Document Summaries for the week of Aug. 22, 2022
Tax document summaries for the week of Aug. 22–26, 2022, covering employee benefits, IRS procedure, and more.
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 2022-35 (8/22/22).
Closing agreement that waived taxpayer's right to exclude Sec. 911(a) income was valid
The Tax Court held that a closing agreement a taxpayer entered into with the IRS under Sec. 7121 waiving his right to elect to exclude foreign earned income under Sec. 911(a) for tax years 2016–2018 was valid and enforceable. After addressing some issues of first impression raised by the taxpayer's claims, the court granted partial summary judgment to the IRS and denied the taxpayer's motion for partial summary judgment. Smith, 159 T.C. No. 3 (8/25/22).
IRS extends phase-in period for the enforcement and administration of Sec. 871(m)
The IRS issued additional guidance for complying with the final regulations on dividend equivalents under Secs. 871(m), 1441, 1461, and 1473 in 2023, 2024, and 2025. Specifically, the guidance extends for two years the period during which the enforcement standards provided by Notice 2020-2 will apply. Notice 2022-37 (8/23/22).
Court refuses to quash summons issued pursuant to US–India treaty
The Ninth Circuit affirmed a district court's decision denying a petition to quash a summons issued by the IRS at the request of tax authorities in India. The summons was issued pursuant to the United States–India income tax treaty. The court found that the IRS acted in good faith in issuing the summons and that the plaintiff did not meet her burden of providing appropriate grounds for quashing the summons. Puri, No. 21-55132 (9th Cir. 8/22/22).
Corporation is too late in questioning IRS's compliance with Sec. 6751(b)
The Tax Court held that a corporation was precluded from raising the question of IRS compliance with Sec. 6751(b)(1), which requires IRS written supervisory approval of certain penalties, as a potential defense to the corporation's liability for penalties arising out of a partnership proceeding that had been finalized. The court concluded that compliance with Sec. 6751(b) must be raised in a partnership-level proceeding, not in a partner's subsequent collection proceeding. Warner Enterprises, Inc., T.C. Memo. 2022-85 (8/22/22).
Appeals court overturns Tax Court case based on invalidated regulation
The Eleventh Circuit vacated and remanded parts of a Tax Court decision concerning the donation of a conservation easement. The Tax Court's holding regarding the deductibility of the donation was based on a Treasury regulation (Regs. Sec. 1.170A-14(g)(6)(ii)) that the Eleventh Circuit had invalidated in Hewitt, 21 F.4th 1336 (11th Cir. 2021). Glade Creek Partner, LLC, No. 21-11251 (11th Cir. 8/22/22).
IRS provides penalty relief for certain taxpayers for 2019 and 2020 tax returns
The IRS is providing relief for taxpayers that filed specified returns, including Forms 1040 and 1120, from certain failure-to-file penalties and certain international information return penalties with respect to tax returns for tax years 2019 and 2020 that are filed on or before September 30, 2022. The IRS is also providing relief from certain information return penalties with respect to tax year 2019 returns that were filed on or before August 1, 2020, and with respect to tax year 2020 returns that were filed on or before August 1, 2021. Notice 2022-36 (8/24/22) (see related news story).
Partnership's loan payments were not transformed into guaranteed payments to a partner
The Tax Court held that a partnership that purchased commercial rental property and the entity that financed the purchase of that property were not engaged in a joint venture constituting a partnership. The court further held that (1) the financing entity did not have a single equity interest in its dealings with the partnership that transformed the partnership's loan payments on genuine debt into guaranteed payments made to a partner pursuant to Sec. 707(c), as the IRS had argued, and (2) appreciation interest that the partnership paid to the financing entity was interest deductible under Sec. 163, not a payment in respect of any equity interest held by the financing entity. Deitch, T.C. Memo. 2022-86 (8/25/22).
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.