The IRS has announced filing deadline relief for residents of the state of Florida related to Hurricane Ian.[1]

Relief Covers the Entire State of Florida

The release indicates that this relief will apply to any individuals that reside or have a place of business in Florida:

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business anywhere in the state of Florida qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.[2]

Most likely relief of some sort will expand as, at the time this article was written, the storm was expected to make landfall again in South Carolina.

The AICPA has issued a second letter[1] asking for an additional expansion of the relief the IRS provided in Notice 2022-36. The AICPA’s original letter, issued on August 30, 2022, had asked for an expansion and extension of the relief provided in the IRS Notice,[2] with the new letter giving additional requests for modifications.

In Chief Counsel Advice 202237010[1] the IRS indicated that if a taxpayer obtained forgiveness of a paycheck protection program (PPP) loan when he/she was not actually qualified to receive such forgiveness, the forgiveness would represent taxable income to the taxpayer even though the SBA would have the right to demand repayment of the loan balance.

In the case of United States v Koncurat,[1] the Court rejected the taxpayers’ argument that they should not be subject to penalties for failure to file their tax returns timely under IRC §6651(a)(1) and failure to timely pay taxes due under IRC §6651(a)(2).

The IRS, via a letter to Rep. Bennie G. Thompson, D-Miss, Chair, House Homeland Security Committee, reported that the agency had inadvertently made available for bulk download certain XML Form 990-T data that should not have been disclosed.[1]

The AICPA has released an exposure draft of significant proposed changes to the Statements on Standards for Tax Services.[1] The AICPA states it will consider all comments received by December 31, 2022. These proposed standards would be effective no earlier than January 1, 2024.

The document also contains an invitation to comment on potential later revisions to the Statements that could create quality control guidance for tax practices.

The AICPA sent a request[1] to the IRS to provide additional and immediate guidance for Schedules K-2 and K-3 for the 2021 and later tax years.

The American Institute of Certified Public Accountants (AICPA)[1] and the National Association of Enrolled Agents (NAEA)[2] have both written the IRS asking for the September 30 filing deadline to obtain penalty relief under Notice 2022-36 be pushed back.

The Notice, issued by the IRS on August 24, 2022, provides for automatic relief from failure to file penalties for certain 2019 and 2020 tax year returns filed on or before September 30, 2022.[3]

Including an option in a purported charitable remainder trust for the trustee to choose between making distributions of the annual unitrust payment to the surviving spouse or a charity ended up with the decedent’s estate not being able to claim either a charitable contribution or marital deduction by the estate for these amounts, the IRS ruled in a Chief Counsel Advice.[1]

The National Taxpayer Advocate published a blog post[1] that discussed the impact of Notice 2022-36 that was issued by the IRS. The information in the blog clarifies issues related to the Notice.

Failure to File Penalty is Waived, But Not Failure to Pay

The Notice did not provide a waiver for all penalties, and the blog begins by noting that while the failure to file penalty under IRC §6651(a)(1) is waived under the Notice, the relief does not apply to the failure to pay penalty under IRC §6651(a)(2) that such taxpayers would generally also be subject to.

In Notice 2022-36[1] the IRS has announced broad relief from certain penalties for taxpayers filing specified tax and information returns for taxable years 2019 and 2020.

Justification for Relief

Why is the IRS taking this action currently? While the Notice discussed COVID-19 related issues in general, the background concludes with what is likely the most significant factor driving this relief—the fact that, due to the backlog of unprocessed documents and returns, this is being done to hopefully clear out a lot of issues the IRS otherwise has to deal with before the agency could get back to pre-pandemic processing and response times:

The COVID-19 pandemic has also had an unprecedented effect on the IRS’s personnel and operations. The agency was called upon to support emergency relief for taxpayers, such as distributing economic impact payments, while sustaining its regular operations in a pandemic environment with limited resources, where employees were sometimes unable to be physically present to process tax returns and correspondence. In response to these challenges, the IRS has been working aggressively to process backlogged returns and taxpayer correspondence to return to normal operations for the 2023 filing season. The Treasury Department and the IRS have determined that the penalty relief described in this notice will allow the IRS to focus its resources more effectively, as well as provide relief to taxpayers affected by the COVID-19 pandemic.[2]

Even though the alimony deduction/taxation issue for divorced couples is no longer an issue in divorces finalized today, the issue of exactly what is federal income tax law alimony continues to be an issue for pre-2019 divorces. In the case of Redleaf v. Commissoner[1] the former spouses were disputing the treatment of payments totaling $51 million.

