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Tax and Accounting Research: Tax Updates November 2020 - March 2020

November 2020

Accounting

IRS Issues December 2020 Applicable Federal Rates: In Rev. Rul. 2020-26, the IRS issued a ruling which prescribes the applicable federal rates for December 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

IRS issues November 2020 Applicable Federal Rates: In Rev. Rul. 2020-22, the IRS issued a ruling which prescribes the applicable federal rates for November 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate..

Bankruptcy

Court Erred in Finding Father's Security Interest Was Not Entitled to Priority Status: In U.S. v. Allahyari, 2020 PTC 353 (9th Cir. 2020), a Ninth Circuit panel reversed a district court's determination that a taxpayer's alleged security interest in property owned by his son, a tax delinquent, was not entitled to priority over later-recorded federal tax liens and remanded the case to the district court for reconsideration. The panel held that the district court erred by: (1) holding that the deed of trust between father and son was not entitled to priority over the later-recorded federal tax liens under local law; and (2) failing to consider whether past consideration was sufficient to support an agreement giving rise to a security interest under Washington state law.

IRS Not Entitled to Priority Status for Couple's Shared Responsibility Payment: In In re Huenerberg, 2020 PTC 337 (E.D. Wisc. 2020), a district court upheld a bankruptcy court's decision that the IRS was not entitled to priority treatment for its claim for taxes relating to a couple's shared responsibility payment under Code Sec. 5000A, which was enacted as part of the Patient Protection and Affordable Care Act. The court agreed with the bankruptcy court and the debtors that the shared responsibility payment is a penalty, not a tax, and thus the IRS's claim relating to that penalty was not eligible for priority status.

Deductions

Court Allows Charitable Deduction for Easements That Imposed Material Restrictions: In Kissling v. Comm'r, T.C. Memo. 2020-153, the Tax Court held that, because facade easements contributed by a couple imposed material restrictions that lowered the value of the three buildings on which the easements were contributed, the taxpayers were entitled to a charitable contribution deduction for the easements. In addition, because the Tax Court determined that the value of the easements claimed on the taxpayers' returns was only 15 percent more than the value determined by the Tax Court, the couple was not liable for penalties assessed by the IRS under Code Sec. 6662(h).

Failure to Meet All-Events Test Precludes Deduction of Accrued Production Costs: In Morning Star Packing Company, LP v. Comm'r, T.C. Memo. 2020-142, the Tax Court held that two partnerships, which provide bulk-packaged tomato products to food processors and customer-branded finished products to the food service and retail trades, could not increase their cost of goods sold for the amount of accrued production costs because (1) the partnerships had not shown that all events had occurred to establish the fact of the liabilities, and (2) economic performance had not occurred with respect to the liabilities. The court also rejected the partnerships' assertion that multi-year production contracts with various customers established the fact of their liabilities because, the court found, the partnerships' efforts to comply with their customers' specifications were production-run specific and the accrued production costs in issue were for goods and services provided after the production runs.

No Deduction for Easement That Failed to Protect Conservation Purposes in Perpetuity: In Glade Creek Partners v. Comm'r, T.C. Memo. 2020-148, the Tax Court held that a partnership (1) was not entitled to a charitable contribution deduction for a conservation easement contributed to a charitable organization because the deed of easement did not protect the conservation purposes in perpetuity as required by Code Sec. 170(h)(5), but (2) was entitled to deduct a $35,077 cash charitable contribution that the IRS had denied. The court also sustained a 20 percent accuracy-related penalty assessed against the partnership for a substantial valuation misstatement for the adjustment in excess of the easement's fair market value, but rejected the assessment of a 20 percent penalty on the remainder of the adjustment.

Estates, Gifts, and Trusts

Estate Owes $6.4 Million for Decedent's Failure to File FBARs: In U.S. v. Est. of Danielson, 2020 PTC 352 (M.D. Fla. 2020), a district court granted the government's request for a default judgment against a decedent's estate for civil penalties and fees of more than $6.4 million as a result of the decedent's failure to file foreign bank account reports (FBARs). The court noted that the decedent had filed FBARs in 1994 and 1995 thus proving that he knew of his obligation to file an FBAR in subsequent years, but yet had, under penalty of perjury and with knowledge of his bank accounts in Lichtenstein and Canadian, checked "no" on his tax returns when asked if he had a foreign bank account which, the court said, proved that he acted willfully in failing to report his ownership and interests in his foreign bank accounts.

Income

Taxpayer Entitled to Refund Where Stock Received in a Lawsuit Was Overvalued by IRS: In Lucero v. U.S., 2020 PTC 344 (D. N.M. 2020), a district court held that a taxpayer was entitled to a refund for income taxes she paid as a result of the fair market value of stock she received in a legal settlement being overvalued at $2.38 per share when $0.57 per share was the correct fair market value. The court found that the valuation by the taxpayer's expert was more accurate than the IRS's expert and that it was proper for the taxpayer's expert to use his professional judgment and value the stock at fair market value, rather than fair value, and to apply an 18 percent discount for marketability and a 25 percent discount for minority status.

Innocent Spouse Relief

Taxpayer Prevented from Participating in Tax Prep Entitled to Innocent Spouse Relief: In Leith v. Comm'r, T.C. Memo. 2020-149, the Tax Court held that a taxpayer was entitled to relief from joint and several liability pursuant to Code Sec. 6015(f) to the extent of the tax items attributable to her ex-husband. Because the ex-husband's controlling and abusive behavior hindered the taxpayer's ability to question the understatements of income and the underpayment of tax, the taxpayer satisfied the lack of knowledge requirement for the years at issue even if she had actual or constructive knowledge of the understatements of income and tax underpayment.

Insurance Companies

IRS Issues Discount Factors for 2020 Accident Year: In Rev. Proc. 2020-48, the IRS prescribes discount factors for the 2020 accident year for use by insurance companies in computing discounted unpaid losses under Code Sec. 846 and discounted estimated salvage recoverable under Code Sec. 832. The revenue procedure also provides discount factors for losses incurred in the 2019 accident year and earlier accident years for use in tax years beginning in 2020.

