Lynn Nichols Federal Tax Update Podcast

January, 16 2019, Episode 29

Listen as Lynn Nichols provides commentary on 5 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. IRS Releases Final Instructions for Business Interest Expense Form

The IRS has released final instructions for Form 8990, "Limitation on Business Interest Expense Under Section 163(j)," which helps taxpayers calculate the amount of business interest expense to deduct and the amount to carryforward to the next year.

    [www.irs.gov . . . Form 8990, 1/2/2019]

1. OMB Reverses IRS's Stance on Sequestering AMT Credits

The Office of Management and Budget has determined that corporations with alternative minimum tax credits are entitled to full refunds under the Tax Cuts and Jobs Act, reversing the IRS's position.

[Tax Notes Today; 1/8/2019, Article by Emily L. Foster]

1. Bankruptcy Court Can't Determine Tax Liability of Non-Debtors

A U.S. Bankruptcy Court has dismissed for lack of jurisdiction a complaint seeking a determination that the shareholders of an S corporation in Chapter 7 bankruptcy will not be liable for taxes on certain settlement funds because the court only has jurisdiction to determine the tax liability of debtors, not those who have not filed for bankruptcy.

[A. Wayne Armstrong et al. v. United States; No. 18-01126, US Bnk Ct, M AL, 13-10932, 1/4/2019]

1. Blue Book Serves Restaurants an Answer on Meal Deductions

The restaurant industry got a welcome clarification about deducting employee shift meals in the Joint Committee on Taxation's blue book.

[JCS-1-18, the "Blue Book," at Footnote 940, 12/20/2019]

1. Eleventh Circuit Remands Partnership Case to Tax Court

The Eleventh Circuit vacated a Tax Court decision that held that a couple's and a limited partnership's disposal of their partnership interests was capital, finding that the Tax Court erred in assuming an election was made under a partnership agreement and remanding the case for the Tax Court to determine whether the Danielson rule applies.

[Thomas E. Watts; CA 11; No. 17-15282, 1/10/2019]

Lynn Nichols Federal Tax Update Podcast

January, 8 2019, Episode 28

Listen as Lynn Nichols provides commentary on 4 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. IRS Offers Interim Explanation of New EO Compensation Tax

Tax-exempt organizations that could be subject to a new tax on executive compensation paid to their highest-paid employees have gotten answers to some of their questions.

[Tax Notes Today; 1/2/2019, Article by Fred Stokeld]

Guidance Issued on Excess Executive Comp Tax for Exempt Orgs

The IRS has issued interim guidance (Notice 2019-9) on the section 4960 excise tax on excess remuneration and excess parachute payments made by an exempt organization to a covered employee. The interim guidance, to be followed up by proposed regulations, defines terms under the code section and explains how to report and pay the excise tax.

[Notice 2019-9; 12/31/2019]

1. American Bankers Association Seeks Guidance on Integrated HRAs

The American Bankers Association has posed several questions to the IRS regarding proposed regulations (REG-136724-17) on health reimbursement arrangements, asking the agency to interpret the HRA rules to allow for the best possible coordination with existing health savings account guidance.

[Tax Notes Today; 12/28/2018, Reprint of Letter to IRS]

1. Don't Forget Brownfields Properties in Opportunity Zones, EPA Says

The Environmental Protection Agency has urged the IRS to clarify proposed opportunity zone regulations (REG-115420-18) that investments in the assessment, remediation, and redevelopment of brownfields properties in qualified opportunity zones are included within the scope of qualified opportunity funds.

[Tax Notes Today; 1/3/2019, Reprint of Letter . . . EPA to IRS]

1. IRS Releases Final Version of Form for Business Interest Expense Limitation

The IRS has released the final version of Form 8990, "Limitation on Business Interest Expense Under Section 163(j)."

[www.irs.gov/pub/irs-dft/f8990—dft.pdf . . . 1/3/2019]

Lynn Nichols Federal Tax Update Podcast

October 15, 2018, edition

Listen as Lynn Nichols provides commentary on 4 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. IRS Reproposes Parts of Partnership Audit Regs to Reflect Technical Corrections

The IRS has issued proposed regulations implementing the centralized partnership audit regime, withdrawing and reproposing parts of earlier proposed rules to reflect changes made by the Technical Corrections Act of 2018.

