Document Summaries for the week of April 18, 2022
Tax document summaries for the week of April 18–22, 2022, covering C corporations, employee benefits, individuals, and more.
Court finds dispute of material fact involving classification under VCSP
The Tax Court held that there was a dispute of material fact where a corporation contended it had met all requirements for participation in the Voluntary Classification Settlement Program (VCSP). The IRS disagreed, arguing that the misclassification of the sole corporate officer as a nonemployee was uncovered as the result of an employment tax audit, thus precluding the corporation from meeting the VCSP's participation requirements. As a result, the court denied the corporation's motion for summary judgment. Treece Investment Advisory Corp., T.C. Memo. 2022-38 (4/19/22).
Tax Court has jurisdiction in VCSP case
The Tax Court concluded that it had jurisdiction to determine whether the IRS correctly determined that the Voluntary Classification Settlement Program (VCSP) did not apply to the computation of a corporation's employment tax liability. With respect to the amount of employment tax that the corporation might owe as a result of misclassifying the corporation's sole officer as a nonemployee, the court found that there was a genuine dispute of material fact as to whether the VCSP applied and, thus, a question of the proper amount of employment taxes due. Treece Financial Services Group, 158 T.C. No. 6 (4/19/22).
IRS updates weighted average interest rates, yield curves, and segment rates
The IRS issued a notice that provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2022-16 (4/18/22).
Couple failed to substantiate claim that husband's S corporation overstated gross receipts
The Tax Court held that a couple, who engaged in medical funding and real estate business ventures through the husband's wholly owned S corporation, were liable for tax deficiencies and an accuracy-related penalty after the court found that they failed to substantiate their claim that the S corporation overstated its gross receipts for the 2013 tax year by $956,000. The court also rejected the couple's claim that the husband and his S corporation had enough basis in a limited liability company (LLC) to deduct their pro rata shares of the LLC's loss for the 2013 tax year. Kohout, T.C. Memo. 2022-37 (4/18/22).
Couple failed to satisfy time requirements to qualify as real estate professionals
Where a married couple purchased two properties in Florida and rented each of them out in 2013 and 2014, but neither could establish that either one met the 750-hour requirement in Sec. 469(c)(7) in either year, the Tax Court held that they did not qualify as real estate professionals for those years. Accordingly, the court found that the couple's Florida real estate rental activities in 2013 and 2014 were passive activities, regardless of whether the couple materially participated in those activities, and their losses were disallowed. Sezonov, T.C. Memo. 2022-40 (4/20/22).
Court rejects taxpayer's frivolous arguments and warns of potential future penalties
The Tax Court held that arguments made by an individual, who claimed he was paid no wages in 2015 and 2016 but received Forms W-2 showing that he did receive wages, were frivolous and he was therefore liable for the tax deficiencies assessed by the IRS. However, because the individual had not made those frivolous arguments before, the court did not impose the sanctions under Sec. 6673 but threatened to do so in the future if the individual persisted in presenting baseless arguments to the court. Bindel, T.C. Memo. 2022-39 (4/20/22).
New procedures allow certain late elections for years ending in 2018 and 2019
The IRS issued a revenue procedure allowing taxpayers to make late elections under Sec. 168(j)(8) and Sec. 168(l)(3)(D) for tax years ending in 2018 or 2019 for certain property placed in service after Dec. 31, 2017. The revenue procedure also provides guidance allowing taxpayers to make a late election under Sec. 181(a)(1) for tax years ending in 2018 or 2019 for certain film, television, or live theatrical productions begun by the taxpayer after Dec. 31, 2017. Rev. Proc. 2022-23 (4/18/22).
IRS issues applicable federal rates for May 2022
The IRS issued a ruling providing tables of various prescribed rates for federal income tax purposes for May 2022. Table 1 contains the short-term, midterm, and long-term applicable federal rates (AFRs) for the month for purposes of Sec. 1274(d); Table 2 contains the short-term, midterm, and long-term adjusted applicable federal rates (adjusted AFRs) 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 month (although, under Sec. 42(b)(2), the applicable percentage for non–federally 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. 2022-9 (4/18/22).
Supreme Court holds 30-day Tax Court petition deadline is nonjurisdictional
The U.S. Supreme Court held that the 30-day limit of Sec. 6330(d) for taxpayers to file a petition with the Tax Court to review an IRS determination is nonjurisdictional, meaning it can be extended in certain instances. Boechler, P.C., No. 20-1472 (U.S. 4/21/22) (see related news story).
Sec. 6511 lookback rule applies on multiple extensions by reaching back to first extension
In examining whether the lookback rule under Sec. 6511(c)(2) applies on multiple statute-of-limitation extensions until it reaches the very first extension or whether it applies only to the previous immediate extension, the Office of Chief Counsel advised that it applies on multiple extensions by reaching back to the first extension. According to the Chief Counsel's Office, if an agreement to extend the period of assessment is reached under Sec. 6501(c)(4), then Sec. 6511(c)(1) provides that the taxpayer's time to file a claim for refund is extended to six months after the agreed-upon assessment period ends. The Sec. 6511(c)(2) lookback provision then limits the amount the taxpayer can claim in a refund to (1) payments made between the time the agreement was executed and the filing of the refund claim, plus (2) payments that would have been available under Sec. 6511(b)(2) had the claim been filed on the date the agreement was executed. CCA 202216015 (4/22/22).
Timing of interest abatement and correlation to whether an overpayment is barred
The question was raised whether the time it takes the IRS to determine if an abatement of interest is appropriate has a direct correlation to whether an overpayment is barred in whole or in part. The Chief Counsel's Office advised that in the case of a taxpayer who has not filed a refund claim, Sec. 6511(b)(2)(C) provides the answer, and in the case of a taxpayer who has filed a refund claim, Sec. 6511(b)(2)(B) provides the answer. Thus, if no refund claim was filed, the amount allowed is determined based on the date the credit or refund is allowed, and if a refund claim was filed, the amount of the credit or refund is limited by the portion of the payment made in the two years preceding the filing of the claim. CCA 202216016 (4/22/22).
STATE & LOCAL TAXES
Supreme Court denies certiorari in SALT cap challenge
The U.S. Supreme Court declined to review a Second Circuit case that upheld the $10,000 limit on the amount of state and local taxes (SALT) that can be claimed as a deduction on individual federal income tax returns. New York v. Yellen, No. 21-966 (U.S. 4/18/22) (order) (see related news story).