Partnerships

Chief Counsel Addresses Civil Fraud Penalty Determinations for BBA Partnerships: In CCA 202044009, the Office of Chief Counsel advised that procedures for determining the applicability of the civil fraud penalty against a partnership subject to the Bipartisan Budget Act of 2015 (BBA) that participated in a syndicated conservation easement (SCE) transaction are the same as those for establishing civil fraud against a partnership subject to BBA generally; i.e., through all facts and circumstances that establish the willful intent to evade tax at the partnership level. Under BBA, the Chief Counsel's Office stated, if the IRS determines a civil fraud penalty at the partnership level, then the partnership is liable for the penalty on any imputed underpayment computed on the adjustments for that tax year or, if the partnership elects to push out the adjustments, the reviewed year partners are liable for the fraud penalty on any correction amount that is greater than zero.

Procedure

Certain IRS Telephonic Hearings Extended: In Rev. Proc. 2020-49, the IRS provides temporary guidance regarding the public approval requirement under Code Sec. 147(f) for tax-exempt qualified private activity bonds. Specifically, in light of the continuing Coronavirus Disease 2019 (COVID-19) pandemic, the revenue procedure extends until September 30, 2021, the time period described in Section 4.02 of Rev. Proc. 2020-21, during which certain telephonic hearings are permitted.

IRS Lien Has Priority over Homeowner's Association Lien: In Shirehampton Drive Trust v. Dept. of Treasury, 2020 PTC 347 (9th Cir. 2020), the Ninth Circuit affirmed a district court and held that IRS tax liens placed on a delinquent taxpayer's condominium have priority over a homeowner's association (HOA) lien because the HOA lien was not perfected at the time that the IRS recorded its notice of tax liens. The court rejected the HOA's assertion that its lien became choate as soon as the taxpayer failed to make an on-time payment because, the court noted, the relevant date for choateness purposes is the date of the first administrative step and the HOA took no administrative step to establish the lien until after the IRS recorded its notice of tax liens.

Statute Remains Open for Taxpayer Who Filed Numerous False Withholdings: In CCA 202044007, the Office of Chief Counsel advised that the statute of limitations does not bar assessment of a Code Sec. 6676 penalty in a situation in which, more than three years ago, a taxpayer filed an income tax return claiming a substantial number of false withholdings, resulting in an erroneous refund. Because the claiming of the withholdings was fraudulent, the Chief Counsel's Office said, the statute of limitations does not bar assessment of the Code Sec. 6676 penalty.

Retirement Plans

Distribution from SEP-IRA to Taxpayer Was Taxable Even Though Repaid: In Ball v. Comm'r, T.C. Memo. 2020-152, the Tax Court held that a taxpayer, who caused his SEP-IRA to lend $209,600 to a limited liability company (LLC) which he controlled, had to include the distribution in gross income, even though it was repaid with interest, because the taxpayer had unfettered control over the distribution. Further, because the taxpayer was not 59 1/2 years of age, he was liable for the 10 percent additional tax under Code Sec. 72(t), as well as an accuracy-related penalty.

IRS Implements Extended Due Date for Contributions to Defined Benefit Plans: In Notice 2020-82, the IRS said it will treat a contribution to a single-employer defined benefit pension plan with an extended due date of January 1, 2021 pursuant to Section 3608(a)(1) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as timely if it is made no later than January 4, 2021 (which is the first business day after January 1, 2021). According to the IRS, the extension of the due date for contributions covered by Section 3608(a)(1) of the CARES Act is intended to allow employers sponsoring these plans to defer these payment obligations until calendar year 2021 and that the deferral of these payment obligations until calendar year 2021 will help employers to alleviate an additional adverse impact on their businesses that were already harmed by the COVID-19 pandemic.

Final Regs Update Life Expectancy and Distribution Period Tables: In T.D. 9930, the IRS issued final regulations relating to the life expectancy and distribution period tables that are used to calculate required minimum distributions from qualified retirement plans, individual retirement accounts and annuities, and certain other tax-favored employer-provided retirement arrangements. These regulations affect participants, beneficiaries, and plan administrators of these qualified retirement plans and other tax-favored employer-provided retirement arrangements, as well as owners, beneficiaries, trustees and custodians of individual retirement accounts and annuities and apply to distribution calendar years (as defined in Reg. Sec. 1.401(a)(9) - 5, Q&A - 1(b)), beginning on or after January 1, 2022.

IRS Seeks Comments on Application of Annuity and Spousal Rights Provisions in ERISA: In Notice 2020-80, the IRS is requesting comments on the application of the annuity and spousal rights provisions of Section 205 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), in connection with a distribution of an individual custodial account (ICA) in kind from a terminating Code Sec. 403(b) plan. The IRS noted that, although no Code Sec. 403(b) plans are subject to the annuity and spousal rights provisions of Code Sec. 401(a)(11) and Code Sec. 417, some Code Sec. 403(b) plans that are subject to ERISA (such as a plan of a non-church tax-exempt employer that provides for matching contributions) are subject to the parallel annuity and spousal rights provisions of Section 205 of ERISA.

IRS Rules on Distributions Upon a Termination of a Section 403(b) Plan: In Rev. Rul. 2020-23, the IRS addressed two situations involving a Code Sec. 403(b) retirement plan, which is funded by Code Sec. 403(b)(7) custodial accounts, and whether the plan was terminated in accordance with the rules of Reg. Sec. 1.403(b)-10(a) upon taking certain actions. With respect to a distribution by the plan of an individual custodial account (ICA) in kind to a participant or beneficiary, the IRS ruled that such distribution is not includible in the participant's or the beneficiary's gross income until amounts are actually paid out of the ICA, so long as the ICA maintains its status as a Code Sec. 403(b)(7) custodial account, and any other amount distributed from a custodial account to a participant or beneficiary to effectuate a termination of the plan is includible in gross income, except to the extent the amount is rolled over to an individual retirement account or other eligible retirement plan by a direct rollover or by a transfer made within 60 days.

