As we transition into the second half of 2023, the Internal Revenue Service (IRS) has commenced the release of draft tax forms for the current year. We will be focusing on the draft versions of the 2023 partnership tax forms that have been recently disseminated by the IRS. The pertinent forms under consideration are:

• Form 1065[1]

• Schedule K-1 (Form 1065)[2] and

• Schedule K-3 (Form 1065).[3]

While the practical application of these draft forms may be somewhat restricted due to the absence of corresponding draft instructions for 2023, they nonetheless provide valuable insights. Even in their draft state, these forms can offer preliminary indications regarding potential modifications to the reporting requirements set by the IRS for partnerships in 2023.

The US Supreme Court has granted an appeal to review the Ninth Circuit's ruling in the case of Moore v. United States.[1] Previously, the Ninth Circuit had declined a motion to reconsider the case en banc, despite four judges expressing dissent from the decision. The original panel had upheld the constitutionality of the IRC §965 transition tax, which was introduced as part of the Tax Cuts and Jobs Act.

Most likely, everyone has encountered a situation where a phone, computer, website, or app did not function as expected or required. A similar circumstance arose for the taxpayer in the case of Sanders v. Commissioner, 160 TC No. 16.[1]  However, Mr. Sanders discovered that the Tax Court did not recognize his technological difficulties as a valid reason to accept his Tax Court petition, which was ultimately filed electronically just eleven seconds past midnight.

In my experience, day traders generally fall into one of two categories: a small minority achieving considerable success, or the majority, rapidly diminishing their previously amassed fortunes once they venture into day trading.

Day trading entails executing a vast number of security sales on a daily basis. An unsuccessful day trader quickly learns that, by default, they are restricted to a net deduction of only $3,000 in losses per year due to the annual limitation on individual capital loss deductions stipulated in Internal Revenue Code (IRC) §1211(b)(1). When the trader’s net losses extend into the six-figure realm, this $3,000 annual limitation can be significantly distressing.

The Internal Revenue Service (IRS) has issued Notice 2023-37, [1] declaring the cessation of unique provisions enabling high deductible health plans (HDHP) to extend certain benefits specifically for COVID-19 diagnosis and treatment before the participant had met his/her deductible for the plan year. These provisions were introduced during the COVID-19 public health emergency (PHE). The notice modifies the guidance found in Notice 2020-15 and provides clarification of Notice 2004-23.

The Chair of the House Ways and Means Committee has recently introduced three tax bills. These bills are slated for consideration by the Committee during the week commencing June 12.  These bills are anticipated to serve as the initial framework for negotiations in crafting a tax bill or bills that could potentially be enacted in 2023.

The bills introduced on Friday, June 9, 2023 are:

• H.R. 3936, “Tax Cuts for Working Families Act”[1]

• H.R. 3937, “Small Business Jobs Act”[2] and

• H.R. 3938, “Build It In America Act”[3]

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.