Document Summaries for the week of Dec. 19, 2022
Tax document summaries for the week of Dec. 19–23, 2022, covering individuals, IRS procedure, and more.
IRS complied with written supervisory approval requirement of Sec. 6751
The Tax Court held that the IRS established compliance with the written supervisory approval requirement of Sec. 6751(b)(1) when determining accuracy-related penalties under Sec. 6662(a) against the taxpayers for the 2011–2014 tax years. In particular, the court found that an IRS manager's signature on a Letter 950, a so-called 30-day letter, dated July 8, 2016, was sufficient to demonstrate written supervisory approval of the accuracy-related penalties asserted in an enclosed revenue agent's report, dated July 6, 2016, despite the manager's later approval of changes to those penalties and other additions to tax. Castro, T.C. Memo. 2022-120 (12/19/22).
IRS announces applicable reference standard for determining energy-efficient commercial building property deduction
The IRS announced the applicable reference standard required to be used to determine the amount of the energy-efficient commercial building property deduction allowed under Sec. 179D, as amended by the Inflation Reduction Act of 2022, P.L. 117-169. The announcement, which is effective Jan. 1, 2023, identifies the existing reference standard, affirms a new reference standard, and clarifies when each of the two reference standards will apply to taxpayers. Announcement 2023-1 (12/23/22).
IRS provides guidance on digital asset reporting by brokers
The IRS provided transitional guidance under Secs. 6045 and 6045A with respect to the reporting of information on digital assets. Announcement 2023-2 (12/23/22).
For-profit corporation does not qualify as a regional income tax agency
The IRS Office of Chief Counsel advised that a for-profit corporation, which acts as a tax officer for several tax collection districts in Pennsylvania and is charged with collecting, reconciling, administering, and enforcing income taxes imposed on residents and nonresidents, does not qualify as a regional income tax agency (RITA) because it is not a governmental entity that is formed and operated by a group of qualified municipalities as required by Sec. 6103(b)(5). As a result, the Chief Counsel's Office concluded that the corporation cannot participate in the Federal/State Exchange Program under Sec. 6103(d)(1) and cannot enter into an agreement with the IRS regarding disclosure of confidential return information. PMTA 2022-09 (12/23/22).
2022 salvage discount factors and payment patterns for insurance companies are issued
The IRS issued the loss payment patterns for the 2022 determination year and the discount factors for the 2022 accident year for use by insurance companies in computing discounted unpaid losses under Sec. 846 and discounted estimated salvage recoverable under Sec. 832. The IRS also issued the discount factors for losses incurred in the 2022 accident year and earlier accident years for use in tax years beginning in 2022, and noted that the discount factors for accident years before 2022 were prescribed in earlier revenue procedures, such as Rev. Proc. 2021-54. Rev. Proc. 2023-10 (12/23/22).
Court denies couple's charitable conservation easement deduction carryover
The Tax Court held that a couple who filed a joint tax return were not allowed a carryover charitable contribution deduction relating to their interest in a limited liability company's charitable contribution of a conservation easement to a political subdivision of the state of Georgia. The court also concluded that the couple were liable for the 40% accuracy-related penalty in Sec. 6662(h) resulting from a gross valuation misstatement for each of the years in issue. Brooks, T.C. Memo. 2022-122 (12/19/22).
Car salesman hit with penalties on majority of his disallowed business expenses
The Tax Court held that a car salesman was not entitled to deduct $86,925 of business expenses reported on Schedule C, Profit or Loss From Business, and was liable for most of the penalties assessed by the IRS on the disallowed deductions. However, the court rejected the penalties relating to the taxpayer's deduction of lodging expenses because the court thought that the taxpayer genuinely believed that his lodging expenses were different from commuting expenses and had a logical business nexus since such expenses enabled him to work the 60 hours per week required to hold on to his managerial job. Ayria, T.C. Memo. 2022-123 (12/19/22).
Court agrees that taxpayer cannot challenge his underlying tax liabilities in court
The Tax Court granted an IRS motion for summary judgment after agreeing with the IRS that a taxpayer, who had unreported income and disallowed expenses, was not entitled to challenge his underlying tax liabilities and that the IRS settlement officer in the case did not abuse her discretion. The court noted that the taxpayer did not propose a collection alternative during his Collection Due Process case but was free to submit to the IRS at any time, for its consideration and possible acceptance, a collection alternative in the form of an offer in compromise or an installment agreement, supported by the requisite financial information. Mamadou, T.C. Memo. 2022-121 (12/19/22).