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-81, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

October 2020

C Corporations

IRS Issues Final Consolidated Return Regulations: In T.D. 9927, the IRS issued final regulations under Code Sec. 1502 and Code Sec. 1503. The regulations (1) provide guidance implementing recent statutory amendments to Code Sec. 172 relating to the absorption of consolidated net operating loss carryovers and carrybacks, and (2) update regulations applicable to consolidated groups that include both life insurance companies and other companies to reflect statutory changes.

CARES Act

IRS Cannot Withhold Recovery Rebate Payments from Incarcerated Individuals: In Scholl v. Mnuchin, 2020 PTC 308 (N.D. Cal. 2020), a district court held that the Department of Treasury and the IRS cannot withhold recovery rebate payments (also known as economic impact payments), which were authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), from individuals on the sole basis of those individuals being incarcerated. The court gave the Treasury Department 30 days to reconsider any claim filed through the "non-filer" online portal or otherwise that was previously denied solely on the basis of the claimant's incarcerated status and ordered the Treasury Department to, within 45 days, file a declaration confirming all steps ordered by the court have been implemented.

Lenders Should Not File Information Returns for Loans Forgiven under PPP: In Announcement 2020-12, the IRS notified lenders that they should not file information returns or furnish payee statements under Code Sec. 6050P to report the amount of qualifying forgiveness with respect to covered loans made under the Paycheck Protection Program (PPP), a program authorized by the CARES Act. According to the IRS, when all or a portion of the stated principal amount of a covered loan is forgiven because the eligible recipient satisfies the applicable forgiveness requirements, an applicable entity is not required to, for federal income tax purposes only, and should not, file a Form 1099-C, Cancellation of Debt, information return with the IRS or provide a payee statement to the eligible recipient under Code Sec. 6050P as a result of the qualifying forgiveness.

Deductions

Personal Bankruptcy Petition Can't Be Used to Substantiate Business Expenses: In Ronning v. Comm'r, 2020 PTC 322 (11th Cir. 2020), the Eleventh Circuit affirmed the Tax Court and held that a taxpayer, whose business records were destroyed after he failed to pay storage fees at the facility where he kept his records, could not use his personal bankruptcy petition to substantiate business expenses in the form of interest that he contended had accrued on 12 bank loans listed as unsecured debts in the petition. The court also agreed with the Tax Court that the taxpayer was a cash method taxpayer and thus could not deduct expenses for interest that accrued but were never paid.

No Theft Loss Deduction Allowed; Loss Wasn't Claimed in "Discovery" Year: In Giambrone v. Comm'r, T.C. Memo. 2020-145, the Tax Court held that two brothers, who went into business together and founded a bank, were not entitled to a theft loss deduction under Rev. Proc. 2009-20 on their 2012 tax returns as a result of actions by a bank officer who looted the bank and forced it into receivership. The court concluded that, because the indictment of that bank officer happened in 2010, that was the year the loss was discovered for purposes of Rev. Proc. 2009-20.

Employee Benefits

IRS Issues 2021 Inflation-Adjusted Maximum Dollar Amount for Excepted Benefit HRAs: In Rev. Proc. 2020-43, the IRS issued the inflation-adjusted maximum dollar amount that may be made newly available for excepted benefit health reimbursement arrangements or other account-based group health plans for plan years beginning after December 31, 2020, and before January 1, 2022. Due to indexing methodology requiring rounding down to the nearest $50 increment, the amount remains $1,800 for the 2021 plan year.

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-77, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

Excise Taxes

Final Regs Provide Guidance on Excise Tax on Certain Colleges and Universities: In T.D. 9917, the IRS issued final regulations for determining the excise tax under Code Sec. 4968, as enacted by the Tax Cuts and Jobs Act of 2017, on the net investment income of an applicable educational institution. The final regulations provide that an "applicable educational institution" is any eligible educational institution (as defined in Code Sec. 25A(f)(2) and Reg. Sec. 1.25A-2(b)(1) that had at least 500 tuition-paying students attending the institution during the preceding tax year; (2) more than 50 percent of whose tuition-paying students are located in the United States; (3) that is not described in the first sentence of Code Sec. 511(a)(2)(B) (relating to state colleges and universities); and (4) the aggregate fair market value of the assets of which at the end of such preceding tax year (other than those assets that are used directly in carrying out the institution's exempt purpose) is at least $500,000 per student attending the institution.

Foreign

IRS Modifies Source-of-Income Rules: In T.D. 9921, the IRS issued final regulations modifying the rules for determining the source of income from sales of inventory produced within the United States and sold without the United States or vice versa. The final regulations also (1) contain new rules for determining the source of income from sales of personal property (including inventory) by nonresidents that are attributable to an office or other fixed place of business that the nonresident maintains in the United States, and (2) modify certain rules for determining whether foreign source income is effectively connected with the conduct of a trade or business within the United States.

Final Regulations Address Multiple Foreign-Related Tax Issues: In T.D. 9922, the IRS issued final regulations addressing the following issues: (1) the allocation and apportionment of deductions under Code Sec. 861 through Code Sec. 865, including rules on the allocation and apportionment of expenditures for research and experimentation, stewardship, legal damages, and certain deductions of life insurance companies; (2) the allocation and apportionment of foreign income taxes; (3) the interaction of the branch loss and dual consolidated loss recapture rules with Code Sec. 904(f) and (g); (4) the effect of foreign tax redeterminations of foreign corporations, including for purposes of the application of the high-tax exception described in Code Sec. 954(b)(4) (and for purposes of determining tested income under Code Sec. 951A(c)(2)(A)(i)(III)), and required notifications under Code Sec. 905(c) to the IRS of foreign tax redeterminations and related penalty provisions; (5) the definition of foreign personal holding company income under Code Sec. 954; (6) the application of the foreign tax credit disallowance under Code Sec. 965(g); and (7) the application of the foreign tax credit limitation to consolidated groups. The final regulations also address (1) the reduction to a hybrid deduction account under Code Sec. 245A(e) by reason of an amount included in the gross income of a domestic corporation under Code Sec. 951(a) or Code Sec. 951A(a) with respect to a controlled foreign corporation (CFC); (2) the treatment of a hybrid instrument as a financing transaction for purposes of the conduit financing rules under Code Sec. 881; and (3) the treatment under Code Sec. 951A of certain prepayments made to a related CFC after December 31, 2017, and before the CFC's first tax year beginning after December 31, 2017.

