Document summaries for the week of Oct. 4, 2021

Tax document summaries for the week of Oct. 4–8, 2021, covering employee benefits, individuals and more.

EMPLOYEE BENEFITS

IRS clarifies extension time frames for elections and payments of COBRA premiums

The IRS issued a notice explaining the application of prior notices that extended the time frames regarding elections and payments of Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) premiums during the COVID-19 national emergency. The notice not only clarifies that the disregarded period for an individual to elect COBRA continuation coverage and the disregarded period for the individual to make initial and subsequent COBRA premium payments generally run concurrently, it also addresses the interaction of these rules with Notice 2021-31 and the COBRA premium assistance rules enacted in the American Rescue Plan Act, P.L. 117-2. Notice 2021-58 (10/6/21).

 

INDIVIDUALS

Payments for spouse's health insurance are deductible as alimony

The Tax Court held that a taxpayer could deduct, as alimony, an amount equal to the premiums paid to provide health insurance coverage for his then spouse. The payments were made incident to a 2015 separation agreement pending divorce. Leyh, 157 T.C. No. 7 (10/4/21).

Tax Court grants former wife innocent spouse relief

The Tax Court held that a couple, who divorced in 2016 but filed joint tax returns for 2010 and 2015, were not entitled to deduct unreimbursed employee business expenses and tax preparation fees claimed on their 2010 Form 1040, Schedule A, Itemized Deductions. The court also held that it would be inequitable to hold the former wife liable for the deficiencies attributable to understatements of tax for 2010 and 2015 because she did not know and had no reason to know of the items giving rise to the understatements; thus, the court granted her innocent spouse relief under Sec. 6015(b). Todisco, T.C. Summ. 2021-35 (10/6/21).

 

IRS PROCEDURE

Court upholds rejection of a whistleblower's award claims

The Tax Court sustained the rejection by the IRS Whistleblower Office (WBO) of a whistleblower's award claims. The court concluded that, while the whistleblower's concerns about the accuracy of third-party income reporting may be sincere, the administrative record established that the WBO did not abuse its discretion with respect to her whistleblower claims. McCrory, T.C. Memo. 2021-116 (10/4/21).

Shelter promoter is not eligible for relief from penalties; levy notice upheld

The Tax Court upheld a notice of intent to levy issued by the IRS in a Collection Due Process case involving penalties assessed against an individual who promoted a tax shelter scheme involving domestic and offshore trusts and falsely represented to taxpayers that these shelters could be used to eliminate their federal tax liabilities. The court concluded that the IRS settlement officer in charge of the case did not abuse his discretion in determining that the individual was ineligible for collection relief. Crim, T.C. Memo. 2021-117 (10/4/21).

No abuse of discretion found in IRS Collection Due Process case

The Tax Court held that the IRS did not abuse its discretion in concluding that a taxpayer, who was the founding member of a law firm, was liable for approximately $170,000 of unpaid tax plus interest and penalties. The court rejected her claim that she reported a gain on her tax return in error and found no abuse of discretion on the IRS's part in sustaining the collection action against her. Dodd, T.C. Memo. 2021-118 (10/5/21).

Appeals court upholds imposition of fraud penalty

The Ninth Circuit upheld a Tax Court decision that imposed a fraud penalty against a taxpayer, finding that the Tax Court did not clearly err in finding clear and convincing evidence of fraud based on six badges of fraud present in the record. Chico, No. 20-71017 (9th Cir. 10/8/21).

Interest award is taxable as ordinary income

The Fifth Circuit affirmed a district court's holding that the pre- and post-judgment interest portion of a litigation award was taxable as ordinary income and not as long-term capital gain. Goldring, No. 20-30723 (5th Cir. 10/4/21).

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.