Another set of final regulations[1] have been issued by the IRS on bonus depreciation under the Tax Cuts and Jobs Act (TCJA). These regulations make final, with revisions, proposed regulations issued in 2019 (REG-106808-19).

Selected items highlighted by the IRS in the preamble related to areas that received comments from the proposed regulations or were revised from what was in those regulations are discussed below.

The IRS has issued the final regulations dealing with the post-TCJA treatment of excess deductions on termination in TD 9918.[1]

Previously Reg. §1.642(h)-2 had treated excess deductions on the termination of an estate or trust as miscellaneous itemized deductions for the beneficiary. The Tax Cuts and Jobs Act (TCJA) added IRC §67(g), effective for tax years beginning in 2018, that provided individuals would no longer receive a deduction for miscellaneous itemized deductions.

In Notice 2018-61 the IRS indicated that the agency was considering whether the treatment of such items as miscellaneous itemized deductions was appropriate following the effective date of IRC §67(g). In May of 2020 the IRS released proposed regulations (REG-113295-18) that would provide that the nature of such deductions would be determined by their treatment at the trust level. The final regulations adopt the proposed regulations with some modifications.

The IRS has granted relief related to the CCH electronic filing software outage that took place on September 15, 2020.[1]

CCH suffered an outage in their online systems that began in the afternoon of October 15, 2020 and continued throughout the evening. CPAs that used their systems found themselves unable to submit tax returns electronically on the last day to timely file extended partnership income tax returns.

The Tax Court determined that Clinton Deckard did not own shares in Waterfront Fashion Week, Inc., and, as such, the corporation could not make a late S election. Mr Decker was barred from claiming losses from that corporation on his personal return.[1]

In News Release IR-2020-212[1] the IRS reminded taxpayers of the option to request an expedited letter ruling request, and that COVID-19 issues can justify asking for such expedited processing.

The news release notes that normally letter ruling requests are processed in the order received, but there is a procedure in place for requesting expedited processing:

As set forth in Rev. Proc. 2020-1, the IRS ordinarily processes requests for letter rulings in the order that they were received. A taxpayer with a compelling need to have a request processed more quickly may request expedited handling.[2]

The IRS has published a web page that contains tax information for the marijuana industry.[1] The page describes its purpose as follows:

A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is helping them understand and meet their tax responsibilities while also enforcing the law with integrity and fairness to all. This article provides general guidance including frequently asked questions for taxpayers in the marijuana industry.

The IRS has released a draft of the form that will be used by self-employed individuals to claim a credit for family and sick leave that was enacted as part of the Families First Coronavirus Relief Act (FFCRA). Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals[1] is to be used by taxpayers qualifying for this credit.

You are now cleared to start filing revisions to the second quarter Form 941 if you have some to fix. The IRS has released the revised Form 941-X[1] that will allow revising Forms 941 that are impacted by provisions found in the Families First Coronavirus Relief Act and/or the CARES Act that impacted second quarter payroll. The related revised instructions to the form were also issued at the same time.[2]

On August 17 the IRS had asked employers not to use the prior version of Form 941-X to attempt to amend a second quarter 2020 Form 941 and to wait for this form, which existed in draft form on that date, to be finalized sometime in “late September.”[3]

The special per-diem rates for the fiscal year running from October 1, 2020 to September 30, 2021 has been released in Notice 2020-71.[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 state level decision in the case of In the Matter of the Appeal of Mazur, California OTA Case No. 19064883[1] has a discussion of the concept of domicile, a key concept used by many states as either the single or one of the tests available to determine if an individual must file an income tax return as a resident of the state.

In states with an income tax, residents generally are required to pay tax to the state on all income for the year, whether or not it is sourced to the state, while nonresidents generally only pay tax on income that can trace its source to the state. But whether someone is or is not a resident isn’t necessarily a simple item to determine.

The IRS has announced an additional six forms that will qualify for electronic signatures, in addition to the forms originally announced as eligible for this program on August 28.[1]

The new forms added to the list are:

• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

• Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

• Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

• Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; and

• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

In Notice 2020-66[1] the IRS provided that Medicaid coverage limited to COVID-19 testing and diagnostic services does not constitute minimum essential coverage. The issue is important in determining if a taxpayer qualifies for a premium tax credit under IRC §36B.