IRS Proposes Foreign Tax Credit Regulations: In REG-101657-20, the IRS released proposed regulations relating to the foreign tax credit, including guidance on (1) the disallowance of a credit or deduction for foreign income taxes with respect to dividends eligible for a dividends-received deduction; (2) the allocation and apportionment of interest expense, foreign income tax expense, and certain deductions of life insurance companies; (3) the definition of a foreign income tax and a tax in lieu of an income tax; (4) transition rules relating to the impact on loss accounts of net operating loss carrybacks allowed by reason of the Coronavirus Aid, Relief, and Economic Security Act; (5) the definition of foreign branch category and financial services income; and (6) the time at which foreign taxes accrue and can be claimed as a credit.

Innocent Spouse

Innocent Spouse Relief Granted to Taxpayer Who Gave Up Spousal Support in Divorce: In Robinson v. Comm'r, T.C. Memo. 2020-134, the Tax Court granted innocent spouse relief to a taxpayer who, as part of her divorce agreement, agreed to waive spousal support and any rights to her husband's business assets in exchange for her husband's assumption of their 2010 tax liability. The court noted that the taxpayer did not receive a significant benefit from the nonpayment of the 2010 taxes while her husband did receive a benefit from the nonpayment, including the earning of social security credits.

Procedure

Second Circuit Rejects President's Appeal Relating to Accounting Firm's Documents: In Trump v. Vance, 2020 PTC 327 (2d Cir. 2020), the Second Circuit affirmed a district court and held that a grand jury subpoena issued by the District Attorney of the County of New York to President Trump's accounting firm was not overly broad nor was it issued in bad faith. According to the court (1) the President's bare assertion that the scope of the grand jury's investigation was limited only to certain payments made by Michael Cohen in 2016 amounted to nothing more than implausible speculation; (2) without the benefit of this linchpin assumption, all other allegations of overbreadth - based on the types of documents sought, the types of entities covered, and the time period covered by the subpoena, as well as the subpoena's near identity to a prior Congressional subpoena - fell short of meeting the plausibility standard; and (3) the President's allegations of bad faith failed to raise a plausible inference that the subpoena was issued out of malice or an intent to harass.

Wind Farm's Indemnification Agreement Doesn't Affect Suit Against the Government: In Pacific Wind, LLC v. U.S., 2020 PTC 328 (Fed. Cl. 2020), the Court of Federal Claims denied a government motion to dismiss a complaint by the owner of a wind farm who alleged that the government underpaid it by more than $8.4 million when it made a grant to the taxpayer pursuant to Section 1603 of the American Recovery and Reinvestment Act of 2009. The court rejected the government's argument that an indemnification agreement under which the seller of the wind farm agreed to indemnify the wind farm for any Section 1603 grant shortfall meant that the taxpayer lacked standing to bring the case and instead held that the government's obligation to the wind farm was not affected by the fact that it had an indemnification agreement in place.

New Procedure Aims to Facilitate Market's Transition Away from LIBOR: In Rev. Proc. 2020-44, the IRS issued guidance aimed at facilitating the market's transition away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates by mitigating certain potential tax consequences of adopting fallback language recommended by the Alternative Reference Rates Committee (ARRC) and the International Swaps and Derivatives Association (ISDA). The guidance generally provides that modifying certain contracts to incorporate the ARRC's and ISDA's recommended fallback language will not result in a realization event and, generally, such modifications will not result in legging out of an integrated transaction or in the disposition or termination of either leg of a hedging transaction.

IRS Abused Its Discretion in Denying Whistleblower Claim: In Doyle v. Comm'r, T.C. Memo. 2020-139, the Tax Court held that the rejection by the IRS Whistleblower Office (WBO) of a whistleblower claim was not supported by the administrative record and thus constituted an abuse of discretion. The court also found that because the WBO's determination was not based on the non-collection of proceeds, the IRS could not rely on that supposed ground to defend its rejection of the claim.

Form 1040-NR Removed from List of Returns Exempt from Electronic Filing: In Notice 2020-70, the IRS modified Notice 2011-26 to generally remove Form 1040-NR, U.S. Nonresident Alien Income Tax Return, from the list of returns that are administratively exempt from the electronic filing requirement imposed on specified tax return preparers by Code Sec. 6011(e)(3) and Reg. Sec. 301.6011-7, and to provide the circumstances under which the Form 1040-NR remains subject to the exemption. In addition, the notice provides that future updates to the list of returns in Notice 2011-26 that are administratively exempt from the electronic filing requirement due to IRS e-file limitations will be provided for in IRS Publication 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters.

IRS Issues Transition Relief for Certain Employer Health Coverage Reporting: In Notice 2020-76, the IRS extended the due dates for certain health insurance reporting under Code Sec. 6055 and Code Sec. 6056 from January 31, 2021, to March 2, 2021, for insurers, self-insuring employers, applicable large employers, and certain other providers of minimum essential coverage to furnish to individuals the 2020 Form 1095-B, Health Coverage, and the 2020 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. The IRS also said that it will not impose a penalty under Code Sec. 6722 for failures to furnish a Form 1095-B to responsible individuals and is providing a final extension of transitional good-faith relief from Code Sec. 6721 and Code Sec. 6722 penalties to the 2020 information reporting requirements under Code Sec. 6055 and Code Sec. 6056.