[REG-136118-15; 8/13/2018]

Partnership Audit Rules Make Clear It's 'Go Big or Go Home'

Reproposed regs on the partnership audit rules make clear that the IRS doesn't have to prove that a partnership item would actually affect someone's tax liability to be within the scope of the rules.

[Tax Notes Today; 8/15/2018; Article by Stephanie Cumings]

1. Bank Deposits Analysis Showed Couple Had Unreported Income

The Tax Court, in a summary opinion sustaining accuracy-related penalties, held that the IRS properly used a bank deposits analysis to determine that a couple had unreported income, which the couple failed to contest, and held that the couple failed to provide substantiation for various expense deductions that were disallowed by the IRS.

[Whiteford, Joseph Brian et ux. v. Commissioner; No. 4711-17S; T.C. Summ. Op. 2018-39; 8/13/2018]    

1. Fifth Circuit Affirms Denial of Charitable Deduction for Easement

The Fifth Circuit, affirming a Tax Court decision, held that a partnership wasn't entitled to a $15 million charitable contribution deduction for an easement donation because the contribution didn't meet the perpetuity requirement and the Tax Court didn't err in its valuation of the easement or in the application of a valuation misstatement penalty.

[PBBM-Rose Hill Ltd et al. v. Commissioner; CA 5; No. 17-60276; 8/14/2018]  

1. Real Estate Investor Can't Deduct Business Bad Debts

An investor whose role in a joint venture was to provide capital for a home construction business doesn't qualify as a trade or business and may not deduct business bad debts.

[Yaryan, Terry L. et ux. v. Commissioner; No. 30424-15; T.C. Memo. 2018-129; 8/15/2018]

Lynn Nichols Federal Tax Update Podcast

October 08, 2018, edition

Listen as Lynn Nichols provides commentary on 9 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. Measly Offer in Compromise Doesn't Prevent Approval of Levy on Home

The Eighth Circuit affirmed a district court decision that upheld an IRS levy on an individual's home to satisfy her half million-dollar tax liability, finding that the individual was incorrect in her belief that reg. section 301.6334-1(d)(1) provided that the court couldn't approve the levy until the IRS responded to her $1,000 offer in compromise.

[ Brabant-Scribner, Debora; CA 8; No. 17-2825; 8/17/2018]

1. Non-Grantor Trusts Still Useful in TCJA Planning

Although Treasury effectively shut down tax avoidance strategies that used multiple trusts to take advantage of the new passthrough deduction, setting up at least one non-grantor trust is likely allowed and could still have numerous benefits.

[Tax Notes Today; 8/21/2018; Article by Eric Yauch]

1. Fees Paid to Shareholder-Employees Were Disguised Distributions

The Tax Court held that purported factoring fees and most of the management fees paid to five individual shareholder-employees of C corporations were not deductible expenses of the C corporations but instead were disguised distributions of corporate profits, finding that the factoring fees lacked economic substance and the management fees constituted unreasonable compensation for services.

[Pacific Management Group et al. v. Commissioner; No. 6411-07; No. 6412-07; No. 6413-07; No. 6414-07; No. 6494-07; No. 6498-07; No. 6499-07; No. 6592-07; No. 6593-07; No. 6594-07; No. 6596-07; T.C. Memo. 2018-131; 8/20/2018]

[See also attached article by Kristen A. Parillo . . . DOC 2018-33960]

1. IRS Open to Change of Partnership Treatment in Bonus Rules

The IRS and Treasury Department addressed the outstanding partnership issues in the proposed bonus deprecation regulations, but that doesn't mean they can't be persuaded to change positions in the final rules.

[Tax Notes Today; 8/22/2018; Article by Eric Yauch]

1. IRS Issues TCJA Guidance on UBTI for Separate Trades or Businesses

The IRS has requested comments and provided interim guidance and transition rules regarding section 512(a)(6), which requires an exempt organization with more than one unrelated trade or business to calculate unrelated business taxable income separately for each trade or business.

[ Notice 2018-67; 2018-36 IRB 409; 8/21/2018]

1. Basis Limitation in 199A Regs Creates Compliance Conundrums

Taxpayers with property that is no longer depreciable could face headaches in navigating the basis limits on passthrough deductions in the proposed section 199A regulations.

