Document Summaries for the week of Nov. 21, 2022
Tax document summaries for the week of Nov. 21–25, 2022, covering individuals, IRS procedure, and more.
IRS updates the Required Amendments List for 2022
The IRS issued the Required Amendments List for 2022. The Required Amendments List applies to both individually designed plans qualified under Sec. 401(a) and individually designed plans that satisfy the requirements of Sec. 403(b). Notice 2022-62 (11/21/22).
Settlement with university is includible in income
The Tax Court held that a former employee of Chicago State University, who received a settlement from the university after alleging that the school retaliated against him for complaining about the misuse of federal grant funds, was required to include the settlement proceeds in income. The court concluded that the settlement proceeds were not excludable under Sec. 104(a)(2) as damages received on account of personal physical injuries or physical sickness after noting that the parties did not reference physical injuries or sickness in the settlement agreement, much less tie the settlement payment to any such physical injuries or sickness. Tillman-Kelly, T.C. Memo. 2022-111 (11/21/22).
Disability payments couple repaid are excludable from income
The Tax Court held that a couple's gross income did not include long-term disability payments made by Hartford Life Insurance Co. to the husband during 2015 after finding that the husband credibly testified that he was required to pay back any payments he received from Hartford in 2015 and that he did in fact repay such amounts. However, the court also held that the couple's 2015 gross income included unreported tier 1 railroad retirement benefits paid to the husband during 2015 after rejecting the couple's argument that Sec. 104(a)(1) exempts statutory disability benefits for a public servant in a hazardous position regardless of the source of the disability. Servance, T.C. Summ. 2022-23 (11/21/22).
Proposed foreign tax credit regulations issued
The IRS issued proposed foreign tax credit regulations that provide guidance on the reattribution asset rule for purposes of allocating and apportioning foreign taxes, the cost recovery requirement, and the application of the source-based attribution requirement to withholding tax on royalty payments. REG-112096-22 (11/22/22) (see related news story).
IRS announces 2022 base period T-bill rate for DISC-related purposes
Under Sec. 995(f)(1), a shareholder of a domestic international sales corporation (DISC) must pay interest for each tax year in an amount equal to the product of the shareholder's DISC-related deferred tax liability for the year (as defined in Sec. 995(f)(2)) and the "base period T-bill rate." The IRS announced that the base period T-bill rate for the period ending Sept. 30, 2022, is 1.71%. Rev. Rul. 2022-21 (11/21/22).
Chief Counsel describes proper method for allocating and apportioning foreign legal expenses
The IRS Office of Chief Counsel was asked to describe the proper method, for purposes of determining the foreign-derived intangible income (FDII) deduction, of allocating and apportioning legal fees and expenses that relate to an event, incident, or claim that occurred or arose before the effective date of Sec. 250 pursuant to Sec. 861, and, to what extent, if any, such method differs from the statutory requirement under Sec. 250(b)(3)(A)(ii) that deductions be "properly allocable" to deduction-eligible income. Citing Temp. Regs. Sec. 1.861-8T(c)(1), the Chief Counsel's Office noted that Sec. 861 requires that taxpayers determine the factual relationship of a deduction to a class of gross income and to the statutory and residual groupings of gross income within that class of gross income and that a taxpayer's apportionment methodology must reflect to a reasonably close extent the factual relationship between the deduction and grouping of gross income. PMTA 2022-08 (11/25/22).
Neither IRS nor courts can issue a refund in excess of amounts paid within lookback period
The IRS Office of Chief Counsel advised that in situations in which tax liabilities are fully paid, either by a delinquent taxpayer payment or by a State Income Tax Levy Program payment, if the IRS becomes aware of an overpayment, it may refund the overpayment within the statute-of-limitation period described in Sec. 6511. According to the Chief Counsel's Office, assuming there was no agreement extending the statute-of-limitation period under Sec. 6501(c)(4), if the IRS allows the refund more than three years from the filing of the return, the taxpayer is only entitled to a refund of the taxes paid during the two-year period immediately preceding the date the refund is allowed under Sec. 6511(b)(2)(B), and neither the IRS nor the courts have the authority to issue a refund in excess of the amounts paid within the applicable lookback period. PMTA 2022-07 (11/25/22).
IRS corrects typo in notice
The IRS issued a correction to Notice 2022-41, which contains an error in the Guidance section. The correction removes the phrase "non-calendar year" from a sentence, which now reads, in part: "In addition to the situations described in Notice 2014-55, a cafeteria plan may allow an employee to revoke prospectively an election of family coverage under a group health plan that is not a health FSA and that provides minimum essential coverage (as defined in section 5000A(f)(1)) provided the following conditions are satisfied: … " Announcement 2022-22 (11/21/22).
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.