IRS addresses enforcement of $600 threshold for Form 1099-K reporting
The IRS announced a delay in the $600 reporting threshold for third-party settlement organizations under Sec. 6050W. As a result, the IRS says third-party settlement organizations will not have to report tax year 2022 transactions on a Form 1099-K, Payment Card and Third Party Network Transactions, to the IRS or the payee for the lower, $600 threshold amount that was enacted as part of the American Rescue Plan Act of 2021, P.L. 117-2. Instead, calendar year 2022 will be regarded as a transition period for purposes of IRS enforcement and administration, which is intended to facilitate an orderly transition for third-party settlement organization compliance with Sec. 6050W and participating payee compliance with income tax reporting. Notice 2023-10 (12/23/22) (see related news story).
Guidance issued on broker withholding requirements for foreign PTPs
The IRS announced that it will issue proposed regulations with guidance on withholding on transfers of interests in a publicly traded partnership (PTP). Notice 2023-8 (12/21/22) (see related news story).
Controlling S corporation shareholders liable for deficiencies but escape penalties
The Tax Court held that a married couple who are controlling shareholders of an S corporation that operates agriculture and horse-breeding businesses (1) did not properly report for tax purposes transfers of property made by the S corporation; (2) had constructive dividends as a result of the rent-free use of their home owned by the S corporation; (3) failed to demonstrate that any of the tax liabilities resulting from the transactions at issue should flow through to either a grantor or electing small business trust (ESBT) since no ESBT election was made and no Form 1041, U.S. Income Tax Return for Estates and Trusts, was ever filed; (4) received constructive distributions of appreciated property as a result of transfers of property by the S corporation without receiving any consideration in return; and (5) were not entitled to a bad debt deduction where they failed to show there was a bona fide debtor-creditor relationship. However, the court also concluded that the couple were not liable for the penalties assessed by the IRS because the IRS failed to show compliance with supervisory approval requirements of Sec. 6751(b). Starer, T.C. Memo. 2022-124 (12/20/22).
IRS issues guidance on new sustainable aviation fuel credits
The IRS issued guidance on the new sustainable aviation fuel (SAF) credits under Sec. 40B and Sec. 6426(k) and related credit and payment rules under Secs. 34(a)(3), 38, 87, and 6427(e)(1). The guidance also provides rules related to the Sec. 4101 registration requirements and requests comments from the public related to the SAF credit to assist the IRS in developing additional guidance on the SAF credit in the future. Notice 2023-06 (12/19/22).
IRS releases percentage increases for calculating certain health care items and services in 2023
The IRS issued a notice under the No Surprises Act that provides the percentage increase for calculating the qualifying payment amounts for items and services furnished during 2023 for purposes of Sec. 9816 and Sec. 9817, Sections 716 and 717 of the Employee Retirement Income Security Act of 1974 (ERISA), and Sections 2799A-1 and 2799A-2 of the Public Health Service (PHS) Act. Percentage increases for calculating the qualifying payment amounts for items and services furnished in future years may be published in the annual revenue procedure containing inflation-adjusted items for the following tax year. Notice 2023-4 (12/20/22).
Portion of taxpayer's tax liabilities were offset by valid credit elects
The Tax Court held that a taxpayer's tax liabilities for 2006 and 2007 were offset by valid credit elects. Thus, the court did not sustain proposed levies against the taxpayer by the IRS for those years. However, the court did sustain levies for years 2010–2012 after noting that the IRS Appeals Officer involved in the case gave the taxpayer an opportunity to propose collection alternatives for those years but he did not avail himself of that opportunity or raise any issues relevant to those liabilities. Schwartz, T.C. Memo. 2022-125 (12/21/22).
IRS announces revocation of certain organizations' tax-exempt status
The IRS announced that it has revoked its determination that 10 organizations qualify as organizations described in Sec. 501(c)(3) and Sec. 170(c)(2). Generally, the IRS will not disallow deductions for contributions made to a listed organization on or before the date of the announcement that the organization no longer qualifies. Announcement 2022-24 (12/16/22).
Organization challenges IRS's revocation of its tax-exempt status
The IRS issued an announcement to potential donors that the International Hunger and Homeless Charity recently filed a timely declaratory judgment suit under Sec. 7428, challenging the IRS's revocation of its status as an eligible donee under Sec. 170(c)(2). The IRS noted that, in the case of individual contributors, the maximum amount of contributions protected during this period is limited to $1,000, with a husband and wife being treated as one contributor, and this protection is not extended to any individual who was responsible, in whole or in part, for the acts or omissions of the organization that were the basis for the revocation. Announcement 2022-25 (12/16/22).
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.