In emailed chief counsel advice,[1] counsel explained how and when “money numbers” impact the calculation of the imputed adjustment (IU) for a partnership being examined under the BBA centralized partnership audit regime. The issue involved adjustments of items that would not directly impact the amounts reported on that year’s Form 1065, but do involve a partnership item stated in terms of dollars.

The email begins by noting “[i]f we adjust any partnership-related item (PRI) that is a ‘money number’ on the Form 1065 or in the partnership’s books and records, it goes into the calculation of the IU.”[2] The advice continues on to note that “[a]n adjustment to an item that is not an item of income, gain, loss, deduction, or credit (i.e. ‘non-income item’) is always a positive adjustment. See 301.6225-1(d)(2) (definition of positive and negative adjustments).”[3]

The IRS clarified, in emailed counsel advice,[1] that it does not matter if a partner is a for profit or exempt organization to determine if that partner will bar the partnership from electing out of the regime under IRC §6221(b).

The email is written in response to a question that is not disclosed in the document. However, it’s fairly certain the question that was asked was whether a partnership that had a tax exempt partner could opt out of the BBA partnership audit regime when filing its return using the procedures found at IRC §6221(b)(1).

The 2021 draft instructions for Form 1065 have added additional information related to a determination of whether a taxpayer has self-employment income from the partnership.[1]

The new revision to the instructions provides:

However, whether a partner (including a member of an LLC treated as a partnership for federal income tax purposes) qualifies as a limited partner for purposes of self-employment tax depends upon whether the partner meets the definition of a limited partner under section 1402(a)(13); whether a partner is a limited partner under state limited partnership law is not determinative. Relevant to this determination is whether the partner merely invested in the partnership and is not actively participating in the partnership’s business operations; a partner who is performing services for a partnership in their capacity as a partner and that is, based on the facts and circumstances, acting in the manner of a self-employed person is not a limited partner for self-employment tax purposes. See Renkemeyer, Campbell & Weaver, LLP v. Commissioner, 136 T.C. 137, 150 (2011).[2]

The IRS has issued guidance on a web page on the agency’s site related to the early termination of the employee retention credit for employers other than a recovery startup business.[1] The IRS posting explains:

The Infrastructure Investment and Jobs Act amends section 3134 of the Internal Revenue Code to limit the availability of the employee retention credit in the fourth quarter of 2021 to taxpayers that are recovery startup businesses, as defined in section 3134(c)(5). Therefore, taxpayers that are not recovery startup businesses are not eligible for the employee retention credit for wages paid after September 30, 2021.[2]

In September of 2020 we discussed issues that arose in the case of Fowler v. Commissioner, 155 TC No. 7, when the IRS rejected an electronically filed return due to the lack of inclusion of an identity protection PIN on the return and its effect on the date a return was treated as filed for statute of limitations purposes.[1] In that case the Court ruled that the IRS had attempted to assess tax more than 3 years after the date the taxpayer initially attempted to file the return, and thus the IRS had failed to act in time.

In this case,[2] the IRS is now asserting the taxpayer had failed to file a return within the three-year period that began on the original filing date including extensions for filing, thus the taxpayers could not obtain the refund shown on the return that they filed within that time period, but which the IRS had rejected due to a suspicion that the return may have been the result of identity theft.

In a published decision, the IRS ruled that a taxpayer who took physical possession of and stored in a safe in her home coins that she argued were owned by an LLC whose interests were held by her self-directed IRA had a taxable distribution from the IRA.[1]

The coins in question were acquired by an LLC whose sole member, per the taxpayers, was an IRA for the benefit of Donna McNulty. Donna was appointed as the sole manager of this LLC owned by her IRA.

The IRS finally addressed the options for the timing of PPP forgiveness for tax purposes in Revenue Procedure 2021-48[1] as well as issuing two related procedures at the same time dealing with related issues. This includes a very limited time period when an affected BBB partnership can file an amended income tax return in lieu of filing the otherwise required Administrative Adjustment Request.

In Notice 2021-63[1] the IRS provides guidance on the interaction of the per diem rules found in Revenue Procedure 2019-48[2] and the temporary allowance of a 100% deduction for business meals provided by a restaurant found at IRC §274(n)(2)(D) for amounts paid or incurred in 2021 and 2022.

Having already released the annual inflation adjusted retirement numbers in Notice 2021-61, discussed in an earlier article,[1] the IRS has now released Revenue Procedure 2021-45[2] that contains most of the other inflation adjusted numbers for 2022 taxes.

As the numbers relate to the law as it existed at the date of publication of the procedure, something that could change based on pending Congressional action, the procedure contains the following warning:

This revenue procedure sets forth inflation-adjusted items for 2022 for various provisions of the Internal Revenue Code of 1986 (Code), as amended, as of November 10, 2021. To the extent amendments to the Code are enacted for 2022 after November 10, 2021, taxpayers should consult additional guidance to determine whether these adjustments remain applicable for 2022.

