Document summaries for the week of Sept. 13, 2021
Tax document summaries for the week of Sept. 13–17, 2021, covering corporations, individuals, IRS procedure, and more.
Domestic asset and liability percentages and domestic investment yields issued for 2020
The IRS issued the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Sec. 842(b) for tax years beginning after Dec. 31, 2019. The IRS noted that Rev. Proc. 2020-41 contains the information for the domestic asset/liability percentages and domestic investment yields for tax years beginning after Dec. 31, 2018. Rev. Proc. 2021-41 (9/13/21).
Failure to substantiate away-from-home expenses precludes deductions
The Tax Court held that, while a taxpayer who worked as commercial industrial electrician in the oil and gas industry might have been away from his tax home when he traveled to remote worksites, he was not entitled to deduct his mileage and other unreimbursed business expenses relating to that work because he failed to substantiate them. Similarly, with respect to the taxpayer's deductions relating to a separate residence away from his home, the court noted that a temporary absence alone does not make a taxpayer's personal residence his tax home; the taxpayer must also have a business reason to maintain a distant, separate residence to deduct expenses relating to the residence, and the taxpayer did not prove that he had such a business reason. Vasquez, T.C. Summ. 2021-32 (9/13/21).
Taxpayer cannot exclude settlement income from tax return
The Tax Court held that a taxpayer who received a $55,000 settlement payment from her former employer in 2014 could exclude only $6,980 of the payment from her 2014 gross income, the amount she paid out of pocket for psychotherapy for the emotional distress resulting from her alleged workplace sexual assault and physical injuries. The court also held that the taxpayer had to recognize the remaining $48,020 as income for 2014 because she received the $55,000 settlement payment in that year and was free to spend it however she chose. Tressler, T.C. Summ. 2021-33 (9/13/21).
Taxpayer who knew husband could not pay taxes due is not entitled to innocent spouse relief
The Tax Court held that a taxpayer who had substantial bookkeeping responsibilities with respect to her husband's business was not entitled to innocent spouse relief under Sec. 6015(f) for tax underpayments for 2005 and 2006. The court concluded that the taxpayer knew or should have known when she signed the tax returns at issue that her husband would not, or could not, pay the tax liability at that time or within a reasonable period after filing the returns, and that fact weighed against relief. Sutherland, T.C. Memo. 2021-110 (9/16/21).
Domestic asset/liability percentages for foreign insurance companies
The IRS provided the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Sec. 842(b) for tax years beginning after Dec. 31, 2019. Rev. Proc. 2021-41 (9/13/21).
New IRS mailing address for some Western states
The IRS announced that taxpayers in Alaska, California, Hawaii, Ohio, and Washington state who previously filed their federal tax returns with the Fresno, Calif., return processing center should now mail them to the Ogden, Utah, processing center. IR-2021-185 (9/14/21).
IRS announces tax relief for Pennsylvania victims of Hurricane Ida
The IRS announced that Pennsylvania victims of remnants of Hurricane Ida that began Aug. 31, 2021, now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. PA-2021-05 (9/14/21).
IRS extends dyed diesel fuel penalty relief in Louisiana
The IRS announced, in response to continued shortages of undyed diesel fuel caused by Hurricanes Ida and Nicholas, that it will extend through Sept. 30, 2021, the penalty relief provided in IR-2021-176 when dyed diesel fuel is sold for use or used on the highway in designated Louisiana parishes. IR-2021-187 (9/15/21).
IRS cannot assess and collect tax relating to Form 1139 filed by FDIC
The Office of Chief Counsel advised that the IRS does not have the ability to assess and collect a tax where the Federal Deposit Insurance Corporation (FDIC), with respect to an insolvent bank, files Form 1139, Corporation Application for Tentative Refund, claiming 100% of the alternative minimum tax credit for 2018 and the IRS pays the tentative refund but later determines that additional tax is due. According to the Chief Counsel's Office, Sec. 6411 procedures allow for very little adjusting to the tentative refund request and Sec. 7507 prevents the use of the Sec. 6213(b)(3) expedited assessment procedure to recover any erroneous allowance, and there is no alternative process for recovering a tentative refund allowed to a bank while it's subject to Sec. 7507. CCA 202137008 (9/17/21).
Chief Counsel's Office addresses taxpayer claims seeking returns of payments
In addressing the filing of a taxpayer's claims with the IRS, the Office of Chief Counsel noted that, in the first claim, the taxpayer is asking for a refund and the denial of the claim can form the basis of jurisdiction in a later court action. With respect to the second claim, where the taxpayer is not asking for a refund, the Chief Counsel's Office advised that, while this second claim would not form the basis of a justiciable controversy, the taxpayer can always sue for a refund if he/she/it is ever put into an overpayment situation and, in that case, there will be new claim-filing deadlines with respect to any claims that seek the return of prospective payments (whether voluntary or not). CCA 202137009 (9/17/21).
IRS issues applicable federal rates for October 2021
The IRS issued a ruling providing tables of various prescribed rates for federal income tax purposes for October 2021. Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of Sec. 1274(d); Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of Sec. 1288(b); Table 3 sets forth the adjusted federal 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) for buildings placed in service during the current month (although under Sec. 42(b)(2), the applicable percentage for nonfederally subsidized new buildings placed in service after July 30, 2008, is not less than 9%); 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. 2021-18 (9/16/21).
Form 668-W is not necessarily limited to levying on wages
The Office of Chief Counsel was asked to provide guidance relating to the proper levy procedures with respect to rental income, including (1) whether a Form 668-W, Notice of Levy on Wages, Salary, and Other Income, can be used for rental income received pursuant to a rental contract, and (2) if the wrong form is used, whether the results remain the same, so that a continuous levy attaches to income proceeds of a rental contract. The Office of Chief Counsel advised that (1) it had not located any guidance or authority expressly addressing whether a Form 668-A, Notice of Levy, or a Form 668-W should be used in the context of levying current and future rental payments, although the Internal Revenue Manual and the instructions to Form 668-W contemplate other income, so the form is not necessarily limited to wages and there is no guidance precluding use of a Form 668-W in such a case; and (2) rental income is generally subject to a levy with continuous effect such that, to the extent that future rental liabilities are fixed and determinable, the single levy reaches both current and future rental payments. CCA 202137010 (9/17/21).
Chief Counsel provides guidance on new FOIA internet portal
The Office of Chief Counsel issued a memorandum in which it provides preliminary guidance concerning the use of an internet portal to allow Freedom of Information Act (FOIA) customers the ability to submit and track requests, and to receive responsive information, as mandated by the FOIA Improvement Act of 2016. The memo supplements the Chief Counsel's earlier tentative guidance now that specific tools have been identified for use in complying with the Office of Management and Budget's mandate to allow the public to submit FOIA requests through an internet portal pursuant to the FOIA Improvement Act. PMTA 2021-08 (9/17/21).