Document summaries for the week of Oct. 11, 2021
Tax document summaries for the week of Oct. 11–15, 2021, covering corporations, employee benefits, individuals, international, IRS procedure, and S corporations.
IRS should challenge consolidated group's interest deduction
The Office of Chief Counsel advised that a consolidated group's interest deduction should be challenged based on the Tax Court's decision in Koppers Co., 8 T.C. 886 (1947), where the Tax Court held that a corporation could take an interest deduction based on its share of adjusted consolidated net taxable income. The Chief Counsel's Office opined that the deduction it was reviewing was at odds with the Koppers decision because the corporation being investigated cannot show that its entire interest payment was allocable to it based on its share of the net consolidated income because it was not even a member of the group for most of the year. CCA 202141007 (10/15/21).
IRS addresses funding relief for multiemployer defined benefit pension plans
The IRS issued guidance for sponsors of multiemployer defined benefit pension plans on the elections under Sections 9701 and 9702 of the American Rescue Plan Act (ARPA), P.L. 117-2, and the relief provided under Section 9703 of ARPA relating to Secs. 431 and 432. These provisions permit plan sponsors to (1) elect to delay designating a plan as being in endangered, critical, or critical and declining status, as applicable, under Sec. 432(b)(3) or to delay updating the plan's funding improvement plan or rehabilitation plan; (2) elect to extend the plan's funding improvement period under Sec. 432(c)(4) or the rehabilitation period under Sec. 432(e)(4); and (3) spread certain investment losses and other experience losses related to COVID-19 over a period of up to 30 years in determining charges to the funding standard account under Sec. 431. Notice 2021-57 (10/12/21).
Interest and penalties cannot be independently considered for innocent spouse relief
With respect to a taxpayer's request for innocent spouse relief, the Chief Counsel's Office noted that, based on the closing agreement between the IRS and the taxpayers, there was no deficiency, understatement, or unpaid tax for the years involved. Thus, the Chief Counsel's Office advised, because there is no tax to analyze, there can be no innocent spouse relief with respect to the penalties and interest because those cannot independently be considered for relief. CCA 202141006 (10/15/21).
IRS to defer Sec. 987 regulations' applicability
The IRS announced it intends to amend the regulations under Sec. 987 to defer their applicability date, as well that of as certain related final regulations, by one additional year. Specifically, the IRS intends to amend Temp. Regs. Sec. 1.861-9T and Regs. Secs. 1.985-5, 1.987-11, 1.988-1, 1.988-4, and 1.989(a)-1 of the 2016 final regulations (T.D. 9794) and Regs. Secs. 1.987-2 and 1.987-4 of the related 2019 final regulations (T.D. 9857) to provide that they apply to tax years beginning after Dec. 7, 2022. Notice 2021-59 (10/12/21).
IRS updates FAQ process, allows taxpayer FAQ reliance as a penalty defense
The IRS announced that it is updating its process for certain frequently asked questions (FAQs) on newly enacted tax legislation and clarifying that if a taxpayer relies on any FAQ in good faith and that reliance is reasonable, the taxpayer will have a reasonable-cause defense. Also, prior versions of fact sheet FAQs will be maintained on IRS.gov to ensure that, if a fact sheet FAQ is later changed, taxpayers can locate the version they relied on if they later need to do so. IR-2021-202 (10/15/21) (see related news story).
Research credit claim information clarified
The IRS Office of Chief Counsel set forth the information that taxpayers will be required to include for a research credit claim for a refund to be considered valid. Regulations require that for a refund claim to be valid, it must set forth sufficient facts to apprise the IRS of the basis of the claim. LAFA 202114101F (10/15/21).
Chief Counsel gives brief opinion on applicability of Sec. 6511, interest, and restitution
The IRS Office of Chief Counsel advised that, after consulting with relevant subject-matter experts, the consensus was that Sec. 6511 provides the relevant timeframe for requesting a refund of an amount charged as interest that should not have been charged as interest. The Chief Counsel's Office also cited the decision in Klein, 149 T.C. 341 (2017), as supporting its conclusion regarding Sec. 6511. CCA 202141021 (10/15/21).
Preexisting use of property might not disqualify a qualified conservation contribution
The IRS Office of Chief Counsel advised that the language in Regs. Sec. 1.170A-14(e)(3), regarding a deduction for a qualified conservation contribution, might allow a preexisting use of property not to disqualify the deduction under "solely for conservation purposes" grounds. However, the Chief Counsel's Office noted that a lack of notification for exercising/continuing a preexisting use may be grounds for disallowance under the "protected in perpetuity" standard in Regs. Sec. 1.170A-14(g)(5)(ii). CCA 202141022 (10/15/21).
Chief Counsel believes that cases under discussion are Westbrooks cases
With respect to discussions involving four unidentified cases, the IRS Office of Chief Counsel advised that, in its view, the cases were Westbrooks cases, referring to the decision in Westbrooks, 858 F.3d 317 (5th Cir. 2017), involving restitution imposed for a tax offense. CCA 202141011; CCA 202141015; CCA 202141016; CCA 202141017 (10/15/21).
Chief Counsel: Cases at issue are not Westbrooks cases
With respect to discussions involving eight unidentified cases, the IRS Office of Chief Counsel advised that, in its view, the cases are not Westbrooks cases, referring to the decision in Westbrooks, 858 F.3d 317 (5th Cir. 2017), involving restitution imposed for a tax offense. CCA 202141008; CCA 202141009; CCA 202141010; CCA 202141012; CCA 202141013; CCA 202141018; CCA 202141019; CCA 202141020 (10/15/21).
Restitution relating to fraudulent refunds is assessable under Sec. 6201
The IRS Office of Chief Counsel advised that, where an indictment shows that a defendant conspired with others to file false tax returns and generate fraudulent refunds to which the defendant was not entitled, the restitution ordered in the case must be assessed under Sec. 6201(a)(4). According to the Chief Counsel's Office, the fact that the judgment does not specifically provide that restitution is payable to the IRS does not affect whether the restitution is assessable. CCA 202141014 (10/15/21).
S corporation cannot change its accounting method in order to get its tax refund faster
In response to a question as to whether an S corporation could change its tax year in order to get a tax refund earlier than it would under its current calendar year end, the IRS Chief Counsel's Office noted that, because the S corporation already has a Dec. 31 year end, it would need to change to some other accounting period and (1) would have to pay a user fee of $5,000 for the requested change in accounting period, and (2) would have to have a business purpose that would satisfy the IRS. The Chief Counsel's Office concluded that a change in accounting period simply to get a refund sooner than usual (even recognizing the sympathetic nature of the case at issue) was not a business purpose that would satisfy the IRS. CCA 202141023 (10/15/21).
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.