Document summaries for the week of Nov. 15, 2021
Tax document summaries for the week of Nov. 15–19, 2021, covering employee benefits, individuals, IRS procedure, and more.
IRS updates weighted average interest rates, yield curves, and segment rates
The IRS issued a notice that 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). 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 2021-62 (11/18/21).
Court allows couple to deduct some claimed moving expenses
The Tax Court applied the Cohan rule (from Cohan, 39 F.2d 540 (2d Cir. 1930)) to allow a couple to deduct $20,000 of their claimed $26,439 moving expenses on their 2015 return. Estimated reasonable expenses the court allowed included moving company fees and $1,439 in travel expenses. The court also accepted credit card statements supporting $530 for lodging. Crawley, T.C. Summ. 2021-37 (11/16/21).
Taxpayer unaware of unreported income is entitled to innocent spouse relief
The Tax Court held that a taxpayer was entitled to innocent spouse relief under Sec. 6015(c) from income tax deficiencies for 2013 and 2014 on joint returns with her former spouse. Considering circumstances that included the ex-spouse's statement that he was not fully aware of items of omitted income from his business activities, the court concluded that the taxpayer did not have actual knowledge of the items when the returns were prepared and filed. Tobin, T.C. Summ. 2021-36 (11/16/21).
100% meal deduction applies to portion of 2021 and 2022 per diem allowance
The IRS issued guidance on the temporary 100% deduction for expenses that are paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023, for food or beverages provided by a restaurant for purposes of Sec. 274(n)(2)(D). In particular, the IRS set forth a special rule for applying the temporary 100% deduction to the meal portion of a per diem rate or allowance. Notice 2021-63 (11/16/21) (see related news story).
Couple liable for taxes and penalties after failing to report IRA distributions
In a case where the taxpayer was the manager of a limited liability company (LLC) that her individual retirement account (IRA) invested in, and she directed the LLC to purchase American Eagle coins which she then took physical possession of, the Tax Court held that she received taxable distributions equal to the cost of the coins in the year she received physical custody of them. The Tax Court also found that the taxpayer's husband, who engaged in similar transactions, was taxable on distributions he received and the couple were liable for Sec. 6662(a) penalties for substantial understatements of income tax attributable to their failure to report taxable distributions from their IRAs. McNulty, 157 T.C. No. 10 (11/18/21).
Court rejects tax protester's argument regarding nontaxability of retirement income
The Tax Court held that a taxpayer was taxable on retirement income received during 2017 after rejecting his argument that the income did not constitute taxable income because it was received in exchange for his prior labor and was unconnected with his exercise of any federal privilege. The court also warned the taxpayer that, if he advances frivolous positions in any future appearance before the Tax Court, he would be liable for penalties for doing so. Holland, T.C. Memo. 2021-129 (11/18/21).
Form 1042-S online tool for withholding agents
The IRS launched an online tool designed to help U.S. withholding agents comply with their reporting and withholding responsibilities with respect to Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. IR-2021-223 (11/15/21).
Taxpayer who properly applied for a CDP hearing could not substitute 'equivalent hearing'
The Tax Court held that a taxpayer who requested a hearing regarding a proposed levy could not choose between two types of hearings. The taxpayer timely submitted to the IRS Office of Appeals a Form 12153, Request for a Collection Due Process or Equivalent Hearing, checking a box on the form to request an equivalent hearing in the event that his request for a collection due process (CDP) hearing was untimely. The court held that the request triggered a CDP hearing but not, as the taxpayer preferred instead, an equivalent hearing. The Tax Court also held that Appeals did not abuse its discretion by determining to sustain the proposed levy but that the taxpayer was not subject to a penalty under Sec. 6673(a)(1), because his principal position in the case was not frivolous. Ruhaak, 157 T.C. No. 9 (11/16/21).
IRS increases number of transcripts practitioners can order
The IRS announced that, effective Nov. 15, 2021, tax professionals can order up to 30 Transcript Delivery System transcripts per client through the Practitioner Priority Service line. This is an increase from the previous 10 transcripts per client limit. IR-2021-226 (11/16/21).
