Document summaries for the week of Sep. 27, 2021
Tax document summaries for the week of Sep. 27–Oct. 1, 2021, covering individuals, international, IRS procedure, and partnerships.
Business owner liable for fraud penalties for failing to report income
The Tax Court held that a taxpayer who owned an auto body shop; rental properties; a large home; and numerous trucks, automobiles, and utility vehicles, but who reported taxable income of $114, $0, $0, and $0 for the four years at issue, had fraudulently underreported his income. The court thus found him liable for the tax deficiencies assessed by the IRS and the civil fraud penalty under Sec. 6663 for each of the years at issue. Clark, T.C. Memo. 2021-114 (9/28/21).
Couple's boat chartering expense deductions are subject to 2% floor
The Tax Court denied a couple's request to hold that, as a matter of law, deductions permitted under Sec. 183(b) for activities not engaged in for profit are not subject to Sec. 67(a) (i.e., the 2% floor on miscellaneous itemized deductions). The court agreed with the IRS that certain expenses relating to the couple's boat chartering business were permitted as miscellaneous itemized deductions in 2014 and 2015 to the extent allowed under Sec. 183(b)(2) and subject to the 2% floor established by Sec. 67(a). Gregory, T.C. Memo. 2021-115 (9/29/21).
IRS updates procedure addressing countries with information exchange agreements
The IRS issued a revenue procedure that adds one country, Chile, to the current published list of countries with which the United States has in force an information exchange agreement, such that interest paid to residents of such countries must be reported by payers to the extent required under Regs. Secs. 1.6049-4(b)(5) and 1.6049-8(a). The procedure also adds the Dominican Republic and Singapore to the current published list of countries with which Treasury and the IRS have determined it is appropriate to have an automatic exchange relationship with respect to the information collected under Regs. Secs. 1.6049-4(b)(5) and 1.6049-8(a). Rev. Proc. 2021-32 (9/28/21).
Tax Court again denies a whistleblower award
On remand from the District of Columbia Circuit, the Tax Court again held that a whistleblower was not entitled to a reward where the IRS collected no proceeds on the basis of the information he provided. Accordingly, the court held the IRS was entitled to summary judgment that the Whistleblower Office did not abuse its discretion in denying the whistleblower an award. The court also again denied the whistleblower's request to proceed anonymously, holding that the whistleblower did not satisfy his burden of providing a sufficient, fact-specific basis for anonymity. Whistleblower 14377-16W, T.C. Memo. 2021-113 (9/27/21).
IRS proposed increase in enrolled agent exam fee
The IRS issued proposed regulations that would increase the amount of the user fee for each of the three parts of the special enrollment examination for enrolled agents from $81 to $99 (in addition to a payment to the third-party contractor that administers the examination). The proposed regulations would also remove the user fee for the special enrollment examination for enrolled retirement plan agents because the IRS no longer offers the examination or new enrollment as an enrolled retirement plan agent. REG-100718-21 (9/29/21).
Bond interest payments limited in certain circumstances
With respect to an undescribed issue involving Form 8888, Allocation of Refund (Including Savings Bond Purchases), and interest on the purchase of U.S. Series I Savings Bonds, the Office of Chief Counsel expressed its agreement that, in the bond context, when the provisions of Secs. 6611(b)(3), (e)(1), (e)(3), and (g) apply, they prohibit or limit the payment of interest as described in the statute. CCA 202139008 (10/1/21).
LITC Program Office has no discretion to waive matching funds requirement
The Office of Chief Counsel was asked whether there existed any authority that would give the Low-Income Taxpayer Clinic (LITC) Program Office discretion to waive the Sec. 7526 matching funds requirement for grantee organizations in Puerto Rico or the U.S. Virgin Islands (USVI). The Office of Chief Counsel, after consulting with General Legal Services, concluded that no statutory authority existed that would permit the LITC Program Office the discretion to waive the matching requirement for organizations in Puerto Rico or the USVI. CCA 202139007 (10/1/21).
Regs. establish dispute resolution process for out-of-network service rates
The IRS, along with the Department of Labor and the Department of Health and Human Services, issued temporary and proposed regulations that provide for a federal independent dispute resolution process to permit group health plans and health insurance issuers and nonparticipating providers, facilities, and providers of air ambulance services to determine the out-of-network rate for items and services that are emergency services, nonemergency services furnished by nonparticipating providers at participating facilities, and air ambulance services furnished by nonparticipating providers of air ambulance services, under certain circumstances. T.D. 9955; REG-107707-21 (9/30/21).
Audited partnership has 60 days to furnish required statements
The Office of Chief Counsel advised that, in accordance with Regs. Sec. 301.6226-2(b), an audited partnership has 60 days in which to furnish to each partner of a partnership statements of partnership adjustments when such adjustments are finally determined. A passthrough partner has until the extended due date of the audited partnership's adjustment year return to furnish the statements (or pay the imputed underpayment if such statements are not furnished). CCA 202139009 (10/1/21).