[Tax Notes Today; 8/23/2018; Article by Eric Yauch]

1. Accounting Method Guidance Modified for Some Terminated S Corps

The IRS has modified the automatic changes list for accounting methods to reflect the addition of section 481(d) by the Tax Cuts and Jobs Act (P.L. 115-97), which provides rules on adjustments required by section 481(a)(2) that are attributable to some revocations of S corporation elections under section 1362(a).

[Rev. Proc. 2018-44; 2018-37 IRB 426; 8/22/2018]

S Corp Termination Guidance Offers Clarity on Method Changes

Some terminated S corporations that change from a cash method to an accrual method of accounting may take into account positive or negative adjustments ratably over a six-year period under a new IRS revenue procedure.

[Tax Notes Today; 8/23/20`18; Article by Marie Sapirie]

1. IRS Clarifies Interplay of SALT Credits, Federal Tax Rules

The IRS has announced the release of proposed regulations (REG-112176-18) that clarify the relationship between state and local tax credits and the federal tax rules for charitable contribution deductions.

[IR-2018-172; 8/23/2018]

Proposed SALT Regs Require Reductions to Charitable Deductions

The IRS has published proposed regulations providing that a taxpayer who makes payments or transfers property to an entity listed in section 170(c) must reduce their charitable contribution deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.

[REG-112176-18; 83 F.R. 43563-43571; 2018-37 IRB 430; 8/27/2018]

1. Tax Court Reins In Couple Using Horse-Breeding to Create Losses  

The Tax Court held that a couple that tried to offset all their income with horse-leasing expenses prepaid with sham loans was not entitled to loss deductions as part of a horse-breeding operation. The court found their purported horse-breeding activity was not a trade or business and sustained section 6662(a) penalties for two of the three tax years at issue.

[Householder, Scott A.; No. 19150-10; No. 6541-12; T.C. Memo. 2018-136; 8/23/2018]

Lynn Nichols Federal Tax Update Podcast

October 02, 2018, edition

Listen as Lynn Nichols provides commentary on 6 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. New Loss Limitation Hard to Calculate, Interpret With Other Rules

The main focus of discussions on the Tax Cuts and Jobs Act has been the Section 199A passthrough deduction, but less talked about is a loss limitation that could have consequences for start-ups and real estate projects.

[Tax Notes Today; 8/27/2018; Article by Eris Yauch]

1. Combat-Zone Contractors Qualify for Foreign Earned Income Exclusion

Contract support for the military in designated combat zones may now qualify for the foreign earned income exclusion because of a change in the tax home requirement under the Bipartisan Budget Act of 2018.

[IR-2018-173; 8/24/2018]

1. Stock Transfer Under Divorce Decree Won't Affect S Corp Tax Status

An S corporation won't be considered to have a second class of stock in violation of federal tax rules solely because shares of its stock will be transferred to a trust under a divorce decree.

[LTR 201834007; 5/18/2018; rel. 8/24/2018]

1. Remaining Value Prevents Worthless Investment Deduction

An individual's investments in a dozen special purpose entities holding real estate ventures were not worthless on December 31, 2008, and thus not deductible for 2008, because of evidence of value that would be lost in the event of foreclosure and because the entities successfully renegotiated their construction loans through 2011.

[Forlizzo, Robert et ux.; T.C. Memo. 2018-137; 8/27/2018]

1. Guidance Clarifies Definition of Qualifying Relative, Exemption Amount

IRS and Treasury will issue proposed regulations clarifying the definition of "qualifying relative" under section 152(d) for purposes of various tax code provisions, including the new $500 credit for other dependents and head of household filing status for tax years in which the section 151(d) exemption amount is zero.

[Notice 2018-70; 2018-38 IRB 441; 8/28/2018]

1. Tax Court Says Individual's Debt Cancellation Income Is Taxable

An individual failed to provide evidence that his cancellation of debt income was not taxable because of insolvency or because the loan related to the debt was secured by his principal residence. The Tax Court upheld additions to tax and penalties for failure to timely file.

