Document Summaries for the week of Nov. 7, 2022
Tax document summaries for the week of Nov. 7–11, 2022, covering individuals and IRS procedure.
Personal relationship with CEO did not convert severance payment to a nontaxable gift
The Tax Court held that payments received by a taxpayer from a former employer and reported on a Form 1099-MISC, Miscellaneous Information, were taxable as wages, and the fact that she had a personal relationship outside the workplace with the CEO who drafted her severance agreement was insufficient to support her contention that the payments were a nontaxable gift. The Tax Court also held that the taxpayer and her husband were liable for an accuracy-related penalty under Sec. 6662(a) for a substantial understatement of income tax for the year at issue. Fields, T.C. Summ. 2022-22 (11/10/22).
Tax Court rejects CPA's NOLs from Fuddruckers' restaurant franchises
The Tax Court affirmed the IRS's disallowance of net operating losses (NOLs) claimed by an accomplished CPA on her 2014 and 2015 tax returns and also upheld the IRS's assessment of accuracy-related penalties under Sec. 6662(a). While the taxpayer, a former owner of multiple Fuddruckers restaurant franchises in Florida and Tennessee, contended that the restaurants produced significant NOLs that she carried forward to 2014 and 2015, the Tax Court said she established neither the underlying NOLs nor that any portions of those NOLs remained available for use in 2014 and 2015. Amos, T.C. Memo. 2022-109 (11/10/22).
IRS modifies determination letter application rules for certain plan sponsors
The IRS issue a revenue procedure that modifies Rev. Proc. 2016-37, which, in part, provides the circumstances under which a plan sponsor may submit a determination letter application to the IRS with respect to a qualified individually designed plan, to permit the submission of determination letter applications for Sec. 403(b) individually designed plans. Under the revenue procedure, a plan sponsor that maintains a Sec. 403(b) individually designed plan will be permitted to submit a determination letter application for an initial plan determination, for a determination upon plan termination, and in certain other circumstances identified by the IRS in guidance published in the Internal Revenue Bulletin. Rev. Proc. 2022-40 (11/7/22) (see related news story).
Notice 2017-10 improperly issued by IRS
The Tax Court held that Sec. 6662A penalties did not apply to a taxpayer who challenged IRS adjustments to charitable deductions relating to syndicated conservation easement transactions listed under Notice 2017-10 because Notice 2017-10 is a legislative rule improperly issued by the IRS without notice and comment as required by the Administrative Procedure Act. The Tax Court thus set aside Notice 2017-10 and granted the taxpayer's cross-motions for summary judgment. Green Valley Investors, LLC, 159 T.C. No. 5 (11/9/22).
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.