IRS Special Agent Guilty of Filing False Returns, Stealing, and Obstructing Justice: In U.S. v. Aleykina, 2020 PTC 306 (9th Cir. 2020), the Ninth Circuit affirmed a district court's judgment which found a former IRS Special Agent, who investigated criminal tax fraud, guilty of filing false tax returns, stealing government money, and obstructing justice. The court rejected her argument that she did not destroy evidence and thus did not obstruct justice after finding that, while she failed in her attempt to destroy files on her computer, in her attempt to do so she still altered evidence and thus obstructed justice.

Additional Examples of Disclosure of Third-Party Tax Information Released: In CC-2020-008, the Office of Chief Counsel supplemented CC-2006-003 and CC-2006-006 to provide five additional examples, in Q&A format, relating to disclosures of third-party tax information in syndicated conservation easement matters. In Q&A-3, the Chief Counsel's Office stated that, pursuant to Code Sec. 6103(l)(4)(B), third party returns or return information can be disclosed to the IRS Office of Professional Responsibility as part of a referral or investigation of a tax return preparer or an appraiser.

September 2020

Accounting

IRS issues September 2020 Applicable Federal Rates: In Rev. Rul. 2020-16, the IRS issued a ruling which prescribes the applicable federal rates for September 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

Bankruptcy

Debtor Can't Invoke CARES Act Provision to Extend Term of Bankruptcy Plan: In In re Roebuck, 2020 PTC 287 (Bankr. W.D. Pa.), a bankruptcy court rejected confirmation of a debtor's proposed amended bankruptcy plan, which had the support of the bankruptcy trustee and which relied on Section 1329(d) of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and which sought to extend the term of the plan beyond five years. The court held that the debtor could not invoke Section 1329(d) of the CARES Act because that provision applies only to plans confirmed under Bankruptcy Code Section 1325(a) before March 27, 2020, and the debtor's interim confirmation plan did not qualify as a confirmed plan under Section 1325.

Provision in Bankruptcy Plan Dealing with Tax Refunds Is Invalid: In In re Diaz, 2020 PTC 270 (5th Cir. 2020), the Fifth Circuit held that a provision in a local chapter 13 bankruptcy plan, which requires that debtors in the Western District of Texas turn over to the bankruptcy trustee any tax refund received in excess of $2,000 is invalid because it abridges debtors' substantive rights and conflicts with the Supreme Court's guidance on 11 U.S.C. Section 1325(b)(2) in Hamilton v. Lanning, 560 U.S. 505 (2010). As a result, the court vacated the bankruptcy court's confirmation of a debtor's bankruptcy plan and remanded to allow the debtor to file a new plan.

Credits

Final Regs Clarify Effect of Personal Exemption on Premium Tax Credit: In T.D. 9912, the IRS issued final regulations under Code Sec. 36B and Code Sec. 6011 that clarify that the reduction of the personal exemption deduction to zero for tax years beginning after December 31, 2017, and before January 1, 2026, does not affect an individual taxpayer's ability to claim the premium tax credit. The final regulations affect individuals who claim the premium tax credit.

Rehabilitation Credit Regs Finalized Without Any Modifications: In T.D. 9915, the IRS finalized proposed regulations, without any modifications, which provide that the rehabilitation credit is properly determined in the year a qualified rehabilitated building (QRB) is placed in service but allocated ratably over the five-year period beginning in such year as required by the Tax Cuts and Jobs Act of 2017 (TCJA), rather than being allocated entirely to the tax year the QRB is placed in service as under Code Sec. 47 before the TCJA. The final regulations, which add Reg. Sec. 1.47-7(a) through (f), include: (1) a general rule for calculating the rehabilitation credit; (2) definitions of ratable share and rehabilitation credit determined; (3) a rule coordinating the changes to Code Sec. 47 with the special rules in Code Sec. 50; and (4) examples illustrating the interaction of Code Sec. 47 with rules in Code Sec. 50(a) (recapture in case of dispositions, etc.), Code Sec. 50(c) (basis adjustment to investment credit property), and Code Sec. 50(d)(5) (relating to certain leased property when the lessee is treated as owner and subject to an income inclusion requirement).

Deductions

Taxpayer Can't Deduct Expenses for Meals with Current and Former Spouse: In Franklin v. Comm'r, T.C. Memo. 2020-127, the Tax Court held that a taxpayer who deducted numerous expenses for meals, entertainment, and travel failed to adequately substantiate and document such expenses. The court noted that the taxpayer's meal log included several charges for meals with his former spouse and his current spouse and had asserted unconvincingly that the purpose of these meetings was to discuss real estate opportunities.

Processed Marine Seismic Data Is Not Qualifying Property under Former Sec. 199: In TGS-NOPEC Geophysical Company and Subsidiaries v. Comm'r, 155 T.C. No. 3 (2020), the Tax Court held that a company's processed marine seismic data is not qualifying production property within the meaning of former Code Sec. 199(c)(5) because it is neither tangible personal property nor a sound recording and, as a result, the company was not entitled to a deduction under former Code Sec. 199 on its 2008 tax return with respect to such property. The court also concluded that (1) the company's processing of marine seismic data constitutes engineering services performed in the United States with respect to the construction of real property under former Code Sec. 199(c)(4), but its gross receipts from such services are domestic production gross receipts (DPGR) only to the extent that such construction activities are within the United States; and (2) to the extent that the company received gross receipts from its parent company for processing services of its parent's data for the parent's clients, such revenue does not constitute DPGR for purposes of former Code Sec. 199.

Final Regs Address Deductions for Contributions to Nuclear Decommissioning Trusts: In T.D. 9906, the IRS issued final regulations under Code Sec. 468A relating to deductions for contributions to trusts maintained for decommissioning nuclear power plants and the use of the amounts in those trusts to decommission nuclear plants. The regulations revise and clarify certain provisions in existing regulations to address issues that have arisen as more nuclear plants have begun the decommissioning process.

