Document Summaries for the week of March 14, 2022
Tax document summaries for the week of March 14–18, 2022, covering individuals, international, and IRS procedure.
IRS settlement officer abused her discretion by failing to consider issues raised by couple
The Tax Court held that an IRS settlement officer (SO) abused her discretion in conducting a collection due process hearing with a couple who had a tax deficiency for 2016 because the SO's decision to uphold a notice of federal tax lien filing was arbitrary and lacked a sound basis in fact or law. According to the court, the record suggested that the SO made up her mind after a cursory one-hour review of the couple's materials and failed to give proper consideration to the issues they raised, as required by Sec. 6330(c)(3)(B). Hamilton, T.C. Memo. 2022-21 (3/15/22).
No foreign tax credit available to CFC stock owner due to inconsistent positions
The Tax Court held that a U.S. shareholder of a controlled foreign corporation (CFC) did not characterize the CFC's stock using the same method that the CFC used in apportioning its interest expense for purposes of computing the foreign tax credit and thus the taxpayer's position was inconsistent with the proper application of Temp. Regs. Sec. 1.861-9T(f)(3)(iv). According to the court, the U.S. shareholder of a CFC is required to characterize the CFC's stock using the same method that the CFC used to apportion its interest expense and which is not limited by Regs. Sec. 1.861-12T. AptarGroup, Inc., 158 T.C. No. 4 (3/16/22).
IRS issues applicable federal rates for April 2022
The IRS issued a ruling providing tables of various prescribed rates for federal income tax purposes for April 2022. Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of Sec. 1274(d), Table 2 contains the short-term, mid-term, 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 non-federally subsidized new buildings placed in service after July 30, 2008, is not less than 9 percent), and 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. 2022-8 (3/15/22).
Certain farmers and fishermen qualify for relief for underpaying estimated taxes
The IRS is waiving the addition to tax penalty under Sec. 6654 for underpayment of estimated income tax by qualifying farmers and fishermen. According to the IRS, some qualifying farmers and fishermen have been unable to electronically file Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, which may be required to be included in their federal income tax returns for tax year 2021 and, due to this inability, farmers and fishermen may have had difficulty filing their 2021 tax returns electronically by the March 1, 2022, due date provided by Sec. 6654(i)(1). Notice 2022-13 (3/15/22) (see related news story).
IRS temporarily suspends prototype IRA opinion letter program
The IRS announced that, effective March 14, 2022, and until further notice, it is not accepting applications for opinion letters on prototype individual retirement accounts (IRAs) (traditional, Roth and SIMPLE IRAs), SEPs (including salary reduction SEPs (SARSEPs)), and SIMPLE IRA plans. The announcement also provides that, pending issuance of future guidance (1) adopters of prototype IRAs, SEPs, and SIMPLE IRA plans may rely on a previously received favorable opinion letter, and (2) taxpayers may use existing model forms to maintain current plans and accounts or establish new plans and accounts. Announcement 2022-6 (3/15/22).
IRS announces recent disciplinary sanctions involving practitioners
The Office of Professional Responsibility (OPR) announced recent disciplinary sanctions involving attorneys, CPAs, enrolled agents, enrolled actuaries, enrolled retirement plan agents, and appraisers. These individuals are subject to the regulations governing practice before the IRS, which prescribe the duties and restrictions relating to such practice and prescribe the disciplinary sanctions for violating the regulations. Announcement 2022-5 (3/14/22).
IRS issues annual inflation adjusted amounts for passenger autos and auto leases
The IRS issued an annual revenue procedure which provides: (1) two tables of limitations on depreciation deductions for owners of passenger automobiles placed in service by the taxpayer during calendar year 2022; and (2) a table of dollar amounts that must be used to determine income inclusions by lessees of passenger automobiles with a lease term beginning in calendar year 2022. The tables, which reflect the automobile price inflation adjustments required by Sec. 280F(d)(7), provide that the term "passenger automobiles" includes trucks and vans. Rev. Proc. 2022-17 (3/16/22) (see related news story).
IRS notice provides methodology for calculating qualifying health payment amounts
The IRS issued guidance on calculating the qualifying payment amount for items and services furnished in 2022 for purposes of Sec. 9816 and Sec. 9817, Sections 716 and 717 of the Employee Retirement Income Security Act of 1974, and Sections 2799A-1 and 2799A-2 of the Public Health Service Act in the case of a group health plan or group or individual health insurance issuer that does not have sufficient information to calculate the median of the contracted rates in 2019 (including for items and services not offered in 2019). The guidance was drafted in consultation with the Departments of Labor and Health and Human Services. Notice 2022-11 (3/18/22).
IRS procedure addresses hearings for tax-exempt qualified private activity bonds
The IRS issued a procedure regarding the public approval requirement under Sec. 147(f) for tax-exempt qualified private activity bonds. Specifically, the procedure provides that hearings held by teleconference as described in the procedure will be treated as held in a location that, based on the facts and circumstances, is convenient for residents of the approving governmental unit for the purpose of Regs. Sec. 1.147(f)-1(d)(2). Rev. Proc. 2022-20 (3/18/22).
IRS summary judgment request on conservation easement deduction issue denied
The Tax Court denied an IRS motion for summary judgment on the issue of whether the IRS properly disallowed a taxpayer's deduction for a contribution of an easement because the easement's conservation purpose was not protected in perpetuity. However, the court did grant summary judgment with respect to the issue of the IRS's compliance with the requirements of Sec. 6751(b)(1) after finding that the IRS had secured timely supervisory approval of the penalties assessed against the taxpayer. Pickens Decorative Stone, LLC, T.C. Memo. 2022-22 (3/17/22).