Although employee business expenses generally were rendered nondeductible (at least temporarily) by the Tax Cuts and Jobs Act, a recent case on the concept of a “tax home” for an employee’s away from home expenses is still relevant to those who work with employee benefits. In the case of Warque v. Commissioner,[1] an IRS agent unsuccessfully attempted to argue his tax home became Las Vegas when the agency agreed to place him on a list for potential hardship relocation to the Nevada City.

The IRS Taxpayer Advocate Service (TAS) has issued a memorandum (TAS-13-0721-0009)[1] which states that TAS will not accept most advance child tax credit (Adv. CTC) cases. The memorandum explains the advance child tax credit provision, found in the American Rescue Plan Act of 2021, as follows:

Section 9611(a) of the American Rescue Plan Act, Public Law 117-2 (2021), signed into law on March 11, 2021, amended Internal Revenue Code (IRC) section 24 to create special rules for the Child Tax Credit (CTC) applicable to only calendar year 2021 and added new IRC section 7527A to provide for periodic advance payments of the CTC to eligible individuals in calendar year 2021. The Adv CTC payments will commence July 15, 2021 and end by December 31, 2021. During this time IRS programming will use tax year 2020 return data (or 2019, if 2020 is not available) to generate monthly payments totaling up to 50 percent of the taxpayer's projected 2021 CTC amount. Taxpayers who have not filed a 2020 or 2019 federal income tax return and do not have a filing requirement can use the “Child Tax Credit Non-filer Sign up Tool” on irs.gov to file a 2020 tax return. Eligible taxpayers who do not want to receive Adv CTC can elect to unenroll to decline the advanced payments using the CTC UP. The CTC UP also allows eligible taxpayers to check enrollment, and future updates will allow taxpayers to change other items such as address, bank information, and life event changes.[2]

A little more than one year ago the IRS released Notice 2020-46 allowing employers to establish COVID-19 related leave donation programs for employees to participate in for their leave time to be converted to a cash donation to a charitable organization offering COVID-19 relief. The program was described in an article posted to this site at the time.[1] The guidance expired on December 31, 2020.

In Notice 2021-39,[1] issued at the same time as draft versions of the 2021 instructions for new Forms K-2 and K-3 for partnerships and S corporations, the IRS provided limited relief from penalties related to issues properly preparing those forms on 2021 tax returns.

Guidance has been issued to farmers for elections related to net operating losses added by the COVID-related Tax Relief Act of 2020 (CTRA) in Revenue Procedure 2021-14.[1] The Procedure broadly described its guidance as follows:

Specifically, this revenue procedure prescribes when and how to make an election with regard to all NOLs of the taxpayer, regardless of whether the NOL is a Farming Loss NOL. This revenue procedure also provides that a taxpayer is treated as having made a deemed election under § 2303(e)(1) of the CARES Act if the taxpayer, before December 27, 2020, filed one or more original or amended Federal income tax returns, or applications for tentative refund, that disregard the CARES Act Amendments with regard to a Farming Loss NOL. This revenue procedure further prescribes when and how to revoke an election made under § 172(b)(1)(B)(iv) or § 172(b)(3) of the Code to waive the two-year carryback period for the farming loss portion of a Farming Loss NOL incurred in a taxable year beginning in 2018 or 2019.[2]

The U.S. Supreme decided not to hear the challenge by the state of New Hampshire to Massachusetts’ taxation of workers who worked remotely in other states.[1]

The state of Massachusetts issued emergency regulations on nonresident income sourcing due to the closing of offices in the state during the COVID-19 epidemic.[2] The key provision the state of New Hampshire objected to reads as follows:

Under M.G.L. c. 62, § 5A(a), income of a nonresident derived from a trade or business, including any employment, carried on in the Commonwealth is sourced to Massachusetts. Pursuant to this rule, all compensation received for services performed by a nonresident who, immediately prior to the Massachusetts COVID-19 state of emergency was an employee engaged in performing such services in Massachusetts, and who is performing services from a location outside Massachusetts due to a Pandemic-related Circumstance will continue to be treated as Massachusetts source income subject to personal income tax under M.G.L. c. 62, § 5A and personal income tax withholding pursuant to M.G.L. c. 62B, § 2.[3]

The Associated General Contractors of America (AGCA) on June 23, 2021 published a statement[1] which indicated that the SBA will be withdrawing the “Loan Necessity Questionnaire” that applied to borrowers who had PPP loans of over $2 million.