Employee Benefits

IRS Expands Situations Where Certain Plan Amendment Deadlines Can Be Expanded: In Rev. Proc. 2020-40, the IRS modified Section 15.05 of Rev. Proc. 2016-37, and Section 12.02 of Rev. Proc. 2019-39, to expand the situations in which the plan amendment deadline for discretionary amendments made to qualified pre-approved plans and Code Sec. 403(b) pre-approved plans may be extended. These modifications are consistent with the extensions of the plan amendment deadlines for discretionary amendments set forth in Section 8.02 of Rev. Proc. 2016-37 with respect to qualified individually designed plans and Section 6.02 of Rev. Proc. 2019-39 with respect to Code Sec. 403(b) individually designed plans.

Excise Taxes

Powered Glider Kit Refurbished Tractors Did Not Qualify for Excise Tax Safe Harbor: In Schneider National Leasing, Inc. v. U.S., 2020 PTC 292 (E.D. Wisc. 2020), a district court held that 912 of a trucking company's purchase of 976 tractors were not repaired or modified and thus did not fall within the safe harbor provisions of Code Sec. 4052(f) and were subject to the 12 percent excise tax under Code Sec. 4051(a)(1)(E). The court agreed with the IRS that, with respect to the taxpayer's 912 powered glider kit refurbished tractors, the taxpayer's manufacture and subsequent use or lease of the refurbished tractors did not meet the safe harbor because the taxpayer had not "repaired or modified" articles for purposes of that provision.

Gross Income

Convertible Virtual Currency Received for Performing Microtasks Is Ordinary Income: In CCA 202035011, the Office of Chief Counsel advised that an individual who receives convertible virtual currency for performing a microtask through a crowdsourcing or similar platform has received consideration in exchange for performing a service, and the receipt of such currency is taxable as ordinary income. In addition, the Chief Counsel's Office stated that such compensation may also be subject to self-employment tax. CCA 202035011 (8/28/20).

Insurance Companies

Final Insurance Regulations Implement Legislative Changes: In T.D. 9911, the IRS issued final regulations that provide guidance on the computation of life insurance reserves and the change in basis of computing certain reserves of insurance companies. The final regulations implement recent legislative changes and affect entities taxable as insurance companies.

International

Soldier's Ties to U.S. Preclude Eligibility for Foreign Earned Income Exclusion: In Haskins v. Comm'r, 2020 PTC 289 (11th Cir. 2020), the Eleventh Circuit affirmed a Tax Court holding that an Army intelligence officer who lived and worked on a base in Afghanistan was not eligible for the foreign earned income exclusion under Code Sec. 911(a) given her strong ties to the United States and her weak ties abroad. The court noted that the taxpayer maintained strong connections to the United States in the form of her driver's license, home in Arizona, and bank account and that she continued to be involved in her family's finances, as reflected by her supporting her son's schooling, paying household bills, and buying gift cards for her husband.

IRS Defers Applicability Date One Year for Foreign-Related Regs: In Notice 2020-73, the IRS announced its intention to amend the applicability dates in Reg. Secs. 1.861-9T, 1.985-5, 1.987-11, 1.988-1, 1.988-4, and 1.989(a)-1 of the 2016 final regulations and Reg. Sec. 1.987-2 and Reg. Sec. 1.987-4 of the related 2019 final regulations to provide that the 2016 final regulations and the related 2019 final regulations apply to tax years beginning after December 7, 2021 (the amended applicability date). Previously, the regulations were set to apply to tax years beginning after December 7, 2020.

IRS Finalizes Base-Erosion and Anti-Abuse Tax Regulations: In T.D. 9910, the IRS issued final regulations that provide guidance on the base erosion and anti-abuse tax imposed on certain large corporate taxpayers with respect to certain payments made to foreign related parties. The final regulations affect corporations with substantial gross receipts that make payments to foreign related parties.

IRS Issues Final Regs under Secs. 245A and 954: In T.D. 9909, the IRS issued final regulations under Code Sec. 245A and Code Sec. 954 that limit the deduction for certain dividends received by United States persons from foreign corporations under Code Sec. 245A and the exception to subpart F income under Code Sec. 954(c)(6) for certain dividends received by controlled foreign corporations. The IRS also issued final regulations under Code Sec. 6038 regarding information reporting to facilitate administration of the final regulations.

Prop. Regs Address Extraordinary Dispositions and Disqualified Basis Rules: In REG-124737-19, the IRS issued proposed regulations under Code Sec. 245A and Code Sec. 951A that coordinate the extraordinary disposition rule under Code Sec. 245A with the disqualified basis rule under Code Sec. 951A. The IRS also issued proposed regulations under Code Sec. 6038 regarding information reporting to facilitate administration of the proposed regulations.

Procedure

Interest Rates for the Fourth Quarter of 2020 Remain Unchanged: In Rev. Rul. 2020-18, the IRS announced that the interest rates for the fourth quarter of 2020 will be the same as they were for the third quarter of 2020. Thus, the rates for interest determined under Code Sec. 6621 for the calendar quarter beginning October 1, 2020, will be 3 percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, 5 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 0.5 percent.

Whistleblower's Claim Rejected, Even After Court Allows Additional Evidence: In Bemmelen v. Comm'r, 154 T.C. No. 4 (2020), the Tax Court granted a whistleblower's motion to supplement the administrative record on his case with a 2012 submission that had been made to the IRS, but rejected the whistleblower's motion to supplement the record with respect to a 2019 document. The court also concluded that because the Director of the IRS Whistle Blower Office (WBO) did not improperly redelegate his authority to analyze the whistleblower's information, and because the WBO's rejection of the whistleblower's claim was supported by the administrative record, as completed, and was not arbitrary, capricious, or an abuse of discretion, or otherwise not in accordance with law, the IRS's motion for summary judgment should be granted.

