Document Summaries for the week of March 7, 2022

Tax document summaries for the week of March 7–11, 2022, covering individuals, international, and IRS procedure.


IRS updates FAQs on 2021 child tax credit and advance child tax credit

The IRS issued a fact sheet updating its frequently asked questions (FAQs) about the 2021 child tax credit and advance child tax credit. The updated questions involve eligibility for and calculation of the credits. FS-2022-17 (3/8/22).

Couple liable for fraud penalties for unreported income from child day care centers

The Tax Court sustained the IRS's application of the fraud penalty to adjustments to a couple's wages from a child day care business they owned, dividends, unexplained deposits, and unreported gambling winnings. However, the court found that adjustments to the couple's income other than the adjustments resulting from those sources were not due to fraud and therefore were not subject to the fraud penalty. Hacker, T.C. Memo. 2022-16 (3/7/22).

Poor documentation precludes deductions for alleged business and rental expenses

The Tax Court generally denied deductions claimed by a taxpayer who was employed as a mortgage broker, worked as a freelance real estate agent, and owned and managed three residential rental properties, because of the taxpayer's poor recordkeeping and a failure to meet the strict substantiation requirements of Sec. 274(d). However, the court held that roughly half of the expenses incurred by the taxpayer for renovations of rental property she owned were deductible incidental repairs and routine maintenance, while the other half were nondeductible capital improvements. Rau, T.C. Summ. 2022-4 (3/7/22).

Family operated partnership for profit, not personal enjoyment

The Tax Court held that a married couple and their daughter, who formed a partnership to operate a green residential construction/consulting business, did so for a profit and thus could deduct expenses and losses relating to that business. In concluding that the taxpayers had a profit motive, the court noted that the husband had prior success with an ecofriendly business, the husband and wife had prior experience in successfully carrying on dissimilar business activities, and the family generally devoted much personal time and effort to carrying on the partnership's activities. Walters, T.C. Memo. 2022-17 (3/7/22).

Couple not liable for penalties where IRS failed to obtain supervisor approval

The Tax Court did not sustain an IRS levy action against a couple for penalties on unpaid federal tax liabilities for 2013, 2014, and 2015 because the initial determination to impose the penalties was not approved by a supervisor as required by Sec. 6751(b). However, the court did sustain the IRS levy action as to the couple's unpaid federal income taxes for those years because (1) the couple were not entitled to challenge the existence and amounts of their underlying tax liabilities during their Collection Due Process proceeding, (2) the IRS Office of Appeals properly verified the requirements of applicable law and procedure were met, (3) the Office of Appeals did not abuse its discretion in denying the couple a face-to-face hearing, and (4) the Office of Appeals did not abuse its discretion in considering issues raised under Sec. 6330(c)(2). Bunton, T.C. Memo. 2022-20 (3/10/22).

IRS can proceed with collection action against taxpayer who failed to file requested forms

The Tax Court affirmed an IRS Appeals' determination to proceed with a proposed collection action against a taxpayer for an unpaid 2015 federal income tax liability. The court noted that the IRS Appeals settlement officer had explained to the taxpayer the need to provide her with a completed Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, in order for her to consider collection alternatives and he failed to do so. Cosio, T.C. Memo. 2022-18 (3/9/22).  

Corporation cannot deduct tuition payments for boyfriend of owner's daughter

The Tax Court held that a solely owned corporation could not deduct as a business expense the costs of a coding course at Northwestern University for the boyfriend of the owner's daughter, who used the skills learned in the class to update the corporation's website and perform other related services without compensation. In rejecting the business expense deduction, the court noted that (1) the boyfriend was not an employee of the corporation; (2) the corporation did not have an agreement with the boyfriend that he would perform any services in exchange for the tuition payment; and (3) the corporation paid the tuition without any expectation of a return. Sherwin Community Painters Inc., T.C. Memo. 2022-19 (3/9/22).



IRS issues Sec. 911 foreign housing cost limitation amounts for 2022

The IRS published the 2022 table of adjustments to the otherwise applicable limitation of $33,600 on housing expenses for purposes of Sec. 911. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States and, if a limitation for a location is higher for the 2022 tax year than for that location in the 2021 tax year in Notice 2021-18, qualified taxpayers may apply the 2022 adjusted limitation to 2021. Notice 2022-10 (3/7/22).



Appeals court dismisses refund suit where taxpayer cannot establish that he filed a refund claim

The Federal Circuit affirmed a decision by the Court of Federal Claims dismissing a refund suit for lack of subject matter jurisdiction. The court held that the taxpayer failed to establish that he filed a refund claim and that, even if he did, it would have been untimely. Taha, No. 2020-2061 (Fed. Cir. 3/7/22).

IRS replaces expiring internal guidance on syndicated conservation easement examinations

The IRS issued interim guidance to its Small Business/Self-Employed Division and Large Business and International Division revenue agents conducting syndicated conservation easement examinations, notifying them that a deviation from the Internal Revenue Manual, LB&I Examination Process, and other administrative procedures is required when closing TEFRA cases with an imminent expiration of the statute of limitation. The interim guidance memorandum replaces the previously issued memorandum SBSE-04 0320-0016, which expires on March 27, 2022. SBSE-04-0322-0021 (prospectively dated 3/27/22).

Tax Insider Articles


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.