Document Summaries for the week of March 28, 2022
Tax document summaries for the week of March 28–April 1, 2022, covering employee benefits, international, and more.
National securities exchange cannot take a Sec. 199 deduction for fees charged to customers
The Tax Court held that an operator of national securities exchanges could not take a Sec. 199 deduction for fees it charged its customers in connection with their participation on the exchanges and their access to computer software in connection with their participation on the exchanges. The court held that the fees did not constitute domestic production gross receipts (DPGR) for the purpose of calculating deductions pursuant to Sec. 199. Bats Global Markets Holdings, Inc., 158 T.C. No. 5 (2022).
IRS temporarily suspends prototype IRA opinion letter program
The IRS announced a temporary suspension of the IRS prototype individual retirement account (IRA) opinion letter program. Additionally, the IRS is advising taxpayers that, until further notice, adopters of prototype IRAs, SEPs, and SIMPLE IRA plans may rely on a previously received favorable opinion letter, and that taxpayers may use existing model forms to maintain current plans and accounts or establish new plans and accounts. Announcement 2022-6 (3/28/22).
IRS issues general rules and specifications for substitute Forms 941 and Form 8974
The IRS issued a procedure that provides general rules and specifications for paper and computer-generated substitutes for Form 941, Employer's Quarterly Federal Tax Return; Schedule B (Form 941); Schedule D (Form 941); Schedule R (Form 941); and Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This procedure supersedes Rev. Proc. 2021-22. Rev. Proc. 2022-15 (3/28/22).
Court disallows unproven loss deduction relating to foreclosure on taxpayer's condo
The Tax Court held that a taxpayer was not entitled to loss deductions relating to a foreclosure on his condo, which occurred in 2009 and not in 2013 as the taxpayer had originally reported. The court noted that the taxpayer might be entitled to a carryforward of the loss to 2013 but in this case, the taxpayer had to establish both the existence of the NOL and the amount of the NOL that was carried forward, both of which he failed to do. Villanueva, T.C. Memo. 2022-27 (3/31/22).
IRS waives certain time requirements for individuals electing to exclude foreign income
The IRS is providing a waiver under Sec. 911(d)(4) relating to the time requirements for individuals who are electing to exclude their foreign earned income and who must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. The procedure adds Iraq, Burma, Chad, Afghanistan, and Ethiopia to the list of waiver countries for tax year 2021 for which the minimum time requirements are waived. Rev. Proc. 2022-18 (3/28/22).
Treasury issues 23rd report on APAs and the APMA Program
The secretary of the Treasury announced that, pursuant to Section 521(b) of the Ticket to Work and Work Incentives Improvement Act of 1999, P.L. 106-170, it has issued the 23rd annual report to the public concerning advance pricing agreements (APAs) and the Advance Pricing and Mutual Agreement (APMA) Program. This 23rd report describes the experience, structure, and activities of the APMA Program during calendar year 2021. Announcement 2022-7 (3/30/22).
Collection action sustained against serial nonfiler; court imposes $2,000 penalty
The Tax Court held that an IRS settlement officer did not abuse her discretion in sustaining a collection action against a taxpayer whom the court labeled a "serial nonfiler" and for whom the IRS prepared a substitute for return for the years at issue. The court also imposed a $2,000 penalty under Sec. 6673 as a result of the taxpayer's frivolous return positions and threatened to impose harsher penalties in the future if the taxpayer continued to engage in similar conduct. Golditch, T.C. Memo. 2022-26 (3/29/22).
Taxpayers' delay in providing information to IRS precludes abatement of interest
The Tax Court held that the IRS did not abuse its discretion by denying a couple's claim for the abatement of interest on their 2011 and 2012 federal income tax deficiencies. The court noted that part of the interest was attributable to a delay by the taxpayers in providing records requested by the IRS examiner. Porter, T.C. Memo. 2022-25 (3/28/22).
Tax Court warns taxpayer about future potential $25,000 penalty for frivolous positions
The Tax Court held that an IRS settlement officer who conducted a collection due process hearing and upheld a notice of intent to levy did not abuse his discretion in deciding to sustain the proposed levy against a taxpayer who had taken frivolous positions on his 2014 tax return. While the IRS asked the court to sanction the taxpayer by imposing a penalty under Sec. 6673, the court exercised its discretion in forgoing the assessment of such a penalty but did warn the taxpayer that he faced a penalty of up to $25,000 if he kept making frivolous arguments regarding his taxes. Addis, T.C. Memo. 2022-24 (3/28/22).
IRS issues annual guidance to issuers of qualified mortgage bonds
The IRS issued a revenue procedure that provides issuers of qualified mortgage bonds, as defined in Sec. 143(a), and issuers of mortgage credit certificates, as defined in Sec. 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. Issuers may rely on the revenue procedure to determine average area purchase price safe harbors for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on March 30, 2022, and ends on the date as of which the safe harbors contained in Section 4.01 of the revenue procedure are rendered obsolete by a new revenue procedure. Rev. Proc. 2022-21 (3/30/22).
National taxpayer advocate directs IRS to implement scanning technology
The national taxpayer advocate directed the IRS to take immediate steps toward implementing existing scanning technology to process tax returns filed on paper. Taxpayer Advocate Directive 2022-1 (3/29/22) (see related news story).
IRS updates Sec. 6707A penalty approval procedures
In a memorandum to its employees, the IRS issued interim guidance on the approval process for penalties under Sec. 6707A (regarding disclosure of reportable transactions) under which approval is required only from the immediate supervisor of the IRS employee making the initial penalty determination. The change will be incorporated into the Internal Revenue Manual. SBSE-04-0322-0009 (3/31/22).