Keeping CPAs Up to Date on Tax Matters
A site devoted to articles on current developments in federal taxes geared toward CPAs in tax practice.
While the Tax Cuts and Jobs Act ended the deduction for alimony payments for divorces finalized after 2018, we still have to deal with the status of payments for divorces prior to that date. In the case of Ibrahim v. Commissioner, TC Summary Opinion 2022-7,[1] the Tax Court ruled payments from a physician to his former spouse did not meet the criteria to be alimony under the law.
Read MoreThe IRS has again extended temporary relief from the physical presence requirement for executing certain plan documents in front of a plan representative or notary public in Notice 2022-27.[1] The relief was first provided in Notice 2020-42 as a response to the COVID-19 pandemic and most recently had been extended by Notice 2021-40 through June 30, 2022. The new notice extends this relief through the end of 2022.
Read MoreIn the case of Rogerson v. Commissioner, TC Memo 2022-49[1] the taxpayer argued that, following a reorganization of the S corporation he owned 100% of into multiple corporations, he had not materially participated in the activities of one of these resulting corporations for the three years following the reorganization. He took this position despite not separating this particular activity from other activities of the prior corporation in earlier years, treating the operations of that S corporation as a single activity in which he actively participated.
Read MoreThe IRS in 2005 sends a partnership a notice that they have no record of their 2001 income tax return being filed. The taxpayer’s accountant, in response to the notice faxes a signed copy of the Form 1065 to the IRS at the response number in the notice along with a certified mail receipt to show timely filing. A month later the IRS began an examination of the partnership. As part of the examination, in July 2007 the partnership’s counsel mailed another signed copy of the return and certified mail receipt to an IRS attorney.
In October of 2010, the IRS issued the partnership a Final Partnership Administrative Adjustment, more than three years after the second signed copy of the tax return had been provided to IRS personnel per their requests. While you might be thinking that the IRS is too late now, since the statute for issuing the FPAA was three years after the return was filed, the IRS argued that the FPAA was timely as the return was never filed in accordance with the regulations, so the statute never began to run.
Read MoreA paragraph in a recently released Treasury Inspector General for Tax Administration Report[1] disclosed that the IRS destroyed an estimated 30 million paper-filed information returns in March 2021 due to the backlog in processing paper documents at the agency.
The audit was initiated to look at issues preventing broader use of electronic filing for business returns, but it began by noting that the decision to destroy these returns led to the audit:
This audit was initiated because the IRS’s continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021.[2]
Read MoreThe U.S. Court of Federal Claims rejected a taxpayer’s argument that the IRS improperly allowed the offset of a tax refund on his 2019 return filed in January 2020 against his outstanding student loan debt in violation of the CARES Act. As the opinion pointed out in the case of Seto v. United States, US Court of Federal Claims, Docket No. 1:21-CV-01497[1], since the offset took place over a month before the CARES Act was signed into law, there was no relief available that would enable him to recover his refund.
Read MoreThe taxpayer in the case of Evert v. Commissioner, TC Memo 2022-48[1] argued that she had signed a Form 872, Consent to Extend the Time to Assess Tax, under duress, rendering it invalid and, thus, the IRS had failed to timely issue a notice of deficiency for 2015. The Tax Court did not agree with the taxpayer.
Read MoreThe Tax Court ruled that the IRS Chief Counsel has the ultimate say on whether an individual qualifies for innocent spouse relief even though the Cincinnati Centralized Innocent Spouse Operation (CCISO) determined the taxpayer was entitled to relief when the request for relief initially arises as part of litigation in Tax Court.[1]
The case is interesting since the IRS itself disagreed over whether the taxpayer should be granted innocent spouse relief. As the Court notes:
What concerns us is her effort to be relieved of her liability on the joint tax returns she filed with Goddard while they were married. The part of the IRS bureaucracy that usually handles these sorts of requests thinks she’s entitled to relief. The IRS’s lawyer disagrees. We must decide who speaks for the IRS.[2]
Read MoreThe Tax Court agreed with the IRS that a disabled Army veteran could only exclude from income the designated disability payments she received from the Veterans’ Administration, while the payments she received separately as part of her military retirement payments were taxable in the case of Valentine v. Commissioner, TC Memo 2022-42.[1]
Read MoreThe IRS has updated information in Question 7 in “Schedules K-2 and K-3 Frequently Asked Questions (Forms 1065, 1120S, and 8865)” found on the IRS website.[1} The question now discloses that the electronic filing version of the 1065 Schedules became available on March 20 and that the S corporation electronic filing option will be available on July 24, 2022. As well, the question indicates that taxpayers may use the PDF attachment filing option for the entire 2022 filing season.