A U.S. District Court found that the issues surrounding the taxpayer’s sale of a property that the taxpayer argued qualified for the principal residence exclusion under IRC §121 were not clear enough to grant summary judgement to either the taxpayer or the IRS on the issue of qualification for the exclusion in the case of United States v. Forte, et al.[1]

The First Circuit Court of Appeals has affirmed the conviction of a CPA for fraud, conspiracy and assisting in the filing of false tax returns in the case of United States v. John H. Nardozzi.[1]

The CPA at trial had argued that he had relied upon information provided to him by his client’s bookkeepers or by the taxpayer directly and he was “out of the loop” and did not act with criminal intent. However, the jury did not agree with that view, convicting the CPA on all counts.[2]

The IRS is warning exempt organizations that file Form 990-EZ or Form 8868 on paper risk running into issues, either getting premature notices regarding a failure to file the Form 990-EZ or long delays in getting an acknowledgment of the approval of their extension request.[1]

The article in the June 16, 2021 edition of the Exempt Organization Update indicates the IRS is having processing issues at this time:

The IRS is experiencing delays in processing paper returns, including Form 990‑EZ, Short Form Return of Organization Exempt from Income Tax, and Form 8868, Application for Extension of Time To File an Exempt Organization Return.[2]

When a US District Judge in Texas ruled in 2018 that the Affordable Care Act had been rendered retroactively unconstitutional in its entirety by the Tax Cuts and Jobs Act, a number of advisers rushed to file claims for refunds for years where clients had paid the net investment income tax under IRC §1411. The Supreme Court has now decided the fate of those refund claims, overturning the lower court decision in a 7-2 decision and keeping the entire Affordable Care Act in force.[1]

The case arose once Congress reduced the amount due under IRC §5000A for individuals who failed to maintain minimum essential coverage to zero in the Tax Cuts and Jobs Act. The plaintiffs argued that this change was fatal to the entire Affordable Care Act (which would include the net investment income tax under IRC §1411), as the Supreme Court, in an opinion authored by Justice Roberts, had found the mandate constitutional because it represented a tax on those who failed to obtain insurance rather than making a failure to maintain insurance illegal.

The IRS’s backlog in processing 2020 and 2021 returns has caused the service to issue a memorandum[1] with special procedures for handling offers in compromise where the taxpayer’s 2020 and/or 2021 return has not yet been processed by the IRS.

The IRS was facing a massive backlog of returns as of May 1, 2021 per information provided by Erin Collins, the National Taxpayer Advocate in a Senate Hearing.[2] This backlog of over 30 million unprocessed returns is creating problems for processing offers in compromise, as the officer attempting to process an offer may be unable to access the filings for the last two years—and not know if that is because the taxpayer has not filed those forms or they are just stuck somewhere in the backlog.

The memorandum provides temporary guidance through September 30, 2021 for employees of the Specialty Collection Offer in Compromise (SCOIC) section when an Individual Master File (IMF) or Business Master File (BMF) may not have been processed due to the IRS’s issues revolving around the COVID-19 pandemic. The memorandum temporarily changes procedures found in various sections of the Internal Revenue Manual.

While we’ve all heard the quip that the proper answer to any tax question is “it depends,” that is especially true when legal settlements and awards are involved. In the case of Holliday v. Commissioner[1] the question was whether the amount Ms. Holliday received from an action against the attorney that represented her during her divorce was a nontaxable recovery of capital or a taxable award to her.

The IRS has issued a set of questions and answers related to the enhanced and refundable child and dependent care credit for 2021 that was included in the American Rescue Plan Act of 2021.[1]

The 2021 Credit

The 2021 version of the credit operates much like the credit in prior years, except that the credit is refundable, applies to an increased amount of such expenses, and the maximum credit is 50% of such expenses.

In Chief Counsel Advice 202123007[1] the IRS determined the impact of an IRC §481(a) adjustment related to depreciation on the calculation of adjusted taxable income (ATI) for purposes of the interest deduction limitation under IRC §163(j).

Back in November of 2016 we wrote about the Fifth Circuit reversing the holding of the Tax Court in a dispute that revolved over whether MoneyGram is a bank for tax purposes.[1] The Fifth Circuit found that the Tax Court had not applied the proper test to determine if MoneyGram was a bank—so the appellate court sent the case back to the Tax Court for a determination of whether MoneyGram was a bank using a different standard.

Nearly five years later, the case is back before the Fifth Circuit Court of Appeals, as the Tax Court determined yet again that MoneyGram was not a bank under IRC §581, so was not able to write off losses from mortgage backed securities as an ordinary rather than capital loss. As a C corporation, capital losses can only be deducted against capital gains. This time, the Fifth Circuit sustained the decision of the Tax Court, finding that MoneyGram was not a bank.[2]

Photo by Houcine Ncib on Unsplash

A CPA with 60 years of experience in preparing tax returns found that the Court wasn’t very sympathetic regarding his failure to file FBAR reports, even though income had been (kind of) reported in the case of United States v. Kronowitz.[1]

A belief that many taxpayers have that most preparers have heard is that income below the level required to be reported to the IRS on Form 1099 or some other information report does not represent income that must be reported on a taxpayer’s return. In the case of Legoski v. Commissioner, T.C. Summ. Op. 2021-15[1] the Tax Court corrects a taxpayer who attempted to argue that point.

In a Technical Advice Memorandum[1] the IRS ruled that an overall accrual basis corporation’s promise to pay minimum incentives to dealers in the following year did not meet the requirements of the all events test under IRC §461, and thus could only be deducted in the year when the dealers sold the products in question.