Tax Court Has Jurisdiction under Supreme Court Precedent to Enforce Prior Decisions: In Whistleblower 21276-13W v. Comm'r, 155 T.C. No. 2 (2020), the Tax Court held that, with respect to two prior decisions (the "Decisions") entered by the court that set forth the dollar amounts of two whistleblowers' awards, the Tax Court had jurisdiction to enter the Decisions because a remand to the IRS Whistleblower Office for further proceedings would have been futile as only one disposition was possible as a matter of law on the issue before the Tax Court. The court further held that, as a court of record, it has jurisdiction to enforce the Decisions under longstanding Supreme Court precedent and the court rejected the whistleblowers' motions for relief because they ignored the terms of the partial settlement and misinterpreted the Decisions.

S Corporations

IRS Plans to Issue Regs Dealing with S Corporations and Foreign-Related Income: In Notice 2020-69, the IRS announced that it intends to issue regulations addressing the application of Code Sec. 951 and Code Sec. 951A to certain S corporations with accumulated earnings and profits and stated that, for those S corporations electing the treatment provided in the regulations, global intangible low-taxed income (GILTI) inclusions would create an accumulated adjustments account. The IRS also announced that it will issue rules (1) which address the treatment of qualified improvement property under the alternative depreciation system of Code Sec. 168(g) for purposes of calculating qualified business asset investment for purposes of the foreign-derived intangible income and GILTI provisions, and (2) which, when issued, would implement recent clarifications enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

August 2020

Accounting

IRS Issues August 2020 Applicable Federal Rates: In Rev. Rul. 2020-15, the IRS issued a ruling which prescribes the applicable federal rates for August 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

CARES Act

Court Allows Challenge to CARES Act Economic Impact Payment Rule to Move Forward: In Amador v. Mnuchin, 2020 PTC 237 (D. Md. 2020), a district court denied a motion by the U.S. government to dismiss a case challenging the constitutionality of Code Sec. 6428(g)(1)(B), which operates in tandem with Code Sec. 6428(g)(2) to exclude otherwise eligible individuals and their children from receipt of economic impact payments (EIPs) authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) if they file a joint tax return and if their spouse lacks a social security number (SSN). The plaintiffs are 16 American citizens, some with U.S. citizen children, who are married to individuals who use an individual taxpayer identification number (ITIN) to file a federal tax return and who, but for their spouse's lack of a SSN, would otherwise be eligible to receive an EIP.

IRS Reopens Registration for Certain Individuals to Claim $500 CARES Act Rebate: In IR-2020-180, the IRS stated that it reopened the registration period from August 15, 2020, to September 30, 2020, for recipients of social security, railroad retirement, SSI and VA benefits who did not file a tax return in 2018 or 2019 to register to receive the additional $500 per-child Economic Impact Payment (EIP) amount. The IRS stated that eligible recipients could expect to receive these EIP payments in October of 2020 and that those who miss the September 30 deadline will need to file a 2020 return in order to receive the payments. Previously, in IR-2020-86 (5/1/20), the IRS had stated that non-filers had until May 6, 2020, to register for these payments.

Individuals Receiving Economic Impact Statement Should Hang onto Notice 1444: The IRS is advising that anyone who received an Economic Impact Payment (EIP) this year should keep Notice 1444, Your Economic Impact Payment, with their tax records. This notice, which the IRS said it mailed to each recipient's last known address within 15 days after the payment went out, provides information about the amount of the recipient's payment, how the payment was made, and how to report any payment that wasn't received.

Credits

COVID-19-Related Relief Provided for Certain Rehabilitation Credit Deadlines: In Notice 2020-58, the IRS provides COVID-19-related relief pursuant to Code Sec. 7508A(a) for certain requirements relating to the rehabilitation credit under Code Sec. 47. The relief relates to the measuring period under the substantial rehabilitation test and the deadline for a Tax Cuts and Jobs Act transition rule relating to the measuring period in which the requisite amount of qualified rehabilitation expenditures have to be paid or incurred in order to satisfy a substantial rehabilitation test for a building.

Deductions

Studying for Real Estate Exam Doesn't Qualify Towards Meeting 750 Hour Test: In Johnson v. U.S., 2020 PTC 230 (D. Nev. 2020), a district court held that a couple's activities related to their Schedule E real estate rental losses were passive and therefore not deductible after the court determined that the wife did not qualify as a real estate professional because she did not meet the requisite 750 hours of work in real estate activities that is necessary for qualifying for the real estate professional exemption. The court rejected the couple's argument that the time spent by the wife studying for the California real estate exam had to be counted in determining if she met the 750 hours test after noting that a license is not a requirement for meeting the material participation rules under Reg. Sec. 1.469-5T.

Marine Can Deduct Portion of Basic Housing Allowance Paid to Ex-Wife as Alimony: In Winslow v. Comm'r, T.C. Summary 2020-22, the Tax Court held that of the $24,000 of payments made by Marine for the support of his former wife and their child, the Marine was entitled to deduct $17,820 as alimony. The court noted that the Marine family support policy requires family support payments equal to two-thirds of a marine's basic housing allowance but, if no child is involved, the Marine policy is to pay one-half of the basic housing allowance which, in the taxpayer's case, was $17,820 per year.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-64, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

IRS Issues Guidance on Pension Plans for Community Newspapers: In Notice 2020-60, the IRS issued guidance on the election of alternative minimum funding standards for certain defined benefit pension plans under Code Sec. 430(m), which was added by Section 115 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). In addition to summarizing the relevant provisions of Code Sec. 430(m), the guidance (1) specifies the applicable U.S. Treasury obligation yield curve that is used to determine the present value of certain increases in benefits; (2) sets forth rules and procedures relating to the election under Code Sec. 430(m), including a limited period for plan sponsors to make the election for prior years; (3) provides relief related to the impact of the election on the application of Code Sec. 436; (4) provides additional flexibility under Code Sec. 430 to facilitate retroactive elections; and (5) provides guidance on the reporting requirements that reflect the effect of the election.

IRS to Change User Fees for Certain Employee Plan Rulings: In Announcement 2020-14, the IRS announced changes to user fees relating to certain requests for letter rulings and determinations that will take effect on January 4, 2021. According to the IRS, the increased user fees will be reflected in Rev. Proc. 2021-4.

