduction on his 2016 tax return for the alleged embezzlement because his civil suit against the co-founder was still pending and he thus could not prove that there was no prospect of recovery. The court also held that the S corporation was not entitled to deduct as compensation $166,494 that the co-founder withdrew from the S corporation because there was no evidence showing that the co-founder was entitled to compensation. Torres, T.C. Memo 2021-66 (6/2/21).
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.