Document Summaries for the week of April 4, 2022
Tax document summaries for the week of April 4–8, 2022, covering individuals and IRS procedure.
Court upholds penalty on teacher who failed to substantiate business expense deductions
The Tax Court held that a taxpayer was not entitled to deduct expenses beyond what the IRS had already allowed for travel, meals, entertainment, and other expenses that she said related to her occupation as a teacher, because she failed to adequately substantiate them. Further, although the taxpayer hired H&R Block to prepare her tax return, the court was not convinced that she provided the preparer necessary and accurate information, Thus, the court upheld the accuracy-related penalty imposed by the IRS. Scholz, T.C. Summ. 2022-5 (4/4/22).
Claim of coercion by IRS does not negate status as a responsible person
The Tax Court held that the IRS did not abuse its discretion to proceed with a collection action regarding a Sec. 6672 trust fund recovery penalty against a taxpayer who was responsible for a corporation's bank accounts and was the responsible managing officer during the tax periods at issue and failed to submit requested materials to the IRS. With respect to the taxpayer's accusation that the revenue officer coerced him into admitting that he was a responsible person, the court stated that, even if the taxpayer's claim was true, it would not affect his status as a responsible person. Middleton, T.C. Memo. 2022-28 (4/4/22).
No abuse of discretion found where couple failed to justify excess living expenses
The Tax Court held that the IRS did not abuse its discretion in denying a couple's request for currently not collectible status with respect to their tax debt. Although the couple alleged that their cost of living exceeded their income, the court noted that their reported expenses were allowably adjusted downward by the IRS to reflect prevailing local standards, and the couple failed to meet their burden to justify a departure from the local standards. Norberg, T.C. Memo. 2022-30 (4/5/22).
Taxpayer's failure to file tax return negates ability to take itemized deductions
The Tax Court upheld a notice of deficiency issued to a taxpayer for 2013 after he failed to show he filed a federal income tax return for that year and the IRS prepared a substitute for return. The court also found that he was liable for the early-distribution penalty under Sec 72(t). In addition, because the court found that the taxpayer did not file the return, it also found he did not elect to itemize deductions as required by Sec. 63(e) and accordingly did not allow any itemized deductions. Salter, T.C. Memo. 2022-29 (4/5/22).
Proposed regulations issued to revise premium tax credit's affordability test
The IRS issued proposed regulations that would reinterpret how affordability of employer health care coverage is determined for purposes of a premium tax credit with respect to family members of an employee to whom the coverage is offered. REG-114339-21 (4/5/22) (see related news story).
Couple did not use house for 2 of 5 years before sale; but other issues remain to be resolved
The Tax Court held that, for years 2010 through 2015, a couple did not use a house on Mercer Island, Washington, as their principal residence for purposes of Secs. 121(a) and (b). However, the court said, there was a genuine dispute of fact regarding whether the primary reason for the couples' sale of the Mercer Island house was the wife's health, and because the parties had not yet addressed whether, as a matter of law, that disputed fact was a "material" fact, the court denied the IRS's motion for summary judgment on that issue. Webert, T.C. Memo. 2022-32 (4/7/22).
IRS eases application process for US residency certification
The IRS has temporarily revised its procedures for some submitters of Form 8802, Application for United States Residency Certification, to facilitate applications where the Service has not yet completed its processing of the applicant's most recently filed tax return. Temporary Change in Policy with Respect to Applications for U.S. Residency Certifications for a Two-Year Period (4/4/22) (see related news story).
Chief Counsel's Office advises on admissibility of electronic copies of documents
The IRS Office of Chief Counsel issued heavily redacted advice on the admissibility into evidence of an electronic copy when an original paper document containing a statement signed by the taxpayer under penalties of perjury has been destroyed. PMTA 2022-03 (4/4/22).
Taxpayer who received unreported income is liable for multiple tax penalties
The Tax Court held that a taxpayer who worked as a professional structural engineer and started his own company to design bridges and related road structures for the Florida Department of Transportation (1) received unreported income for 2005 through 2008; (2) was liable for civil fraud penalties under Sec. 6663 for 2000 through 2007; (3) was liable for additions to tax under Sec. 6651(a)(1) for 2005 through 2008; and (4) was liable for additions to tax under Secs. 6651(a)(2) and (f) and Sec. 6654 for 2008. Metz, T.C. Memo. 2022-33 (4/7/22).
Continuing care community can defer certain upfront payments from residents
The Tax Court held that upfront payments received by a partnership running a continuing care community, which were accounted for as deferred fees under generally accepted accounting principles (GAAP), did not have to be reported as current income until the continuing care business met its commitment to the resident who made the payment. While noting that the IRS has discretion to change a taxpayer's accounting method, the Tax Court concluded that the continuing care community's accounting of the deferred fees under GAAP clearly reflected income. Continuing Life Communities Thousand Oaks LLC, T.C. Memo. 2022-31 (4/6/22).
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.
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.