The Tax Court considered the question in the case of Fowler v. Commissioner,[1] 155 TC No. 7 of the impact of a taxpayer electronically filing a tax return without a required IP PIN on the running of the statute of limitations on the time for the IRS to assess tax.

The taxpayer in this case had his identity compromised in 2013 and the IRS claims the agency sent the taxpayer an IP PIN in late December 2013. However, the taxpayer claims that he did not receive the IP PIN by the October 15, 2014 date on which he timely attempted to file his 2013 income tax return.[2]

The Tax Court had to determine what Congress meant with unclear wording of an effective date provided for in the Taxpayer First Act in the case of Sutherland v. Commissioner, 155 TC No. 6.[1] While most readers are not going to be trying cases before the Tax Court that were filed before July 1, 2019, the case reminds those who represent taxpayers in innocent spouse cases in Appeals that Congress has attempted to incentivize taxpayers to cooperate in the Appeals process rather than decide to attempt to go straight to Tax Court in innocent spouse cases.

In the case of Dickinson v. Commissioner[1] the IRS was attempting to treat a taxpayer’s contribution of shares of stock directly to a charity as being rather a redemption of the stock, creating taxable capital gain, followed by a deductible charitable contribution.

In this case, the taxpayers donated shares in a privately held company in which the husband was the CFO to Fidelity Investments Charitable Gift Fund. The case notes:

The GCI board of directors (Board) authorized shareholders to donate GCI shares to Fidelity Investments Charitable Gift Fund (Fidelity), an organization tax exempt under section 501(c)(3), through written consent actions in 2013 and 2014. In both consent actions the Board stated that Fidelity “has a donor advised fund program which incorporates procedures requiring * * * [Fidelity] to immediately liquidate the donated stock” and “seeks an imminent exit strategy and, therefore promptly tenders the donated stock to the issuer for cash”. The Board approved a third round of donations at a Board meeting by unanimous vote in 2015; the Board members signed the written minutes of the meeting. After each Board authorization, petitioner husband donated appreciated GCI shares to Fidelity. Petitioner husband remained a full-time GCI employee following each donation.[2]

The SECURE Act, enacted in late 2019 by the Congress, provided for a number of changes to retirement plans and IRAs. In Notice 2020-68[1] the IRS has provided initial guidance on some of these changes in question and answer format. The Notice also covered plan related provisions found in the Bipartisan American Miner’s Act of 2019 (Miners Act) that was enacted at the same time as the SECURE Act.

The IRS has established a web page on the agency’s site devoted to the BBA Centralized Partnership Audit Regime.[1]

The page is meant to provide a centralized location for the agency’s information and guidance on the new audit regime introduced by the Bipartisan Budget Act of 2015, which replaces the prior TEFRA partnership audit regime.

In the case of Hermann Kuma v. Greater New York Conference of Seventh-Day Adventist Church et al.[1] a former pastor was suing a church for failing to classify him as an employee and withhold FICA and Medicare taxes on the wages he was paid over a 21 year period.

Mr. Kuma was told when he attempted to apply for Social Security benefits that he did not have enough quarters of coverage on his account to qualify for benefits or to be eligible for Medicare. Mr. Kuma claimed that the church had treated him improperly as an independent contractor, causing him to face the loss of benefits under Social Security and Medicare and was looking to be awarded damages in compensation.

The IRS, following the release of guidance on the payroll tax holiday set to begin on September 1, 2020 in Notice 2020-65, has now released a draft version of a revised Form 941 to take into account the employee old age, survivor and disability insurance withholding that is deferred from September 1 to December 31.[1]

The key change is found on page 3 in Part 3, line 24, which asks for the “Deferred amount of the employee share of social security tax included in line 13b.” Line 13b on page 1 currently has the deferred employer portion of social security taxes under the CARES Act, so the line on page 1 will be used to cover both types of deferred social security taxes, while line 24 will alert the IRS to the portion of the total deferral that must be paid in by May 1, 2021.