As is normal in a case like this, the IRS also has a protective assessment issued against the recipient spouse so the agency does not get whipsawed should the payor prevail in the court challenge, even though the agency had determined that the payments did not qualify as alimony. Thus, both former spouses were actively involved in this matter.

The IRS issued final regulations[1] that adopt proposed regulations originally issued in October 2017[2] without making any changes eliminating the requirement that the election under IRC §754 included with a partnership income tax return be signed by a partner of the partnership.

An election under IRC §754, once made, requires that the basis of partnership property be adjusted:

• For distributions, as provided in IRC §734 and

• For transfers of a partnership interest, as provided in IRC §743.

This election cannot be revoked except as provided for in regulations issued by the IRS.

In IRS News Release 2022-143,[1] the IRS has warned tax professionals about evolving scams that seek to obtain taxpayer information from the professionals’ networks. And this is important because, as the news release notes, “[f]or tax professionals, securing their network to protect taxpayer data is their responsibility as a tax preparer.”[2]

A taxpayer suing the U.S Government for failing to receive his economic impact payment from the IRS under the Consolidated Appropriations Act, 2021 had his case dismissed by the United States District Court in the case of Shaw v. Yellen.[1] And the reason why his claim was dismissed is one very few taxpayers will easily understand, even though the action is based on requirements all tax professionals should be aware of.

The taxpayer took the IRS to court over the early 2021 $600 check he was supposed to receive. As the opinion notes:

In his initial Complaint, Petitioner complains that the IRS did not send him the $600 he is owed under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Petitioner provided a copy of a letter from the IRS dated February 5, 2021 that states a payment of $600 was issued by either check or debit card and that he should check the status of his payment if he has not received it within seven days of receiving the letter. ECF No. 1 at 6. Petitioner also explained that he wrote the IRS to inquire about the status of the missing check. He attached a copy of a letter from the IRS date August 25, 2021 that states that the IRS received his inquiry and needs another sixty days to work on his account to send a complete reply. ECF No. 1 at 8.[2]

The Tax Court denied an attempt by the breadwinner to obtain innocent spouse relief for tax liabilities in the case of Soler v. Commissioner.[1] And the case also contains a warning for spouses who may prefer to not get involved in tax matters in the marriage when their spouse happens to be an accountant.

The IRS issued a Technical Advice Memorandum[1] that looks at whether, to put it simply, if meeting the material participation test for an activity for five straight years by using the significant participation activity (SPA) test found at Reg. §1.469-5T(a)(4) means the activity cannot be included as an SPA in year six. And the IRS concludes that answer is yes, which could cause the taxpayer to lose material participation status for other SPAs for the year in question.

In the case of Keefer v. United States, USDC ND TX,[1] a taxpayer was denied a deduction for a contribution on two separate grounds. First, the Court found that the taxpayers had failed to give away the entire asset in question, resulting in an anticipatory assignment of income and, second, the taxpayers did not obtain a proper contemporary written acknowledgment of the contribution.

In the case of United States v. Ward, USDC AK,[1] the taxpayers’ attempt to argue that some of the time period the statue for collections was suspended due to the taxpayers filing multiple times for collection relief should be ignored due to defects in those filings made by the taxpayer. The court decided the taxpayers would not be allowed to use their own mistakes to their advantage.

In the case of LaRochelle v. Commissioner, TC Summary Opinion 2022-12[1] the taxpayers argued they should not be liable for an accuracy related penalty under IRC §6662 related to their failure to report an IRA distribution when the Form 1099-R had been sent to their former, rather than current, address. The Tax Court found, in these circumstances, that there was not reasonable cause for their failure to report the distribution despite the Form 1099-R being sent to the wrong address.