What are the tax implications of an employer-funded fixed-indemnity insurance policy that pays employees $1,000 per month through a wellness indemnification program? This payment is made for each month the employee participates in specific wellness activities, with the costs covered by a comprehensive medical plan offered by the employer.

In Chief Counsel Advice 202323006,[1] the IRS provided guidance on this matter, determining that the payments described above should be treated as taxable income, subject to payroll taxes, and cannot be excluded under Internal Revenue Code (IRC) §106.

Sometimes, as tax advisers, we and our clients tend to concentrate so intensely on federal income tax matters that we inadvertently overlook the potential impact of state income tax issues. However, it is crucial to recognize that these state-level considerations can be significant enough to warrant a reevaluation of the optimal choice for a federal return election.

In the case of PLR 202323001,[1] it came to light that the taxpayer, a partnership, was unaware of the substantial adverse consequences on the partners’ state income tax returns resulting from the utilization of bonus depreciation on their federal income tax return. Neither the partnership nor its tax adviser identified this matter until after the tax return had already been prepared and filed.

In this ruling, the taxpayer approached the IRS seeking permission to retroactively make a late election to forego the deduction of additional first-year depreciation. The objective was to rectify the unintended consequences arising from the utilization of such depreciation on their federal income tax return, which had a detrimental impact on the partners’ state income tax returns.

Tracy v. Commissioner, T.C. Summ. Op. 2023-20[1], presented the Tax Court with the question of whether a disabled and elderly attorney should be eligible for relief from penalties due to late payment and late filing concerning payroll taxes associated with the winding down of his law practice.

The Eleventh Circuit, in the case of Gregory v. Commissioner, Case No. 22-10707[1], held that expenses associated with an activity not pursued with the intent of generating a profit, as defined under IRC §183, fall into the category of miscellaneous itemized deductions under IRC §67. Consequently, these deductions are subject to the limitations imposed on claiming such deductions.

Tax advisers who specialize in assisting small businesses might initially assume that a case involving “reasonable compensation” pertains to the IRS alleging that an S corporation owner did not declare a sufficient portion of their earnings as salary. In such instances, the agency typically aims to reclassify distributions as disguised salary.

However, those of us who have been in the tax profession for a longer period, predating the Tax Reform Act of 1986, recall a distinct other kind of unreasonable compensation case that is seen far less often today. This particular case arises with closely held C corporations, where the IRS contends that a portion of the owner’s reported compensation should instead be treated as a dividend. It is precisely this type of case that the Fourth Circuit Court of Appeals addressed in Clay Hood, Inc. v. Commissioner, Case No. 22-1573, CA4.[1]

An issue that has been a recurrent subject for discussion among tax professionals is the applicability of the timely mailing rule outlined in IRC §7502. Specifically, the case we will look at it addresses the consequences when a taxpayer submits a document without utilizing certified mail, registered mail, or an approved private delivery service. Although this scenario typically arises when a taxpayer asserts having mailed their return on the final day for filing, the present case entails the taxpayer’s assertion that the document in question was mailed three months prior to the document’s deadline for submission.

The IRS has recently issued a news release[1] to inform businesses about the growing concern of overly aggressive employee retention tax credit (ERC) promoters. Within this statement, the IRS highlights key indicators that employers should be mindful of in order to identify potential promoters engaging in questionable practices. Furthermore, the statement sheds light on the tactics employed by these promoters to attract employers and offers valuable suggestions on how businesses can safeguard themselves against potentially costly errors that may arise from claiming an ERC credit without meeting the eligibility criteria.

In the case of Meduty v. Commissioner, 160 TC No. 13,[1] the Tax Court considered whether it had jurisdiction to review a taxpayer’s claim that the IRS failed to give him proper notice when it certified a seriously delinquent tax debt to the U.S. Secretary of State. Once such a certification is made, it gives the State Department the leeway to potentially limit, revoke, or even deny the taxpayer’s passport privileges.

In Revenue Procedure 2023-23, [1] the IRS disclosed the 2024 inflation-adjusted figures for both Health Savings Accounts (HSAs) and excepted-benefit Health Reimbursement Arrangements (HRAs). Notably, these figures have seen a more substantial increase than in previous years. This hike can largely be attributed to the heightened inflation rates observed over the past year.

