Document Summaries for the Week of Dec. 5, 2022
Tax document summaries for the week of Dec. 5–9, 2022, covering individuals, IRS procedure, and more.
Corporation's payment of president's personal expenses were constructive dividends
The Tax Court held that neither a corporation nor its president, who is a major shareholder in the corporation, maintained books or records to determine their tax liabilities for 2013 and 2014 and they were both thus liable for the tax deficiencies and penalties assessed by the IRS. In addition, the court disregarded all the Form 1040 Schedules Cs filed by the president and his wife after determining that all of the president's business income and expenses must be reported on the corporation's returns and the corporation's payments of the president's personal expenses were constructive dividends to the president and reportable on his Form 1040. Palmarini Inc., T.C. Memo. 2022-119 (12/7/22).
2023 covered compensation tables released
The IRS issued a ruling that provides tables of covered compensation under Sec. 401(l)(5)(E) for the 2023 plan year. Sec. 401(l)(5)(E)(i) defines "covered compensation" with respect to an employee as the average of the contribution and benefit bases in effect under Section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains social security retirement age. Rev. Rul. 2022-24 (12/8/22).
Strict substantiation not required for modified farm trucks
The Tax Court held that a farmer was not subject to the strict substantiation requirements of Sec. 274(d) with respect to deductions relating to his use of two pickup trucks he customized for farm work, one with a hay "bale stabber" that could not be readily detached and the other with tools and equipment that included two 60-gallon fuel tanks. The court concluded that the vehicles were substantially modified and were not likely to be used more than a de minimis amount for personal purposes. Hoakison, T.C. Memo. 2022-117 (12/5/22).
Taxpayer with large tax debt was appropriately certified to the State Department
The Tax Court held that the IRS did not err in certifying a taxpayer to the U.S. Department of State as having a seriously delinquent tax debt, which could result in denial, revocation, or limitation of his passport. The court concluded that the taxpayer's tax liability met all the relevant requirements in Secs. 7345(b)(1) and (f). Mattson, T.C. Memo. 2022-118 (12/6/22).
Proposed regs. on single-entity treatment of consolidated groups
The IRS issued proposed regulations that would treat members of a consolidated group as a single U.S. shareholder for certain purposes under Sec. 951(a)(2)(B). In cases where stock of a CFC owned by a U.S. shareholder on the last relevant day was acquired by a U.S. shareholder during the CFC's tax year, that section generally reduces the U.S. shareholder's pro rata share of the CFC's subpart F income or tested income by the amount of distributions received by any other person during the tax year as a dividend with respect to the acquired stock. REG-113839-22 (12/9/22).
IRS rejects decisions by Tax Court and Sixth Circuit
The IRS announced that it continues to disagree with the Tax Court's decision in Green Valley Investors, LLC, 159 T.C. No. 5 (2022), and the Sixth Circuit's decision in Mann Construction, Inc., 27 F.4th 1138 (6th Cir. 2022), which both invalidated IRS notices identifying listed transactions that the courts held were issued without following required notice-and-comment rulemaking procedures in the Administrative Procedure Act. The IRS thus will continue defending the validity of existing listing notices in circuits other than the Sixth Circuit. However, the Service also announced it was issuing proposed regulations concerning syndicated conservation easements, the subject of the Tax Court's decision (see next item). Announcement 2022-28 (12/6/22).
IRS issues proposed regs. on syndicated conservation easement transactions
In response to a Tax Court decision holding Notice 2017-10 invalid (see preceding item), the IRS issued proposed regulations identifying certain syndicated conservation easement transactions as listed transactions. REG-106134-22 (12/6/22).
Tax Court issues corrected opinion
The Tax Court issued a corrected version of a decision originally issued on Nov. 29, 2022. The corrected version reflects the following revision on page 42: the phrase "Reviewed by the Court" is added below the decision line and above the names of the judges. Hallmark Research Collective, 159 T.C. No. 6 (12/5/22) (corrected).
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.