Document summaries for the week of Oct. 18, 2021

Tax document summaries for the week of Oct. 18–22, 2021, covering employee benefits, IRS procedure and more.

EMPLOYEE BENEFITS

IRS updates weighted average interest rates, yield curves, and segment rates

The IRS issued a notice that (1) 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 2021-60 (10/20/21).

 

ESTATES, TRUSTS & GIFTS

Issuance of Letter 627 to estate does not preclude IRS from examining the estate's return

The IRS Office of Chief Counsel advised that the issuance of a Letter 627, Estate Tax Closing Letter, does not preclude the IRS from examining an estate's tax return. The Chief Counsel's Office cited Rev. Proc. 2005-32 in concluding that the minimal contacts and communications that the IRS had with the estate fell into the category of "narrow, limited contacts between the Service and a taxpayer that do not involve the Service inspecting the taxpayer's books of account" and thus did not constitute an examination or inspection for purposes of Sec. 7605(b). CCA 202142010 (10/22/21).

 

IRS PROCEDURE

IRS issues applicable federal rates for November 2021

The IRS provided tables of various prescribed rates for federal income tax purposes for November 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 adjusted AFRs for purposes of Sec. 1288(b); Table 3 sets forth the adjusted long-term rate and the long-term tax-exempt rate described in Sec. 382(f); Table 4 contains the appropriate percentages for determining the low-income housing credit described in Sec. 42(b)(1); and Table 5 contains 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. Rev. Rul. 2021-21 (10/18/21).

IRS issues SIFL rates for second half of 2021

The IRS issued the standard industry fare level (SIFL) rates for valuing noncommercial flights on employer-provided aircraft for flights taken from July 1, 2021, through Dec. 31, 2021. The ruling contains (1) the unadjusted SIFL rate; (2) the SIFL rate adjusted for payroll support program (PSP) grants; and (3) the SIFL rate adjusted for PSP grants and promissory notes. Rev. Rul. 2021-19 (10/15/21).

IRS publishes unused housing credit carryovers

The IRS issued a revenue procedure that provides the amounts of unused housing credit carryovers allocated to qualified states under Sec. 42(h)(3)(D) for calendar 2021. The revenue procedure is effective for allocations of housing credit dollar amounts attributable to the national pool component of a qualified state's housing credit ceiling for 2021. Rev. Proc. 2021-44 (10/18/21).

Taxpayer's failure to challenge earlier notices precludes challenging underlying taxes

The Tax Court granted summary judgment to the IRS after holding that a taxpayer who was an investor and partner in two oil and gas partnerships was prohibited from challenging his underlying tax liabilities because he failed to challenge an earlier Notice of Federal Tax Lien Filing under Sec. 6320 and because he did not participate in even earlier Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) proceedings and Tax Court litigation. As a result, the Tax Court sustained the IRS's collection action against the taxpayer. Goldberg, T.C. Memo. 2021-119 (10/19/21).

Seventh Circuit dismisses claim-of-right suit for refund

The Seventh Circuit held that taxpayers could not invoke the claim-of-right doctrine to avoid paying taxes on proceeds from the sale of shares of stock that the trustee of their grantor trust sold in violation of the trust instrument because they had an unrestricted right to the proceeds of the sale and neither they nor the trustee was under a legal obligation to restore the shares to the trust. Heiting, No. 20-1324 (7th Cir. 10/18/21).

Debtors cannot avoid IRS penalty liens in bankruptcy

The Ninth Circuit affirmed the dismissal of Chapter 7 debtors' complaint concerning IRS tax liens because Bankruptcy Code Section 522(h) does not authorize debtors to avoid liens that secure an IRS penalties claim. In re Hutchinson, No. 19-60065 (9th Cir. 10/19/21).

Chief Counsel believes that case under discussion is a Westbrooks case

With respect to discussions involving an unidentified case, the IRS Office of Chief Counsel advised that, in its view, the case is a Westbrooks case, referring to the decision in Westbrooks, 858 F.3d 317 (5th Cir. 2017), involving restitution imposed for a tax offense. CCA 202142013 (10/22/21).

Chief Counsel: Cases at issue are not Westbrooks cases

With respect to discussions involving three 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 202142011; CCA 202142012; CCA 202142014 (10/22/21).

Extension of statute of limitation applies to all items on taxpayer's return

The IRS Office of Chief Counsel advised that where the extended six-year statute-of-limitation period under Sec. 6501(e)(1)(C) applies as a result of omitted Subpart F income, the extended statute-of-limitation period applies to the entire return and not just to items related to omitted Subpart F income. The Chief Counsel's Office also concluded that the taxpayer's claims for a credit or refund of overpaid taxes were untimely under Sec. 6511(a) and that an agreement between the taxpayer and IRS to extend the statute of limitation under Sec. 6501(c)(4) did not extend the statute-of-limitation period for filing a refund claim, where the agreement was entered into before the six-year assessment period had expired but after the credit or refund limitation period under Sec. 6511(a) had passed. CCA 202142009 (10/22/21).

 

TAX-EXEMPT ORGANIZATIONS

IRS issues standards for Sec. 501(c)(3) status of LLCs

The IRS issued a notice setting forth the standards that a limited liability company (LLC) must satisfy to receive a determination letter recognizing it as a Sec. 501(c)(3) entity that is tax-exempt under Sec. 501(a). This notice also requests public comments on these standards as well as specific issues relating to tax-exempt status for LLCs to assist in determining whether additional guidance is needed concerning the standards that an LLC must satisfy to be exempt from taxation by reason of being described in Sec. 501(c). This notice does not affect the status of organizations currently recognized as described in Sec. 501(c)(3). Notice 2021-56 (10/21/21) (see related news story).

Tax Insider Articles

DEDUCTIONS

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.

TAX RELIEF

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.