Document summaries for the week of Nov. 22, 2021
Tax document summaries for the week of Nov. 22–26, 2021, covering estates and trusts, IRS procedure, parternships, and more.
ESTATES, TRUSTS & GIFTS
Florida court should determine personal representative of estate
The IRS Office of Chief Counsel advised that it would defer to the IRS's own interpretation of the substance of Florida law on the subject of the appropriate personal representative for a Florida estate. The Chief Counsel's Office noted that the rules of the Tax Court provide that the capacity of a fiduciary or other representative to litigate is determined in accordance with the law of the jurisdiction at issue, in this case Florida, and (1) since there are likely no provisions of Florida law authorizing a trustee to act as an estate's personal representative, Form 56, Notice Concerning Fiduciary Relationship, should be rejected absent authority under local law, and (2) attaining personal representative status from the Florida court would be the logical conclusion. CCA 202147014 (11/26/21).
DISC base-period T-bill rate published
The IRS published the base period T-bill rate for the period ending Sept. 30, 2021, for purposes of computing the deferred tax liability of shareholders under Sec. 995(f) in a domestic international sales corporation (DISC). Rev. Rul. 2021-22 (11/22/21).
Tax Court defines "immediate supervisor" for purposes of supervisory approval requirement
The Tax Court held that, for purposes of the supervisory approval requirement in Sec. 6751(b)(1), the "immediate supervisor" is the individual who directly supervises the examining agent's work in an examination. In the case at issue, the court found that the individual who oversaw the agent's work throughout the case, was the agent's "immediate supervisor," and because that individual timely approved the agent's penalty determinations, the IRS satisfied the requirements of Sec. 6751(b)(1). Sand Investment Co., LLC, 157 T.C. No. 11 (11/23/21).
Taxpayer's return was timely filed despite rejection by IRS
The Tax Court held that a taxpayer's 2014 Form 1040, which was mailed on April 14, 2018, and claimed an overpayment, was properly filed despite the fact that the IRS rejected the return as a return that may have been the result of potential identity theft. The court noted that, under the test in Beard, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986), a document is a return for statute of limitation purposes if: (1) there is sufficient data to calculate a tax liability, (2) the document purports to be a return, (3) there is an honest and reasonable attempt to satisfy the requirements of the tax law, and (4) the taxpayer executed the document under penalties of perjury; and the court found that the taxpayer met the Beard requirements. Willetts, T.C. Summ. 2021-39 (11/22/21).
IRS did not abuse its discretion in declining to consider something never proposed by taxpayer
The Tax Court granted summary judgment to the IRS after concluding that a settlement officer did not abuse his discretion in determining that a taxpayer who had unpaid tax liabilities for 2004-2007 was ineligible for a collection alternative. The court noted that although the taxpayer said she was interested in an installment agreement, she did not in fact propose an installment agreement and it is not an abuse of discretion for the IRS to decline to consider something that was never proposed. Roberts, T.C. Memo. 2021-131 (11/23/21).
IRS issues overpayment and underpayment interest rates for first quarter of 2022
The IRS issued a ruling which provides the following interest rates for underpayments and overpayments for the first quarter of 2022: (1) the rates for interest determined under Sec. 6621 for the calendar quarter beginning January 1, 2022, will be 3 percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, and 5 percent for large corporate underpayments; and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 0.5 percent. Rev. Rul. 2021-24 (11/23/21).
IRS may consider hearsay evidence in evaluating a whistleblower's claim
The Tax Court held that in evaluating a whistleblower's claim for an award, the IRS Whistleblower Office (WBO) may consider evidence that would be inadmissible hearsay in a judicial proceeding. Further, the court said, in conducting a review under Sec. 7623(b)(4), the Tax Court must treat such evidence as supporting the WBO's determination if it finds the evidence reliable and trustworthy. Marino, T.C. Memo. 2021-130 (11/22/21).
IRS updates specifications for printing substitute Forms W-2 and W-3
The IRS provided the specifications for the private printing of red-ink substitutes for the 2021 Forms W-2, Wage and Tax Statement, and W-3, Transmittal of Wage and Tax Statements. The revenue procedure will be produced as the next revision of IRS Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3. Rev. Proc. 2020-38 is superseded. Rev. Proc. 2021-46 (11/22/21).
Disclosure in CAM legal file should be restricted to Form 3115 attachments
The IRS Office of Chief Counsel advised that it agreed that disclosure of a change of accounting method (CAM) legal file appeared to be permissible under the transaction test, as provided in Sec. 6103(h)(4)(C), with some limitation. However, the Chief Counsel's Office said, it was not clear from the details what type of information the CAM legal file contained and, to avoid disclosing any information not directly related to the issue at hand, disclosure should be limited to any statements/explanations attached to Form 3115 that pertain only to an undisclosed issue. CCA 202147013 (11/26/21).
Court did not impose an assessable order of restitution
The IRS Office of Chief Counsel advised that, while a court may impose upon a defendant a duty to pay taxes during a period of supervised release, the court does not specify a sum certain due as restitution to the United States. In the instant situation, the Chief Counsel's Office concluded that there was no assessable order of restitution under Sec. 6201(a)(4) as no amount was specified either in the court's judgment, in the transcript of the sentencing hearing, or in any separate order of restitution. CCA 202147011 (11/26/21).
Charitable deduction denied where lender's rights were not subordinated to charitable organization's right
In a case involving a partnership's donation to a charitable organization of a façade easement on a certified historic building, where certain lenders were the beneficiaries of deeds of trust on the building which secured loans made to the partnership, the Tax Court held that (1) Regs. Sec. 1.170A-14(g)(2) requires the subordination of any priority right of a lender to use insurance or condemnation proceeds to satisfy the secured indebtedness in circumstances that have a material chance of arising; and (2) the circumstances in which the lenders can use insurance or condemnation proceeds to apply to the partnership's indebtedness, which are specifically addressed in the relevant documents, have a material chance of arising. The court further held that the priority rights to insurance or condemnation proceeds granted to the lenders in the deeds of trust are "prior claims" within the meaning of the relevant provisions of the easement deed and consequently, the lenders' rights in the building were not subordinated to the charitable organization's rights, as required by Regs. Sec. 1.170A-14(g)(2). 901 South Broadway Limited Partnership, T.C Memo. 2021-132 (11/23/21).
Partner entity type determines tax-exempt status of entity
The IRS Office of Chief Counsel advised that, whether an entity is tax-exempt/not-for-profit or not has nothing to do with whether an entity is an eligible partner for purposes of election out under the Bipartisan Budget Act of 2015, P.L. 114-74. The Chief Counsel's Office said it solely depends on what type of entity the partner is. A tax-exempt/not-for-profit entity still has an entity type (e.g., C corporation, etc.). CCA 202147012 (11/26/21).
IRS does not acquiesce to Mayo Clinic holding on primary function of education organization rule
The IRS announced its nonacquiescence to the holding in Mayo Clinic, 997 F.3d 789 (8th Cir. 2021), which invalidated the requirement in Regs. Sec. 1.170A-9(c)(1) that the primary function of an educational organization described in Sec. 170(b)(1)(A)(ii) must be the presentation of formal instruction. However, the IRS said that it will recognize the precedential impact of the opinion on cases arising within the Eighth Circuit. Action on Decision 2021-4 (11/22/21).
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.