[Smethers, Daniel; T.C. Memo 2018-140; 8/29/2018]

Lynn Nichols Federal Tax Update Podcast

August 20, 2018, edition

Listen as Lynn Nichols provides commentary on 8 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. Final Regs Provide Substantiation Rules for Charitable Contributions

The IRS has issued final regulations on the substantiation and reporting rules for charitable contributions at various monetary thresholds and for donated clothing and household items. The final regs also address the new definitions of qualified appraisal and qualified appraiser for noncash contributions and recordkeeping requirements for all cash contributions.

[T.D. 9836; 7/27/2018] 

1. Tax Court Correctly Dismissed Employment Tax Liability Challenge

The Eighth Circuit held that the Tax Court properly dismissed on jurisdictional grounds an attorney's claim that he did not owe additional employment tax on payments he received as the sole owner and officer of an S corporation, finding that because there was no actual controversy involving a determination that he was an employee for FICA purposes, the Tax Court was deprived of jurisdiction.

[Azarian, Martin S. P.A. v. Commissioner; CA 8; No. 17-2134; 7/27/2018]  

Eighth Circuit Sides With IRS in Employment Tax Dispute

Challenges to reasonable compensation determinations for S corporations must allege taxpayer employment issues for the Tax Court to have jurisdiction.

[Tax Notes Today; 7/31/2018; Article by Eric Yauch]

1. Horse Breeding Organization Is Denied Exemption

The IRS denied an organization's application for tax-exempt status because its primary activity, conducting a horse breeding program, does not further exempt purposes and the organization serves the private interests of horse breeders.

[LTR 201830023; 5/1/2018; rel. 7/27/2018]

1. IRS Revokes Exempt Status of Social Horse Club

The IRS revoked the tax-exempt status of a social club organized to promote interests in horses and horsemanship because its investment and non-member income exceeded the 35 percent threshold, and its non-member income exceeded the 15 percent threshold on a regular basis.

[LTR 201830018; 1/11/2018; rel. 7/27/2018]   

1. IRS Isn't Exercising Its Authority Over Unregulated Preparers

The IRS failed to assess more than $121 million in preparer tax identification number penalties, despite evidence of "incompetent and unscrupulous" conduct by unregulated return preparers.

[Tax Notes Today; 7/31/2018; Article by William Hoffman]

1. Tax Court Finds Individual's Mary Kay Activity Wasn't for Profit

The Tax Court, sustaining accuracy-related penalties, held that an individual didn't engage in her Mary Kay consulting activity for profit but attempted to shelter her taxable wage income by deducting otherwise nondeductible personal expenses, such as trips to Disney World and Europe, as business expenses.

[Nix, Kimberly S. v. Commissioner; No. 4000-16; T.C. Memo. 2018-116; 7/30/2018]

1. Debate Over Parsonage Allowance Continues in Dueling Briefs

Supporters of a 64-year-old tax break for clergy housing are continuing their fight to preserve it after a court declared it unconstitutional last fall.

[Tax Notes Today; 8/1/2018; Article by Fred Stokeld]

Clergy Urge Court to Hold Rental Allowance Constitutional

In a reply brief for the Seventh Circuit, a group of ministers and churches argued that section 107, which allows ministers to exclude from income a rental allowance paid as part of their compensation, is constitutional because it is an exemption and not a transfer of funds and because it applies the convenience-of-the-employer doctrine to ministers.

[Annie L. Gaylor et al. v. Steven T. Mnuchin et al.; No. 18-1277; No. 18-1280; 7/30/2018]

1. Yacht Deductions Disallowed, but Penalties Deep-Sixed

The Tax Court jettisoned a taxpayer's claim that his sport fishing yacht deductions were marketing expenses but chose not to weigh him down with accuracy penalties.

[Tax Notes Today; 8/3/2018; Article by Kristen Parillo]

Property Developer Fishing for Yacht Deductions Comes up Empty-Handed

The Tax Court held that a Florida property developer wasn't entitled to deduct expenses for a fishing yacht that he claimed was a marketing tool, finding that the expenses were for entertainment and he failed to provide substantiation. The court didn't impose accuracy-related penalties because the IRS failed to show supervisory approval.

[Becnel, Damon R. v. Commissioner; No. 14707-14; T.C. Memo 2018-120; 8/2/2018]

Lynn Nichols Federal Tax Update Podcast

August 13, 2018, edition

Listen as Lynn Nichols provides commentary on 8 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. IRS Likely to Trounce 199A Trust Planning Strategy

Wealth planning advisers eager to help their clients take advantage of the new passthrough deduction by setting up multiple non-grantor trusts to claim multiple deductions may soon have to undo all that effort.

