Just before the extended individual filing deadline for 2018 returns, the IRS released new instructions and a second revision to a Form 1040 Schedule 1 that adds a question related to IRS’s increased interest in virtual currencies.

The IRS has released the complete draft instructions for Form 1040 and Form 1040-SR for 2019[1] and the instructions for Form 8995-A, the form for computing the qualified business income deduction for taxpayers with taxable income in excess of the threshold amount.[2]

The Form 8995-A instructions are much like the previously released Form 8995 instructions, including containing the comment about reducing QBI by charitable contributions related to the business, a position that many found surprising in the “simple” form instructions.

The IRS has expanded the number of states by 10 for which residents can voluntarily apply for an Identity Protection Personal Identification Number (IP PIN).  This expansion was announced by the IRS in its e-News to Tax Professionals email subscription sent out on October 4, 2019.[1]

The IP PIN program was created to combat tax-related identity theft.  Originally the PINs were issued only at the IRS’s discretion to actual or suspected victims of tax-related theft.  As Kay Bell notes on her website, in 2010 the IRS created a pilot program in 2010 to allow for taxpayers to voluntarily request IP PINs, limited to only the three areas that had the highest level of tax related identity theft.[2]

In Pennsylvania Corporation Tax Bulletin 2019-04,[1] the state of Pennsylvania announced that it will begin treating any corporation with $500,000 of sales into the state as having nexus with the state.  The state bases this revised view of nexus based on the Supreme Court’s rejection of a physical presence requirement for sales tax nexus in the Wayfair  case.[2]

The Department provides the following analysis for why it has concluded physical presence should also no longer be a requirement for income tax nexus:

The Court went on to conclude “that the physical presence rule of Quill is unsound and incorrect.”

As a result, the Commerce Clause analysis set forth in Complete Auto Transit remains valid, but the physical presence rule, which was previously held in Quill to be a necessary part of the substantial nexus prong is incorrect. While taxpayers contested for years whether the physical presence nexus standard in Quill was limited to sales taxes or also applied to corporate net income taxes, the decision in Wayfair has made certain that, at least prospectively, no physical presence standard exists for purposes of limiting the ability of a state to impose a net income tax on an out of state taxpayer so long as the constitutional requirements under the Due Process and Commerce Clauses of the United States Constitution are satisfied.[3]

The IRS has released new and/or update draft Forms 1065, 1120S, and the related K-1s for 2019.  The new form contains certain changes for 2019 returns.

Some of the more significant revisions are:

• Required use of tax basis capital for the capital account reconciliation on Schedule K-1 for partnerships;

• Disclosure of additional information related to §704(c) transactions on the partnership Schedule K-1;

• Guaranteed payments will have to be split on the partnership K-1 between those for capital and those for services;

• Additional information on the existence of activities for at-risk and passive activity purposes on all forms; and

• Switch to the descriptive text disclosures for §199A information that was first revealed on the July draft of the Form 1120S Schedule K-1.

The special per-diem rates for the fiscal year running from October 1, 2019 to September 30, 2020 has been released in Notice 2019-55.[1]  The special rates governed by this Notice are:

• The special transportation industry meal and incidental expenses (M&IE) rates,

• The rate for the incidental expenses only deduction, and

• The rates and list of high-cost localities for purposes of the high-low substantiation method.[2]

A “zombie” power of attorney proved costly for the estate of a taxpayer in the case of Stauffer v. IRS, United States Court of Appeals, First Circuit, Case No. 18-2105.[1]  By “zombie” we’re referring to a power of attorney that was not being actively used by the power holder, who announced he wasn’t going to act under it, and which the grantor drafted letters to revoke but never actually got around to sending to the power holder.  This power that never died would enter into the question of whether the statute of limitations was still open for the estate to claim a refund of taxes due to the decedent.

The law involved is IRC §6511(h) which suspends the statute for claiming a refund for the period an individual is financially disabled.  But there is an exception to this suspension of the statute, found at IRC §6511(h)(2)(B), that provides a person is not financially disabled during any period where another person “is authorized to act on behalf of such individual in financial matters.”

The federal government shutdown this past winter apparently caused an extension of a statute agreed to by the taxpayer to be nevertheless invalid when the IRS did not also sign off on the extension prior to the expiration of statute due to the shutdown, the Chief Counsel’s office ruled in Email Advice ECC 201937017.[1]

The question presented in the email is relatively simple:

You asked us first whether, where the IRS did not timely sign a Form 872 Consent to Extend the Time to Assess Tax—due to a government shutdown at the time—but the taxpayer did sign the Consent, the consent is valid.[2]

In the Tax Cuts and Jobs Act, Congress added IRC §451(c) in order to put into the Code an accounting method the IRS had defined in Revenue Procedure 2004-34 to optionally account for advance payments. On September 5, 2019, the IRS released proposed regulations to implement this provision.[1]  Specifically, the IRS has proposed to add Proposed Reg. §1.451-8, Advance payments for goods, services and other items to the existing regulations under IRC §451.

The IRS makes clear in the preamble that, for the most part, the proposed regulations will follow the previously existing guidance:

Because new section 451(c)(1)(B) was intended to generally codify the Revenue Procedure deferral method, the Treasury Department and the IRS believe that rules similar to the Revenue Procedure deferral method are necessary and appropriate for the proper application of section 451(c). See H.R. Rep. No. 115-466, at 429 (2017) (Conf. Rep.).[2]

A Tennessee high school student got a lesson on tax law in the case of Conyers v. Commissioner, Designated Order, Case No. 13969-18.[1]  The former stand-out student discovered that the value of the Jeep Renegade she received as an award that given as a prize in a drawing was taxable income to her, despite being given to her in recognition of outstanding performance her senior year. 

To qualify to be part of that drawing, Alejandra had to have perfect attendance her senior year, good grades and be submitted for the drawing by her high school.  Alejandra was just such a model student.  The program was run by a local car dealership as a “Strive to Drive” competition.[2]

In what may initially seem like an odd argument for both parties to make, the IRS successfully argued that vacation homes were not rentals in the case of Eger v. United States, USDC Northern District California, Case No. 18-cv-00199-DMR.[1]

Greg Eger was a real estate professional, meeting the requirements under IRC §469(c)(7). The Eger owned three properties that were offered for rent at points during the year, located in Mexico, Colorado, and Hawaii. [2]  In each case they entered into contracts with management companies that would seek to offer these properties up for rent, although in each case the Egers had the right to remove days from the rental pool for their own personal use.[3]

In Chief Counsel Advice 201935011,[1] the IRS discusses when a contribution other than cash to a qualified retirement plan has been paid to determine if the contribution is deductible under IRC §404(a).

The term “payment” or “paid” is referenced multiple times in IRC §404(a) regarding what would constitute a deductible contribution to a qualified retirement plan.  The memo notes that the U.S. Supreme Court had addressed this matter in the 1977 case of Don E. Williams v. Commissioner, 429 US 569.[2]  In that case, the plan sponsor had delivered to the plan an interest-bearing promissory note before the due date for a contribution to be made but did not pay off that note until after that date.