The IRS has released the maximum value for employer provided vehicles for purposes of the special valuation rule found at Reg. §1.62-21(d) and (e) for 2019 in Notice 2019-34.

In Notice 2019-08 the IRS had announced that the agency planned to issue regulations that were going to greatly increase the limits for the cost of such vehicles to take into account changes made in the Tax Cuts and Jobs Act, setting the base value at $50,000 adjusted annually for inflation after 2018.

The Eleventh Circuit Court of Appeals rejected a unique twist on the “my boss ordered me not to pay the trust fund taxes” defense in the case of Myers v. United States, CA 11, Case No. 18-11403.  In this case the party Mr. Myers claimed ordered him not to pay was an agent of the Small Business Administration (SBA) that had been appointed as a receiver of his employer.

Under the check the box regulations, an LLC may elect to be an S corporation.  But it is important to remember that the LLC must meet all of the requirements to be treated as an S corporation during its life, which includes the single class of stock rule.  PLR 201918004 details a case where an LLC was forced to ask the IRS for relief from inadvertent termination of its S status when a review of the operating agreement found that the agreement provided for the potential for a disproportionate distribution.

IRC §1362(b)(1)(D) provides that one of the conditions for S status is that the corporation does not have more than one class of stock outstanding.  However, the “class of stock” is not based on state law rules for what makes for different classes of stock.  Rather, Reg. §1.1362-1(l)(1) creates a federal S corporation test for what constitutes the existence of only a single class of stock:

(1) General rule. A corporation that has more than one class of stock does not qualify as a small business corporation. Except as provided in paragraph (l)(4) of this section (relating to instruments, obligations, or arrangements treated as a second class of stock), a corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds. Differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock. Thus, if all shares of stock of an S corporation have identical rights to distribution and liquidation proceeds, the corporation may have voting and nonvoting common stock, a class of stock that may vote only on certain issues, irrevocable proxy agreements, or groups of shares that differ with respect to rights to elect members of the board of directors.

The IRS has opened up its plan determination letter program to a limited number of existing individually designed plans in Revenue Procedure 2019-20.  The IRS had indicated in various forums that the agency would begin to reopen its determination program to cover certain existing plans.  Until this procedure, the program had been limited to new individually designed plans and those that were looking for a letter at the time the plan was being terminated.

A determination letter is a ruling from the IRS that the language of the plan is in compliance with the requirements for the plan to be treated as a qualified retirement plan.  While the letter does not cover issues that may arise with operation of the plan, it does assure that if the plan is operated in accordance with the plan document and other provisions of the law that it should not be at risk of losing its qualified status—in which case it would no longer be a tax exempt trust. 

The IRS issued emailed advice discussing Certified Professional Employer Organizations (CPEO) and self-employed individuals that has general information on the issue of a partner or proprietor being as an employee when such an organization is used.  ECC 201916004 restates the IRS’s view that such individuals generally cannot be treated as an employee of the unincorporated entity they hold an ownership interest in.

First, the ruling clarifies that IRC §3511, which generally provides protection for the taxes that end up not being deposited by a CPEO, does not apply to self-employed individuals:

The reporting of amounts paid to self-employed individuals is provided for in section 6041. CPEOs must report remuneration they pay to self-employed individuals (within the meaning of section 6041 and the regulations thereunder) in accordance with the rules under these and other applicable provisions. Section 3511(f) of the Code provides that a self-employed individual is not a work site employee with respect to remuneration paid by a CPEO to the self-employed individual. Section 3511(c) provides that a CPEO is not treated as an employer of a self-employed individual. Consistent with these two provisions, section 31.3511-1(f)(2) of the proposed regulations provides that section 3511 does not apply to any self-employed individual.

The IRS has moved to plug a potential loophole created when Congress changed the law in the Tax Cuts and Jobs Act (TCJA) to allow an electing small business trust (ESBT) to have a nonresident alien (NRA) potential current beneficiary (PCB).  In proposed regulations REG-117062-18 the IRS provides that if such an NRA would be treated as the owner of trust corpus under the grantor trust rules for such a trust, the grantor will not be treated as the owner of the S corporation portion of the ESBT.

In the preamble to the proposed regulations, the IRS points out that the committee reports related to the TCJA had stated that allowing NRAs to be PCBs of ESBTs did not pose a risk that the S corporation income would not be subject to U.S. tax, since tax is imposed on the trust and not the beneficiary for S corporation income when shares are held by an ESBT.

The Second Circuit Court of Appeals eliminated the six month “black hole” that the Tax Court believed existed for refunds of taxpayers who failed to timely file a return when it reversed that Court’s decision in the case of Borenstein v. Commissioner, Case No. 17-3900.

The details of the original case were discussed in our blog post in August 2017 when the original decision was issued (“Taxpayer’s Refund on Unfiled Return Falls Into “Black Hole” Based on Date IRS Issued Deficiency Notice”).  The Tax Court found that IRC §6512(b)(3), added by Congress in the Taxpayer Relief Act of 1997, created a six month “black hole” during which, if no return had originally been filed and the IRS issues a notice of deficiency before such a return is filed, the taxpayer would be barred from claiming a refund by filing a return following the issuance of the notice.  The problem is triggered if the taxpayer, while not filing a return, had filed for an extension of time to file such return.  The six month extension created, in the view of the Tax Court, a six month black hole for such refunds.