[Tax Notes Today; 7/23/2018; Article by Jonathan Curry]

1. Group Fails to Meet Operational Test; Exempt Status Revoked

The IRS revoked the tax-exempt status of a group that promoted tourism and improved the conditions of the tourism business environment of a particular area, finding that the group wasn't operated exclusively for charitable purposes.

[LTR 201829015; 1/16/2018; rel. 7/20/2018]

1. IRS May Rely On, but Not Adopt, Grouping Rules in 199A Regs

The IRS may look to the passive activity loss grouping and material participation rules when drafting the passthrough deduction regulations, but it isn't likely to completely adopt them.

[Tax Notes Today; 7/24/2018; Article by Eric Yauch]

1. Partners Agreed to Extension of Limitations Period for Assessment

The Tax Court, in a Son-of-BOSS case, held that Forms 872-I signed by two partners extended the limitations period for the IRS to assess taxes against them attributable to partnership items, noting that the IRS forms didn't extend the statute for returns but for the assessment of income tax due on those returns.

[Inman Partners et al. v. Commissioner; No. 15953-06; T.C. Memo 2018-114; 7/23/2018] 

1. Shareholders Liable for Transaction Lacking Economic Substance

The Ninth Circuit reversed a Tax Court decision involving an asset and stock sale and a third party that was designed as a tax avoidance scheme. 

[Tax Notes Today;7/25/2018; Article by Emily Foster]      

Former Shareholders Liable for Taxes on Asset Sale as Transferees

The Ninth Circuit, reversing a Tax Court decision, held the former shareholders of a closely held corporation liable as transferees for the taxes owed on the proceeds from an asset sale, finding that a stock sale transaction lacked economic substance beyond tax avoidance and the former shareholders are liable for the taxes under applicable state law.

[Slone, Norma L. et al. v. Commissioner; No. 16-73349; No. 16-73351; No. 16-73354; No. 16-73356; 7/24/2018]

1. IRS Argues $33 Million Charitable Deduction Decision Was Correct

The IRS's denial of a $33 million charitable deduction was intended to halt a scheme in which multiple taxpayers claimed a deduction for the same property.

[Tax Notes Today; 7/25/2018; Article by Eric Yauch]

       Government Argues Tax Court Properly Denied Charitable Deduction

In a brief for the D.C. Circuit, the government argued that the Tax Court correctly held that a partnership wasn't entitled to a $33 million charitable contribution deduction because it failed to comply with substantiation requirements and the Tax Court correctly held that accuracy-related penalties apply to any resulting underpayment.

        [Jeff Blau v. Commissioner; USDC DC; Gov. Brief; No. 17-1266; 7/23/2018]

1. (a)OPR Reaches Settlement Agreement With Enrolled Agent

The IRS has announced that the Office of Professional Responsibility and a tax practitioner who violated rules of conduct under Circular 230 have reached a settlement agreement that includes a monetary penalty.

[IR-2018-155; 7/25/2018]

(b) OPR Censures Practitioner for Providing Misleading Information

The IRS has announced that a tax practitioner was censured by the Office of Professional Responsibility for violating conflict of interest rules under Circular 230.

[IR-2018-154; 7/25/2018]

1. Husband Relieved From Tax on Some of Wife's Embezzlement Income

The Tax Court held that an individual is entitled to innocent spouse relief from taxes attributable to income his wife embezzled during one of two tax years, finding that although he lacked actual knowledge of the embezzlement when they filed their return that year, he learned of it when she was arrested before they filed the following year.

[Jacobsen, Rick E. v. Commissioner; No. 25348-15; T.C. Memo. 2018-115; 7/25/2018]

Lynn Nichols Federal Tax Update Podcast

August 06, 2018, edition

Listen as Lynn Nichols provides commentary on 5 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. Commitment Fees Paid on Revolving Credit Agreement May Be Deducted

In field attorney advice, the IRS concluded that a taxpayer may deduct quarterly commitment fees it paid on its revolving credit agreement in the tax year in which they were incurred.

[Tax Notes Today; FAA 20182502F, 4/11/2018, rel.6/26/2018.]

