Document summaries for the week of Oct. 25

Tax document summaries for the week of Oct. 25–29, 2021, covering corporations, individuals, IRS procedure, and more.

C CORPORATIONS

Debt funded by family involved in disguised sale was not bona fide debt

The Tax Court held that, with respect to a disguised-sale transaction in which a media conglomerate and a wealthy family formed a limited liability company (LLC), with the media company contributing the Chicago Cubs Major League Baseball team and the family contributing cash, a subsequent cash distribution by the LLC to the media company was not taxable to the extent the media company guaranteed collection of the debt underlying that cash distribution. However, the court concluded, the debt funded by the family was not bona fide debt for tax purposes and resulted in the media company's recognizing gain on the sale of the baseball team. Tribune Media Co., T.C. Memo. 2021-122 (10/26/21).

 

EMPLOYMENT TAXES

Temporary hospital administrator liable for trust fund recovery penalty

The Tax Court held that a pharmacist, who was appointed temporary chief administrator of a hospital after the sudden removal of the hospital's administrator, was liable for almost $26,000 of trust fund recovery penalties because she was required to collect and remit withheld employment taxes and she did not. The court noted that the reasonable-cause exception did not apply in the taxpayer's case because she conceded that she knew the withholding taxes were due but paid other creditors instead. Cashaw, T.C. Memo. 2021-123 (10/27/21).

 

INDIVIDUALS

CPA's advice to delay filing returns did not amount to reasonable cause

The Tax Court held that the IRS met its burden in establishing that joint returns a couple filed for 2015 and 2016 were not timely filed and the tax was not paid timely. The court found that, while the couple's CPA had advised that filing a return while an audit for earlier years was ongoing could subject them to perjury charges, allowing such a basis for reasonable cause to avoid penalties would make timely filing optional for any taxpayer under audit. Morris, T.C. Memo. 2021-120 (10/25/21).

 

IRS PROCEDURE

Remittance of tax was properly labeled a 'deposit'

The Tax Court held that a taxpayer's remittance of tax to the IRS was properly labeled as a "deposit" and that interest on the excess deposit is computed at the federal short-term rate, without the three-percentage-point "bump" applicable to interest on overpayments. The court cited Rev. Proc. 2005-18 in rejected the taxpayer's contention that the initial "deposit" was converted by the IRS into a "payment" of tax. The court concluded that nothing in that procedure suggests that the IRS can unilaterally overrule a taxpayer's designation of a remittance as a "deposit." Hill, T.C. Memo. 2021-121 (10/25/21).

Substitute tax form guidelines issued

The IRS provided guidelines and general requirements for the development, printing, and approval of the 2021 substitute tax forms. Rev. Proc. 2021-42 (10/25/21).

Whistleblower's death did not extinguish Tax Court's jurisdiction

The Tax Court held that the death of a whistleblower, who had filed a Tax Court petition that was still pending at the time of his death, did not extinguish the Tax Court's jurisdiction over the petition. The court further held that the whistleblower's petition under Sec. 7623(b), which was pending before the court at the time of his death, survived his death, and his estate now has standing to pursue the claim. Insinga, 157 T.C. No. 8 (10/27/21).

Hurricane Ida relief for parts of Mississippi

The IRS announced that victims of Hurricane Ida in parts of Mississippi now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. IR-2021-210 (10/27/21).

Taxpayers can use online portal to update income for child tax credit payments

The IRS announced the Nov. 1 launch of a new feature allowing any family receiving monthly child tax credit payments to update their income using the Child Tax Credit Update Portal found on IRS.gov. IR-2021-211 (10/29/21).

 

PARTNERSHIPS

Supervisory approval of penalty issue must be raised in partnership-level proceedings under TEFRA

The Eleventh Circuit held that, in a partnership case controlled by the Tax Equity and Fiscal Responsibility Act (TEFRA), the issue of whether the IRS properly obtained supervisory approval of a penalty must be exhausted before a partner files a refund lawsuit and must be raised during partnership-level proceedings. Ginsburg, No. 19-11836 (11th Cir. 10/26/21).

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.