Document Summaries for the week of May 2, 2022

Tax document summaries for the week of May 2–6, 2022, covering estates, trusts, and gifts; IRS procedure; and more.

ESTATES, TRUSTS & GIFTS

Prop. regs. issued on using actuarial tables to value annuities

The IRS issued proposed regulations relating to the use of actuarial tables in valuing annuities, interests for life or a term of years, and remainder or reversionary interests. REG-122770-18 (5/4/22).

 

INDIVIDUALS

Simplified procedure for claiming child tax credit issued for Puerto Rico residents

The IRS provided guidance on how bona fide residents of Puerto Rico can claim the child tax credit (CTC) for tax year 2021. The guidance provides simplified procedures to allow eligible "Puerto Rico CTC filers," as defined, who were not required to file a 2021 federal income tax return, to provide information to the IRS to claim the CTC by filing a simplified federal tax return. Rev. Proc. 2022-22 (5/6/22) (see related news story).

CPA liable for taxes and penalties after defrauding company's investors and lenders

The Tax Court held that a former CPA and business owner was liable for tax deficiencies and fraud penalties relating to $35 million that he extracted from a company he founded at a time when he was defrauding the company's lenders and minority shareholders. The court also denied innocent spouse relief to the business owner's wife after concluding she had reason to know about her husband's fraud and significantly benefited from that fraud. Podlucky, T.C. Memo. 2022-45 (5/5/22).

Couple's failure to substantiate $36,000 in deductions results in collection action

The Tax Court sustained a collection action against a couple who failed to substantiate itemized deductions of almost $36,000 on their 2014 joint tax return. The court also concluded that the IRS settlement officer did not abuse her discretion in upholding a Notice of Federal Tax Lien against the couple, as she had given the couple several opportunities to propose a collection alternative and they had not done so. Mighty, T.C. Memo. 2022-44 (5/4/22).

 

IRS PROCEDURE

Following Ninth Circuit's lead, Tax Court denies taxpayer's request for litigation fees

The Tax Court held that, because the Ninth Circuit in its remand of a Tax Court decision mandated that the Tax Court assess costs of $340 against the IRS but was silent as to the taxpayer's costs and fees, the taxpayer was not entitled to any award for litigation fees or any fees associated with the appellate proceedings. The Tax Court found that because the Ninth Circuit did not instruct the Tax Court to consider fees on remand, the appellate court intended to deny them. Mazzei, T.C. Memo. 2022-43 (5/2/22).

Sec. 45K reference price published for 2021

The IRS published the reference price under Sec. 45K(d)(2)(C) for calendar year 2021. The reference price applies in determining the amount of the enhanced oil recovery credit under Sec. 43, the marginal well production credit for qualified crude oil production under Sec. 45I, and the applicable percentage under Sec. 613A to be used in determining percentage depletion in the case of oil and natural gas produced from marginal properties. Notice 2022-17 (5/2/22).

2021 reference price issued for natural gas production from marginal wells

The IRS provided the applicable reference price for qualified natural gas production from qualified marginal wells during tax years beginning in calendar year 2021, for the purpose of determining the marginal well production credit under Sec. 45I. The applicable reference price for tax years beginning in calendar year 2021 is $1.52 per 1,000 cubic feet. Notice 2022-18 (5/2/22).

Oil recovery and marginal production reference price published for 2022

The IRS announced the inflation-adjustment factor and phaseout amount for the enhanced oil recovery credit for tax years beginning in calendar year 2022. Notice 2022-19 (5/2/22).

No abuse of discretion found where taxpayer failed to provide necessary documents

The Tax Court held that an IRS settlement officer (SO) did not abuse his discretion in upholding a Notice of Federal Tax Lien filing against a taxpayer who failed to collect and pay over employment taxes reportable on Form 941, Employer's Quarterly Federal Tax Return, for three quarters in 2012. The court found that the taxpayer did not submit any of the documents requested by the SO that were necessary for the SO to consider a lien discharge and that the SO had given the taxpayer and his representative ample time to submit the requested documents. Wolfson, T.C. Memo. 2022-46 (5/5/22).

Chief Counsel retains discretion whether to adopt innocent-spouse recommendation

The Tax Court held that, where an innocent spouse request was referred by the IRS Chief Counsel to its Cincinnati Centralized Innocent Spouse Operation (CCISO) and CCISO concluded that the requesting spouse was entitled to relief under Sec. 6015(c), it is the Chief Counsel's prerogative not to adopt CCISO's determination. The court noted that Chief Counsel notices and the Internal Revenue Manual all tell CCISO to provide "assistance," not to make a final determination, and that Chief Counsel attorneys retain their discretion to adopt or reject CCISO's conclusions. DelPonte, 158 T.C. No. 7 (5/5/22).

Chief Counsel issues new instructions for transmitting Tax Court files

The Office of Chief Counsel advised that it has changed instructions for transmitting Tax Court legal and miscellaneous files to the Appellate Section of the Tax Division of the Department of Justice (DOJ). According to the Chief Counsel's Office, effective immediately, paper Tax Court legal files should not be routinely sent to the Appellate Section at the onset of appellate litigation. Instead, upon receipt of a letter referring a taxpayer appeal to DOJ or a letter recommending a commissioner appeal of a Tax Court case, the assigned DOJ Appellate attorney will notify the assigned National Office attorney/paralegal if the DOJ attorney wishes to request a copy of the legal and miscellaneous files. CC-2022-005 (5/5/22).

 

PARTNERSHIPS

IRS proposes PTP changes to QI withholding agreements

The IRS proposed changes to the qualified intermediary (QI) withholding agreement described in Regs. Secs. 1.1441-1(e)(5) and (6) that would permit a QI to assume withholding and reporting responsibilities for purposes of Sec. 1446(a) and Sec. 1446(f). Generally, the changes would apply to a QI effecting a transfer of an interest in a publicly traded partnership (PTP) or receiving a distribution made by a PTP on behalf of a QI's account holder. Notice 2022-23 (5/3/22).

Tax Insider Articles

DEDUCTIONS

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.

TAX RELIEF

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.