1. Widow Who Didn't Face Economic Hardship Denied Spousal Relief

The Tax Court denied a widow innocent spouse relief from joint tax liabilities with her late husband who unbeknown to her had failed to pay their taxes, finding that it was not unfair to hold her liable for the taxes because it did not cause her economic hardship and the tax payments were funded by her husband's life insurance proceeds.

[Hale, Kimberly R. v. Commissioner; No. 18664-14; No. 10262-15; T.C. Memo. 2018-93, 6/26/2018]

1. IRS Revocation of ESOP Determination Was Abuse of Discretion

The Tax Court held that the IRS abused its discretion by revoking a final determination letter that said a corporation's employee stock ownership plan was qualified under section 401(a) and that the ESOP's related trust was exempt from tax under section 501(a).

[Val Lanes Recreation Center Corp. v. Commissioner; No. 24887-10R; T.C. Memo. 2018-92, 6/26/2018]

1. Couple Denied Dependency, Foster Care Business Deductions

The Tax Court, in a summary opinion sustaining an accuracy-related penalty on some underpayments, held that a couple wasn't entitled to a dependency exemption deduction for the wife's father who lived in the Philippines and that they weren't entitled to deductions for their foster care activity beyond those allowed by the IRS.

[Kho, Rodrigo et ux. v. Commissioner; No. 7720-17S; T.C. Summ. Op. 2018-32, 6/27/2018]

1. Lack of Economic Substance Leads to Disallowed Partnership Losses

The Tax Court, in consolidated partnership cases, sustained the IRS's disallowance of losses from transactions involving paired foreign currency options for lack of economic substance, but did not sustain accuracy-related penalties because the IRS failed to obtain written supervisory approval as required under section 6751.

[Endeavor Partners Fund LLC et al. v. Commissioner; No. 8698-12; No. 8710-12; No. 8721-12; No. 8846-12; No. 9975-12; No. 11290-12; No. 12591-12; T.C. Memo. 2018-96, 6/28/2018]

Lynn Nichols Federal Tax Update Podcast

July 23, 2018, edition

We are back after a short hiatus! Listen as Lynn Nichols provides commentary on 8 Items pertaining to current developments in U.S. tax law. This week's topics include:

1. How to Decide Whether an S Corp Is a Corporation

In news analysis, Marie Sapirie discusses whether Treasury has the authority to say that an S corporation isn't a corporation for purposes of the carried interest provision in the Tax Cuts and Jobs Act.

[Tax Notes Today; 7/16/2018, Article by Marie Sapirie   

1. IRS to Issue Regs on Suspension of Miscellaneous Itemized Deductions

The IRS has announced its intention to issue regulations clarifying how newly enacted section 67(g), which eliminates miscellaneous itemized deductions for tax years beginning after December 31, 2017, and before January 1, 2026, affects the deductibility of some expenses that are incurred by estates and non-grantor trusts.

[Notice 2018-61; 2018-31 IRB 1; 7/13/2018]   

1. IRS Drops Donor Disclosure Requirements

Most types of tax-exempt organizations will no longer have to disclose identifying information about their donors, the Treasury Department and IRS announced late July 16.

[ Rev. Proc. 2018-38; 7/16/2018]   

1. Expect 199A Guidance in 'Weeks, Not Months,' Kautter Says

Tax practitioners should expect a raft of new IRS guidance in coming weeks resulting from changes wrought by the 2017 tax bill, according to acting IRS Commissioner David Kautter.

[Tax Notes Today; 7/18/2018; Article by William Hoffman]   

1. IRS Gives Tax Pros 6 Safeguards to Protect Taxpayer Data

The IRS and its Security Summit partners have outlined the "security six" safeguards for tax professionals to use to protect sensitive taxpayer data stored on practitioners' computers, noting that many of the safeguards are also useful for any taxpayer or small business.

[Information Release, IR-2018-150, 7/17/2018]   

1. IRS Highlights Pitfalls of New Due Diligence Requirement

The IRS is warning tax return preparers to be wary of married taxpayers trying to claim head of household status, especially given the tax law's new due diligence requirement.