IRS issues applicable federal rates for December 2021
The IRS provided tables of prescribed rates for income tax purposes for December 2021. Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFRs) for purposes of Sec. 1274(d); Table 2 contains the short-term, mid-term, and long-term adjusted AFRs for purposes of Sec. 1288(b); Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in Sec. 382(f); Table 4 contains the percentages for determining the low-income housing credit described in Sec. 42(b)(1); and Table 5 contains the rate for determining the present value of an annuity. Rev. Rul. 2021-23 (11/15/21).
IRS addresses timing of amounts excluded from income in connection with PPP loan forgiveness
The IRS issued a revenue procedure which provides that taxpayers may treat amounts that are excluded from gross income (i.e., tax-exempt income) in connection with the forgiveness of Paycheck Protection Program (PPP) loans as received or accrued: (1) as eligible expenses are paid or incurred, (2) when an application for PPP loan forgiveness is filed, or (3) when PPP loan forgiveness is granted. To the extent tax-exempt income resulting from the forgiveness of a PPP loan is treated as gross receipts under a particular federal tax provision, including but not limited to Sec. 448(c) and Sec. 6033, this revenue procedure applies for purposes of determining the timing and, to the extent relevant, reporting of such gross receipts. Rev. Proc. 2021-48 (11/18/21) (see related news story).
IRS procedure advises partnerships and consolidated groups on PPP-related tax issues
The IRS issued guidance to partnerships and consolidated groups regarding amounts excluded from gross income (i.e., tax-exempt income) and deductions relating to the Paycheck Protection Program (PPP) and certain other COVID-19 relief programs. With respect to partnerships, the IRS provides guidance for partners and their partnerships regarding: (1) allocations under Sec. 704(b) of tax-exempt income arising from the forgiveness of PPP loans, the receipt of certain grant proceeds, or the subsidized payment of certain principal, interest, and fees; (2) allocations under Sec. 704(b) of deductions resulting from expenditures attributable to the use of forgiven PPP loans or certain grant proceeds, or subsidized payments of certain interest and fees; and (3) the corresponding adjustments to be made with respect to the partners' bases in their partnership interests under Sec. 705. Rev. Proc. 2021-49 (11/18/21) (see related news story).
Partnerships meeting requirements of Rev. Procs. 2021-48 or 2021-49 can file amended returns
The IRS announced that it is allowing certain eligible partnerships to (1) file amended partnership tax returns for tax years ending after March 27, 2020, using a Form 1065, U.S. Return of Partnership Income, and (2) issue an amended Schedule K-1, Partner's Share of Income, Deductions, Credits, etc., to each of its partners. Partnerships eligible to file these amended returns are ones that meet the applicable requirements under Rev. Proc. 2021-48 or Rev. Proc. 2021-49 and that file such amended returns and corresponding Schedules K-1 on or before Dec. 31, 2021. Rev. Proc. 2021-50 (11/18/21) (see related news story).
IRS online tools will use new identity verification procedures
Taxpayers and tax professionals with accounts for certain IRS online tools and portals will need to reverify their identity in a new account creation and sign-in process, the IRS announced. IR-2021-228 (11/17/21) (see related news story).
California wildfire victim tax relief announced
The IRS announced that wildfire victims in parts of California now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. IR-2021-224 (11/15/21).
Hurricane Ida tax relief extended to all of Mississippi
The IRS announced that victims of Hurricane Ida throughout Mississippi now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. IR-2021-230 (11/17/21).
Inflation adjustment factor provided for Sec. 45Q for 2021
The IRS issued a notice which provides the inflation adjustment factor for the carbon oxide sequestration credit under Sec. 45Q for calendar year 2021. The notice also includes a statement that the IRS is not certifying that 75 million metric tons of qualified carbon oxide has been taken into account by taxpayers filing on annual report pursuant to Section 6 of Notice 2009-83. Notice 2021-35 (11/15/21).
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.