In the recent Tax Court case of Carson v. Commissioner (Docket No. 23086-25),[1] the IRS found itself in a challenging position due to a significant misunderstanding regarding the nature of the reported activity on Schedule F. This misunderstanding led the agency to claim that the activity was not conducted for profit, which would have resulted in severely restricted deductions under IRC §183 on the taxpayers’ returns.

The IRS suffered substantial repercussions due to the ensuing confusion. The Court's ruling concluded that the IRS had focused on the wrong issue, resulting in an unfavorable outcome for the agency regarding the profit motive aspect. Moreover, the Court emphasized that critical issues, which had the potential to give rise to additional tax obligations, were not properly brought before the Court for examination.

The U.S. Supreme Court recently rendered a unanimous ruling in favor of the IRS regarding its authority to issue a summons without prior notice in specific collection cases, in the case of Polselli v. IRS.[1]

The section of the partnership K-1 delineating partners’ share of debts of the partnership may be subject to modifications with the anticipated release of the 2023 draft version of Schedule 1065 Schedule K-1. A recent article penned by Kristen Parillo and published in Tax Notes Today on May 9, 2023,[1] provides coverage of a session held on May 5, 2023 at the American Bar Association Section of Taxation meeting. During the meeting, Adrienne Mikolashek, the IRS Deputy Associate Chief Counsel for Passthroughs and Special Industries, reportedly highlighted these prospective changes to the Schedule K-1.

In PLR 202319009,[1] a credit union sought a ruling from the IRS regarding their obligation to issue Forms 1099-C for account write-offs resulting from a settlement of a class action suit. The credit union argued that the write-offs did not qualify as identifiable events as specified in Reg. §1.6050P-1(b)(2).

In an email response (ECC 201319015[1]), the Internal Revenue Service (IRS) conducted an examination of the scenario where a Professional Employer Organization (PEO) submits a claim for refund on behalf of one of its clients regarding the Employee Retention Credit (ERC). This examination specifically explored the implications when the PEO possesses outstanding tax liabilities. The conclusion reached in the response asserts that the IRS holds the authority to allocate the refund towards the PEO’s outstanding tax obligations.

In Chief Counsel Advice (CCA) 202317020[1], the IRS examines the consequences of specific reimbursement policies adopted as part of an IRC §125 cafeteria plan's health flexible spending account (FSA) and/or dependent care account. Specifically, in some cases, the IRS determines that the policy leads to the inclusion of reimbursements in the employee's income.

The taxpayer in the case of Bright v. Commissioner,[1] Tax Court Docket No. 10095-22, discovered that he was going to be stuck with total gambling income that was reported on his original return, even though he had no idea where his tax preparer had come up with that number.

With the increasing use of electronic filing for tax documents, many filings that were previously sent by mail can now be submitted online. Although the Internal Revenue Code (IRC) §7502 considers mail submissions timely filed if postmarked by the US Postal Service by the due date, electronic filings can be more complex to date-stamp, especially when the filer and the recipient are in different time zones. How can we determine the date of filing for an electronic document under these circumstances?

The Tax Court case Nutt v. Commissioner, 160 TC No. 10,[1] addressed a specific issue regarding the timing of filing a petition with the court. The case examined the time by which a taxpayer residing in the Central Time Zone must electronically file a petition to the Tax Court in order for it to be considered timely, given that the court itself has its offices in the Eastern Time Zone.

In the case of Gage v. Commissioner, TC Memo 2023-47[1], a taxpayer found that even though they believed they had paid an $875,000 settlement to the Department of Housing and Urban Development by the end of 2012, in fact the payment was rather treated as made in 2013 for income tax purposes.

In Notice 2023-34[1], the IRS has modified Notice 2014-21.  While the modification recognizes that some jurisdictions now treat Bitcoin as legal tender, it merely removes that statement from the background section but does not modify the Notice’s position that such currencies are treated as property and not foreign currency for US tax purposes.

The IRS determined that holding units of a cryptocurrency that undergoes a change from using a proof of work consensus mechanism to a proof of stake consensus mechanism does not create a sale or exchange nor any other sort of income recognition event under IRC §61 in Chief Counsel Advice 202316008.[1]