Document Summaries for the week of Oct. 10, 2022
Tax document summaries for the week of Oct. 10–14, 2022, covering employee benefits, individuals, and more.
IRS expands rules relating to health coverage under cafeteria plans
The IRS issued guidance expanding the application of the permitted change-in-status rules for health coverage under a Sec. 125 cafeteria plan. In particular, the guidance addresses a situation in which a cafeteria plan participant may wish to revoke an election under the plan for coverage under a group health plan other than for self only, to allow one or more family members to enroll in a qualified health plan through a health insurance exchange in the individual market. Notice 2022-41 (10/11/22).
Final regs. issued on premium tax credit affordability test
The IRS issued final regulations adopting an affordability test for employer-sponsored minimum essential coverage for purposes of the Sec. 36B premium tax credit that takes into consideration the cost of covering an employee's family members in addition to that of the employee. T.D. 9968 (10/11/22) (see related news story).
Taxpayer liable for penalties for failing to report income and timely file return
The Tax Court held that a taxpayer who sold recreational vehicles and argued that payments he received with respect to the sales were not subject to self-employment tax, was liable for self-employment tax deficiencies as well as penalties for failing to timely file his 2017 tax return. The court found that the IRS met its burden of production by introducing an account transcript for the taxpayer's 2017 tax year, which showed that the taxpayer (1) failed to report self-employment income, and (2) filed his 2017 tax return more than eight months after the deadline and did not offer any explanation or evidence that the untimely filing was due to reasonable cause and not willful neglect. Schieder, T.C. Memo. 2022-104 (10/11/22).
Subsequent legislation overruled Tax Court decision
The Tax Court held that the enactment of 11 U.S.C. Section 1141(d)(5) created a limitation to the court's holding in Moody, 95 T.C. 655 (1990), with respect to the effect under 11 U.S.C. Section 362(c) of a confirmation of a debtor's Chapter 11 bankruptcy plan. The court thus concluded that the confirmation by a bankruptcy court of a couple's bankruptcy plan did not lift an automatic stay of proceeding in the Tax Court that was triggered when the couple filed their bankruptcy proceedings. Cochran, 159 T.C. No. 4 (10/12/22).
Social Security Administration announces 2023 wage base
The Social Security Administration announced that individual taxable earnings of up to $160,200 annually will be subject to Social Security tax in 2023. Fact Sheet: 2023 Social Security Changes (10/13/22) (see related news story).
IRS expands dyed diesel penalty relief
In response to Hurricane Ian, the IRS announced that from Sept. 28, 2022, through Oct. 19, 2022, it will not impose a penalty when dyed diesel fuel with a sulfur content that does not exceed 15 parts per million is sold for use or used on highways in the state of Florida. The guidance expands on previous relief, which applied only to emergency vehicles. IR-2022-177 (10/11/22).
Adjustments to taxpayer's return not supported by Associate Chief Counsel
In a highly redacted document, the IRS Office of Chief Counsel advised that an adjustment to a taxpayer's return for an undisclosed issue was not supported by the Associate Chief Counsel (Financial Institutions & Products). According to the Chief Counsel's Office, the undisclosed issue had been analyzed and extensively coordinated by the time the taxpayer took its position on its returns and, given the many challenges with the issue, a conclusion was reached that guidance would have had to have been provided to ensure similarly situated taxpayers were not treated differently and such guidance was not forthcoming. CCA 202241006 (10/14/22).
Accounting firm's special allocations to departing partners lack substantial economic effect
The Tax Court held that an accounting firm, operating as a partnership subject to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), distributed client-based intangible assets to partners who withdrew from the partnership, and the assets so distributed are properly valued under the terms of the partnership agreement. The court further held that (1) the partnership failed to maintain capital accounts in accordance with Regs. Sec. 1.704-1(b)(2)(iv) and, therefore, the partnership's special allocations of income to the partners who withdrew lacked substantial economic effect and must be reallocated in accordance with the partners' interests in the partnership under Sec. 704(b) and Regs. Sec. 1.704-1(b)(3); and (2) because the partners who withdrew had negative capital accounts at the end of the tax year and partnership's partnership agreement included a qualified income offset provision, ordinary income must be allocated first to the partners that withdrew in an amount necessary to bring each partner's capital account up to zero. Clark Raymond & Co. PLLC, T.C. Memo. 2022-105 (10/13/2022).
IRS issues S corporation procedures to avoid letter ruling requests
The IRS issued taxpayer assistance procedures, including under Sec. 1362(f), to allow S corporations and their shareholders to resolve frequently encountered issues with certainty and without requesting a private letter ruling. Rev. Proc. 2022-19 (10/11/22).
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.