Document Summaries for the week of July 11, 2022
Tax document summaries for the week of July 11–15, 2022, covering C corporations, individuals and more.
Corporation cannot amend its petition in a case resolved in IRS's favor
The Tax Court denied a corporation's motion for leave to amend its petition to claim a research credit with respect to a case that had already been resolved in the IRS's favor. The corporation's failure to explain its lengthy delay in raising its claim provided a sufficient ground for denying the motion, the court held. It further found that considering the claim could impose a greater burden on the IRS and the court than if the corporation had raised its claim at the case's outset. TBL Licensing LLC, T.C. Memo. 2022-71 (7/12/22).
ESTATES, TRUSTS & GIFTS
Seven of decedent's 10 checks written before death are includible in estate
The Tax Court held that the value of seven of 10 checks written before, but paid after, a decedent's death were properly includible in the decedent's gross estate because a stop-payment order could have been placed on them at or before the decedent's death under state law. Thus, they were not completed gifts on that date. The remaining checks, the court said, would also have been includible in the decedent's estate but for an IRS concession regarding them. Estate of DeMuth, T.C. Memo. 2022-72 (7/12/22).
Couple who failed to remember receiving Form 1099-R are still liable for penalty
The Tax Court held that a couple who failed to report an individual retirement account distribution of $238,000 on their 2017 tax return were liable for a resulting accuracy-related penalty. The court rejected the taxpayers' argument that they should not be liable for the penalty because they did not remember receiving a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for the distribution, although they did not dispute they received the distribution during 2017. LaRochelle, T.C. Summ. 2022-12 (7/12/22).
Court does not have jurisdiction to redetermine couple's interest on penalties
The Tax Court agreed with the IRS that a married couple were liable for Sec. 6662 accuracy-related penalties, as well as the interest on those penalties, because they substantially understated the income tax on their 2013 and 2014 tax returns. In rejecting the couple's argument that they should be entitled to a waiver of the accrued interest and fees because they were unaware that an individual who helped them prepare their tax returns submitted and declared certain deductions on their tax returns, the court stated that it did not have jurisdiction to redetermine the couple's interest. Colbert, T.C. Memo. 2022-74 (7/13/22).
Disgorgement of funds paid to SEC is nondeductible
The Tax Court held that a couple were not entitled to a deduction under Sec. 162(a) for the disgorgement the husband paid to the U.S. Securities and Exchange Commission in settlement of his potential civil liability for alleged federal securities violations. The court concluded that the couple failed to satisfy their burden of demonstrating that the disgorgement was intended to be compensatory and was not a "fine or similar penalty" within the meaning of Sec. 162(f). Ziroli, T.C. Memo. 2022-75 (7/14/22).
IRS must submit unredacted administrative record to the Tax Court
The Tax Court held that it had jurisdiction to hear a whistleblower case in which the IRS Whistleblower Office denied the whistleblower's monetary claim and the IRS refused to give the court certain redacted information because it contained confidential return information. The court concluded that Sec. 6103(h)(4)(A) authorizes the IRS to submit the unredacted administrative record to the court. Whistleblower 972-17W, 159 T.C. No. 1 (7/13/22).
IRS did not abuse its discretion in sustaining proposed levy and lien filing
The Tax Court held that an IRS settlement officer did not abuse his discretion in sustaining a proposed levy and Notice of Federal Tax Lien filings against a taxpayer who owed the IRS more than $2.5 million. However, because there was a genuine dispute of material fact with respect to whether the taxpayer qualified for reasonable-cause abatement of the Secs. 6651(a)(1) and (2) additions to tax, the case (unless settled) must proceed to trial on this point. Kelly, T.C. Memo. 2022-73 (7/13/22).
IRS gave taxpayer ample time to provide information requested; collection action upheld
In a Collection Due Process (CDP) case, the Tax Court held that a taxpayer was not entitled to challenge his underlying tax liability and that the settlement officer (SO) in the case did not abuse her discretion in upholding the collection actions against the taxpayer. The court noted that the SO gave the taxpayer ample time, both before and after his CDP hearing, to supply information requested, and she did not abuse her discretion by closing the case when she did. Knight, T.C. Memo. 2022-76 (7/14/22).
IRS issues applicable federal rates for August 2022
The IRS issued a ruling providing tables of various prescribed rates for federal income tax purposes for August 2022. Table 1 contains the short-term, midterm, and long-term applicable federal rates (AFR) for the current month for purposes of Sec. 1274(d). Table 2 contains the short-term, midterm, and long-term adjusted applicable federal rates (adjusted AFR) for the current month 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 current month (although under Sec. 42(b)(2), the applicable percentage for nonfederally subsidized new buildings placed in service after July 30, 2008, is not less than 9%). 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. 2022-14 (7/15/22).
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.