Read MoreIn the case of Aspro v. Commissioner, Case No. 21-1996, CA8,[1] the Eighth Circuit Court of Appeals sustained the Tax Court’s disallowance of a deduction of management fees paid to shareholders of a C corporation and the treatment of the payment as disguised distributions taxable as dividends.
There are various reasons why some closely held entities make payments to related parties that are labeled management fees. In this case we aren't told what the ultimate goal was of such fees, but we do know that they had continued for an extremely long period of time.
Read MoreIn proposed regulations, the IRS sought to block potential methods that might be used to extend the increased basic exclusion amount should it be allowed to drop back to a lower level after the end of 2025.[1]
The IRS had previously released what have been referred to as anti-clawback regulations in 2019. The regulations sought to prevent an estate from facing a tax bill if the basic exclusion amount (BEA) drops below amounts that have been gifted during life that were covered by the BEA applicable at the time of the gift, when the BEA has now dropped below the amount of those gifts. The regulations explain this as follows:
On November 26, 2019, the Treasury Department and the IRS published final regulations under section 2010 (TD 9884) in the Federal Register (84 FR 64995) to address situations described in section 2001(g)(2) (final regulations). The final regulations adopted §20.2010-1(c), a special rule (special rule) applicable in cases where the credit against the estate tax that is attributable to the BEA is less at the date of death than the sum of the credits attributable to the BEA allowable in computing gift tax payable within the meaning of section 2001(b)(2) with regard to the decedent’s lifetime gifts. In such cases, the portion of the credit against the net tentative estate tax that is attributable to the BEA is based on the sum of the credits attributable to the BEA allowable in computing gift tax payable regarding the decedent’s lifetime gifts. The rule ensures that the estate of a donor is not taxed on completed gifts that, as a result of the increased BEA, were free of gift tax when made.[2]
Read MoreRental activities are generally treated as passive activities under IRC §469, limiting the ability of taxpayers to offset losses from such activities against other income. However, a special rule applies to individuals who can meet the qualifications to be a real estate professional under IRC §469(c)(7). The taxpayers in the case of Sezonov v. Commissioner, TC Memo 2022-40,[1] attempted unsuccessfully to argue they qualified for this status.
Read MoreOn April 11, 2022, the IRS expanded its page of frequently asked questions with regard to Schedules K-2 and K-3 from 18 questions and answers to 26.[1] While this falls far short of covering all of the questions many have remaining with regard to completing these forms, it does provide some additional guidance.
Read MoreIn Revenue Procedure 2022-23,[1] the IRS has given guidance on making late elections under IRC sections 168(j), 168(l)(3)(D) and 181(a)(1) which were retroactively extended by Congress to apply to years 2018 and 2019 in the Further Consolidated Appropriations Act, 2020 enacted at the end of 2019.
Read MoreThe IRS argued before the Tax Court that the Court had no right to determine if the IRS had properly determined that a corporation was not eligible for the voluntary classification settlement program (VCSP) for payroll taxes. In a published decision, Treece Investment Advisory Corp v. Commissioner, 158 TC No. 6,[1] the Tax Court disagreed, holding that the Court did have jurisdiction to review the IRS determination in this area.
Read MoreThe Treasury Department and the IRS announced a program that aims to deal with the backlog of unprocessed tax returns and correspondence on March 10.[1]
The press release begins by noting the current situation:
This year, millions of taxpayers are awaiting the processing of their tax returns and receipt of their refunds. The backlog—unprocessed returns and correspondence sent to the IRS but yet unanswered—has created one of the most challenging tax filing seasons in our nation’s history.[2]
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