A trader generally executes an extremely large number of trades during the year attempting to take advantage of very short-term variations in the prices of securities. While some find this pursuit profitable, many find that their ability to harvest those short-term gains doesn’t exist, and while discovering this fact they encounter significant losses. Unfortunately, by default these losses are capital losses, resulting in only being able to deduct $3,000 per year of such losses against other income—and all too often such traders have losses that are well in excess of such limits, running to five or six figure losses.

The IRS Taxpayer Advocate Service (TAS) has announced that, for now, TAS will no longer assist taxpayers who are experiencing processing delays for amended income tax returns.[1]

The TAS blog explains:

Under our current procedures, TAS does not accept cases in which we cannot meaningfully expedite or improve case resolution for taxpayers. Amended returns fall into this category. Due to the broad impact of COVID-19, the IRS has faced significant challenges in all its return processing operations. Unfortunately, until the IRS processes a tax return, TAS cannot assist the taxpayer. For that reason, TAS will not accept new cases solely involving the processing of an individual or business amended return. TAS will continue to monitor IRS developments in amended return processing and will reevaluate this determination as the situation changes.

The House of Representatives on November 5, 2021 passed the Infrastructure Investment and Jobs Act, accepting the amendments the Senate had made to the bill. The Act is being sent to the President who is expected to sign the bill.

Although not primarily a tax bill, the Infrastructure Investment and Jobs Act (IIJA) does contain some provisions that have a tax impact.

For each provision the effective date of the provision is noted. For those items whose effective date is tied to the date of enactment, that date will be the date that the President signs the bill, assuming that he does so.

The IRS issued inflation adjusted retirement plan and fringe benefit numbers for 2022 in Notice 2021-61.

The IRS has released the official draft of the proposed Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, [1] to be used to report S corporation stock basis, debt basis, and allowed/disallowed losses on Forms 1040. The form is virtually identical to the one we discussed in July of 2021 when the IRS published information about the form in the Federal Register.[2]

The IRS has updated its FAQ entitled “Coronavirus-related relief for retirement plans and IRAs questions and answers,”[1] adding two questions to assist employers who, facing staffing issues, rehire employees who had previously retired.

The two questions are added at the beginning of the FAQ in a new section titled “Rehires Following Bona Fide Retirement; In-Service Distributions.” The first question looks at the impact of a rehire for a plan that does not allow for in-service distributions. The concern is that by rehiring the employee, the original retirement may now be challenged by the IRS as not a bona-fide retirement. The question indicates how this problem may be avoided.

A taxpayer was unsuccessful in attempting to recover taxes via a claim of right deduction under IRC §1341 in the case of Heiting v. United States, US DC WD Wisconsin, Case No. 3:19-cv-00224, a holding upheld on appeal.[1]

The IRS released a News Release[1] and 22-page Chief Counsel Memorandum[2] that set forth information a claim for refund related to the research credit under IRC §41 will be required to contain to be considered a valid claim. The News Release states:

The IRS has set forth the information that taxpayers will be required to include for a research credit claim for refund to be considered valid. Existing Treasury Regulations require that for a refund claim to be valid, it must set forth sufficient facts to apprise IRS of the basis of the claim. The Chief Counsel memorandum will be used to improve tax administration with clearer instructions for eligible taxpayers to claim the credit while reducing the number of disputes over such claims.[3]

One of the tools the IRS has used with increasing frequency to provide guidance has been the use of Frequently Asked Questions (FAQs) posted on the IRS website. The IRS began using the tool heavily to provide guidance for various Tax Cut and Jobs Act provisions, and that use continued with guidance for various items found in the COVID relief bills.

However, tax professionals have expressed major concerns with the IRS reliance on such guidance. First, it’s not clear what happens if the IRS discovers that an FAQ no longer agrees with what the agency and courts find to be the proper interpretation of the law. Can the IRS assert a position contrary to a published FAQ against a taxpayer and if they succeed in doing so, do taxpayers face potential penalties for taking positions on a tax return relying upon the FAQ?

In Notice 2021-58[1] the IRS returned to the subject of various emergency extensions for certain COBRA actions issued jointly by the IRS and Department of Labor beginning in May of 2020.

The IRS describes that original notice as follows:

On May 4, 2020, in response to the National Emergency concerning the Novel Coronavirus Disease (COVID-19) Outbreak (National Emergency), the Agencies published the Joint Notice, which extended certain timeframes otherwise applicable to group health plans, disability and other welfare plans, pension plans, and their participants and beneficiaries under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (Code). The Joint Notice extended these timeframes by requiring that plans subject to ERISA or the Code disregard the period for certain action from March 1, 2020, until 60 days after the announced end of the National Emergency or such other date announced by the Agencies in a future notification (the Outbreak Period), subject to a maximum disregarded period of one year.[2]