[Tax Notes Today; 7/19/2018; Article by Stephanie Cumings] 

1. Wife Can't File Separate Returns for Refunds After Joint Filings

A U.S. district court held that joint returns an individual's husband filed by signing her name without her knowledge or consent were valid returns because she left all tax matters to her husband and intended to file joint returns with him; the court held that she could not replace the valid joint returns with separate returns seeking refunds.

[Coggin, Alice J. v. United States; USDC Mid NC;  No. 1:16-cv-00106; 7/17/2018]

Lynn Nichols Federal Tax Update Podcast

July 16, 2018, edition

We are back after a short hiatus! Listen as Lynn Nichols provides commentary on 8 Items pertaining to current developments in U.S. tax law. This week's topics include:

OUR PROGRAM THIS WEEK INCLUDES . . . . . .

1. Termination of S Corp Election Inadvertent

The IRS ruled that a company will be treated as continuing to be an S corporation from the date its subchapter S election was inadvertently terminated when a trust became an ineligible shareholder, provided some conditions are met.

[LTR 201824003; 10/27/2017, rel. 6/15/2018]

(FIVE LIKE THIS IN SAME WEEK ! ! !)

1. IRS Scraps Leveraged Partnership Rules, Keeps Bottom-Dollar Ban

The IRS is reverting to old rules on leveraged partnerships in response to an executive order calling for the removal of burdensome regulations, but bottom-dollar guarantees didn't make the cut.

[Tax Notes Today; June 19,2018, article by Eric Yauch]

IRS Proposed Disguised Sales Regs Would Reinstate Prior Regs

The IRS has published proposed regulations on the allocation of partnership liabilities for disguised sales, adding that if finalized, the proposed regs would reinstate prior final regs on allocations of excess nonrecourse liabilities of a partnership. 

[REG-131186-17; 83 F.R. 28397-28401; 6/19/2018]

1. Medical Marijuana Business Can't Claim Deduction for Wages

The Tax Court held that deductions for wages a couple received from their medical marijuana S corporation weren't attributable to cost of goods sold and are disallowed under section 280E as attributable to trafficking a controlled substance, rejecting the couple's claim that denial of the deduction is discriminatory.

[Loughman, Jesse M.; No. 21464-15; T.C. Memo. 2018-85, 6/18/2018]

1. Decedent Held Rights to Cash Surrender Value of Life Insurance

The Tax Court refused to hold that sections 2036 and 2038 are inapplicable in valuing a decedent's interests in three split-dollar life insurance agreements to the cash surrender value at the date of death because the bona fide sale exception was not satisfied and held that summary judgment on inapplicability of section 2703 was inappropriate.

[Cahill, Estate of Richard F.; No. 10451-16; T.C. Memo 2018-84, 6/18/2018]

1. Microcaptive Insurer Case Leaves Open Questions

The Tax Court granted the IRS another victory June 18, adding to the agency's arsenal for combating abusive captive insurance arrangements, but the opinion failed to offer additional guidance for taxpayers. 

[Tax Notes Today; 6/20/2018, Article by Emily Foster]

1. Property Manager Was Employee; Company Hit With Employment Taxes

The Tax Court held that the property manager for a company that operated an apartment complex was an employee and not an independent contractor and held the company liable for employment taxes, additions to tax, and penalties; the court held that the company wasn't entitled to relief under section 530 of the Revenue Act of 1978.

[Hampton Software Development LLC; No. 30231-13L; T.C. Memo. 2018-87, 6/19/2018]

1. Fraudulent Filer Can't Avoid Penalties With Amended Returns  

The Tax Court held that an individual who admitted to filing fraudulent returns but who later filed amended returns reporting additional income was still liable for the penalties, finding that he could not avoid fraud penalties by filing amended returns because an amended return doesn't purge the original fraudulent filing or fraudulent intent.

[Gaskin, Gary et al. v.; No. 7475-17; T.C. Memo. 2018-89; 6/20/2018]

1. S. Supreme Court Overturns Quill, Freeing States to Tax Online Sales

The U.S. Supreme Court held June 21 in South Dakota v. Wayfair Inc. that the physical presence standard in Quill Corp. v. North Dakota is "unsound and incorrect," freeing states to require tax collection on remote sales.

[Tax Notes Today; 6/22/2018, Article by Jad Chamseddine]

[South Dakota v. Wayfair Inc.; No. 17–494]