Document Summaries for the week of April 25, 2022

Tax document summaries for the week of April 25–29, 2022, covering C corporations, employee benefits, and more.

CORPORATIONS

Management fees were disguised earnings distributions

The Eighth Circuit affirmed a Tax Court decision holding that a company could not deduct management fees paid to its shareholders because they were actually disguised distributions of corporate earnings. Aspro, Inc., No. 21-1996 (8th Cir. 4/26/22).

 

EMPLOYEE BENEFITS & PENSIONS

Mortality tables issued for defined benefit plans

The IRS issued proposed regulations that prescribe the mortality tables to be used by most defined benefit plans. REG-106384-20 (4/26/22).

IRS issues updated mortality improvement rates and static mortality tables

The IRS issued a notice that (1) updates the mortality improvement rates and static mortality tables to be used for defined benefit pension plans under Sec. 430(h)(3)(A) and Section 303(h)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA), and (2) provides a modified unisex version of the mortality tables for use in determining minimum present value under Sec. 417(e)(3) and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2023 calendar year. The updated mortality improvement rates and static mortality tables apply for purposes of determining present value and making any other computations under Sec. 430 for valuation dates occurring during the 2023 calendar year. Notice 2022-22 (4/27/22).

IRS issues 2023 inflation-adjusted numbers for HSAs and excepted-benefit HRAs

The IRS issued the 2023 inflation-adjusted amounts for health savings accounts (HSAs) as determined under Sec. 223 and the maximum amount that may be made newly available for excepted-benefit health reimbursement arrangements (HRAs) under Regs. Sec. 54.9831-1(c)(3)(viii). For calendar year 2023, (1) the annual limitation on deductions under Sec. 223(b)(2)(A) for an individual with self-only coverage under a high-deductible health plan (HDHP) is $3,850; (2) the annual limitation on deductions under Sec. 223(b)(2)(B) for an individual with family coverage under an HDHP is $7,750; (3) a "high deductible health plan" is defined under Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,500 for self-only coverage or $3,000 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $7,500 for self-only coverage or $15,000 for family coverage; and (4) the maximum amount that may be made newly available for the plan year for an excepted-benefit HRA is $1,950. Rev. Proc. 2022-24 (4/29/22) (see related news story).

 

ESTATES, TRUSTS & GIFTS

Proposed regs. would amend basic exclusion rules

The IRS issued proposed regulations that would provide an exception to the anti-clawback special rule that preserves the benefits of the temporarily higher gift and estate basic exclusion amount. The regulations would apply to certain transfers that are includible, or treated as includible, in a decedent's gross estate under Sec. 2001(b). REG-118913-21 (4/26/22) (see related news story).

 

INDIVIDUALS

No loss deduction allowed for court-ordered forfeiture of amounts obtained by bribery

The Tax Court held that a taxpayer was not entitled to a loss deduction for the court-ordered forfeiture of amounts he derived from a bribery scheme while working as a consular officer in Vietnam for the State Department. The court also found the taxpayer liable for the civil fraud penalty under Sec. 6663 as a result of his activities related to the receipt of the bribery proceeds and his attempts to hide those activities. Sestak, T.C. Memo. 2022-41 (4/25/22).

Retirement plan distributions for Defense Department are not excludable from income

The Tax Court held that a taxpayer's retirement plan distributions from the Department of Defense did not qualify for exclusion from income under Sec. 104(a)(4) even though she had received a disability determination from the Department of Veterans Affairs. On a separate issue, the court concluded that a majority of the taxpayer's extensive business expense deductions were not deductible because she failed to adequately substantiate the deductions and, as a result, she was liable for additions to tax under Sec. 6651(a). Valentine, T.C. Memo. 2022-42 (4/28/22).

 

IRS PROCEDURE

IRS begins work on 2022–2023 Priority Guidance Plan

The IRS is inviting the public to submit recommendations for items to be included on the 2022–2023 Priority Guidance Plan, which is used each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The 2022–2023 Priority Guidance Plan will identify guidance projects that Treasury and the IRS intend to actively work on as priorities during the period from July 1, 2022, through June 30, 2023. Notice 2022-21 (4/26/22) (see related news story).

 

S CORPORATIONS

E-file capability postponed for S corporation shareholder Schedules K-2 and K-3

The IRS has delayed until July 24, 2022, the rollout of an electronic filing protocol for Schedules K-2, Shareholders' Pro Rata Share Items — International, and K-3, Shareholder's Share of Income, Deductions, Credits, etc. — International, filed by S corporations. Schedules K-2 and K-3 Frequently Asked Questions (Forms 1065, 1120S, and 8865) (4/27/22) (see related news story).

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.