Document Summaries for the week of July 18, 2022
Tax document summaries for the week of July 18–22, 2022, covering individuals and IRS procedure.
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 2022-32 (7/22/22).
Partner cannot challenge underlying tax liabilities
The Tax Court granted an IRS motion for summary judgment after holding that a taxpayer had a prior opportunity to dispute tax liabilities relating to his interest in a partnership. As a partner, he was treated as a party to the partnership's Tax Court proceedings, in which he could have participated. Thus, the court held, he was precluded from challenging the underlying liabilities at issue. Further, because the IRS settlement officer followed all the appropriate procedures, the IRS did not abuse its discretion in making tax assessments against the taxpayer. Pettennude, T.C. Memo. 2022-79 (7/18/22).
Court rejects wife's request for innocent-spouse relief
With respect to a taxpayer's request for innocent-spouse relief, the Tax Court held that it would not be inequitable to hold her liable for the 2012, 2013, 2014, and 2015 tax liabilities assessed on the joint tax returns she filed with her husband. With respect to the factors in Rev. Proc. 2013-34, which are considered in determining if a taxpayer is eligible for equitable innocent-spouse relief, the court concluded that while one factor weighed slightly in her favor and five were neutral, one factor weighed heavily against granting relief: that she knew or had reason to know of the items causing the understatement at the time the return was filed. Soler, T.C. Memo. 2022-78 (7/18/22).
Payments to ex-wife are nondeductible as alimony
The Tax Court held that a couple were not entitled to alimony deductions for payments made to the husband's ex-wife pursuant to their divorce decree because, while the payments met the definitional requirements of Sec. 71(b)(1) for alimony or separate maintenance payments, the divorce instrument's express terms specified that the payments were subject to a child-related contingency. The court noted that its holding did not turn upon the labels used either in the divorce instrument or by the divorce court to describe the payments but rather upon the express terms of Secs. 71(a) and (c), which made the payments not includible in the ex-wife's gross income and hence nondeductible as alimony under Sec. 215(b). Rojas, T.C. Memo. 2022-77 (7/18/22).
New business owner can deduct most expenses disallowed by IRS
The Tax Court held that a taxpayer who started a business as a clothing designer and incurred travel expenses relating to that business (1) met the strict substantiation requirements for deducting car and truck expenses and thus could deduct more than $12,000 of those expenses; and (2) was entitled to deduct $1,800 of meal and incidental expenses using the federal standard per diem rate for Los Angeles, as she kept records establishing the time, place, and business purpose of her travel. However, the court held that the taxpayer was not entitled to deduct $6,500 of other business expenses disallowed by the IRS because she did not properly substantiate them. Gonzalez, T.C. Summ. 2022-13 (7/18/22).
IRS releases strategic plan
The IRS released its strategic plan for fiscal years 2022 through 2026, outlining broad strategic goals for service, enforcement, people, and transformation. IRS Strategic Plan FY 2022–2026 (Publication 3744) (7/20/22) (see related news story).
Penalties apply to certain paper-filed returns where regulations require e-filing
The IRS Office of Chief Counsel advised that the additions to tax for failure to timely file a tax return under Sec. 6651(a)(1) and for failure to timely file certain information returns, registration statements, etc., under Sec. 6652(c) apply to a filer that submits paper Forms 5330, Return of Excise Taxes Related to Employee Benefit Plans; 4720, Return of Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code; 5227, Split-Interest Trust Information Return; 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons; or 1120-POL, U.S. Income Tax Return for Certain Political Organizations, when the filer is required to file electronically by regulations. PMTA 2022-05 (7/18/22).
IRS may simultaneously pursue multiple collection activities for assets outside the US
The IRS Office of Chief Counsel concluded that where the IRS has attempted to contact a taxpayer, the taxpayer has neglected or refused to pay, and the IRS has exhausted domestic levy sources, the IRS is not prohibited from pursuing multiple collection activities simultaneously. The Chief Counsel's Office also advised that the IRS may use data gathered pursuant to provisions of the Foreign Account Tax Compliance Act (FATCA), P.L. 111-147, to identify collection cases in most instances, but the
authorized uses of particular sets of FATCA data may vary. PMTA 2022-06 (7/18/22).
Court rejects IRS disallowance of easement donation citing Eleventh Circuit decision
The Tax Court held that the IRS improperly denied a taxpayer's charitable deduction for an easement on the basis that the easement was not protected in perpetuity. The court concluded that it was required to follow the Eleventh Circuit's decision in Hewitt, 21 F.4th 1336 (11th Cir. 2021), which had rejected the IRS's interpretation of the regulation upon which the IRS had relied, because appeal of this case would lie to the Eleventh Circuit. However, the court held that the IRS did comply with the requirements of Sec. 6751(b)(1) in assessing penalties on the taxpayer. Thompson, T.C. Memo. 2022-80 (7/20/22).
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.