Excise Taxes

IRS Issues Proposed Regulations Relating to Air Transportation Excise Taxes: In REG-112042-19, the IRS issued proposed regulations relating to excise taxes imposed on certain amounts paid for transportation of persons and property by air. Specifically, the proposed regulations (1) address the exemption for amounts paid for certain aircraft management services; (2) amend, revise, redesignate, and remove provisions of existing regulations that are out-of-date or obsolete; (3) generally update the existing regulations to incorporate statutory changes, case law, and other published guidance; and (4) withdraw a provision that was included in a prior notice of proposed rulemaking that was never finalized and re-propose it.

Deadline Extended for First Quarter Excise Tax for Sport Fishing or Archery Equipment: In Notice 2020-55, the IRS postponed until October 31, 2020, the deadline for excise tax filing and payment deadlines, and associated interest, penalties, and additions to tax, for taxpayers who owe a federal excise tax for sales of sport fishing or archery equipment for the first quarter of 2020. Previously, in Notice 2020-48, the IRS postponed certain federal tax filing and payment deadlines related to second quarter 2020 sport fishing and archery equipment excise taxes.

Gross Income

Native American Treaties Don't Create Individual Exemption from Taxes: In Perkins v. Comm'r, 2020 PTC 249 (2d Cir. 2020), the Second Circuit, in an issue of first impression, agreed with the Tax Court that neither the 1794 Treaty of Canandaigua nor the 1842 Treaty with the Seneca Nation of Indians create an individualized exemption from federal income taxes for income derived from Seneca land. The court (1) rejected an argument that suggested otherwise made by a couple operating a company that sold gravel mined from land belonging to the Seneca Nation of Indians because, the court said, the couple's view was premised upon the erroneous presumption that an exemption from federal taxes for income derived from land held in trust for American Indians extends to land that remains in the possession of the Seneca Nation of Indians and (2) concluded that, to the extent the 1842 Treaty with the Seneca created an exemption from taxes on Seneca land, that exemption does not cover income derived from Seneca land by individual enrolled members of the Seneca Nation.

Procedure

IRS Withdraws Prop. Regs on Non-governmental Attorneys' Participation in Exams: In REG-132434-17, the IRS withdrew proposed regulations which would have, with limited exception, excluded non-government attorneys from (1) receiving summoned books, papers, records, or other data, or (2) participating in the interview of a witness summoned by the IRS to provide testimony under oath. Current regulations permit any person authorized to receive returns and return information under Code Sec. 6103(n) and the regulations thereunder to receive and review summoned books, papers, and other data, and, in the presence and under the guidance of an IRS officer or employee, participate fully in the interview of a witness in a summons interview.

IRS Announces That Taxpayers Can Now Submit Amended Returns Electronically: In IR-2020-182 (8/17/20), the IRS announced that taxpayers can now submit Form 1040-X, Amended U.S. Individual Income Tax Return, electronically using commercial tax-filing software. The IRS noted that for the initial phase, only tax year 2019 Forms 1040 and 1040-SR can be amended electronically, and that taxpayers still have the option to submit a paper version of the Form 1040-X.

Couple Can't File Refund Actions Where They Didn't Sign Amended Returns: In Clark v. U.S., 2020 PTC 219 (Fed. Cl. 2020), the Federal Claims Court held that a couple could not file a refund claim action in the court because they did not first "duly file" claims for tax refunds with the IRS. The court agreed with the government that because the taxpayers did not sign their amended tax returns and verify them under penalty of perjury, Code Sec. 7422(a) precluded the court from exercising subject-matter jurisdiction over their refund claims and thus granted the government's motion to dismiss the taxpayers' complaint.

Public Utilities

Normalization Requirements for TCJA Corporate Tax Reduction Clarified: In Rev. Proc. 2020-39, the IRS issued a revenue procedure clarifying the normalization requirements following the corporate tax rate reduction enacted as part of the Tax Cuts and Jobs Act (TCJA). The revenue procedure applies to public utilities subject to normalization that have a difference in tax rates due to accelerated depreciation resulting from the corporate tax rate reduction.

Retirement Plans

IRS Modifies Safe Harbor Explanations for Sec. 402(f) Notice on Rollover Distributions: In Notice 2020-62, the IRS modifies the two safe harbor explanations in Notice 2018-74, that may be used to satisfy the requirement under Code Sec. 402(f) that certain information be provided to recipients of eligible rollover distributions. The safe harbor explanations, as modified, take into consideration certain legislative changes, including changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which was enacted as part of the Further Consolidated Appropriations Act, 2020.

IRS Provides Special Guidance Relating to CARES Act Changes for Defined Benefit Plans: In Notice 2020-61, the IRS provides guidance regarding the special rules on single-employer defined benefit pension plans under Sec. 3608 of the CARES Act. According to the IRS, an employer may elect to apply the benefit restrictions applicable to underfunded plans under Code Sec. 436 for the 2020 plan year (or a fiscal plan year that contains any part of 2020) using the plan's funded status for the last plan year ending in 2019.

July 2020

Accounting

IRS Issues July 2020 Applicable Federal Rates: In Rev. Rul. 2020-14, the IRS issued a ruling which prescribes the applicable federal rates for July 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

Bankruptcy

Debtor's Objection to IRS's Proof of Claim Only Had to Be Filed with the IRS: In In re Nicolaus, 2020 PTC 186 (8th Cir. 2020), the Eighth Circuit reversed a bankruptcy court and a district court and held that, when the debtor objected to a proof of claim filed by the IRS, that objection only had to be filed with the IRS and was not required to be filed with the Attorney General or the local U.S. Attorney. The Eighth Circuit found that all the Federal Rules of Bankruptcy Procedure required at the time the objection was made was that the objection be filed with the IRS.

Bankruptcy Court Finds in Favor of Debtors' Exemptions: In In re Kauer, 2020 PTC 191 (Bankr. Ariz. 2020), an Arizona bankruptcy court held that the debtors who formerly lived in Idaho were entitled to elect the federal exemptions of 11 U.S.C. Sec. 522(d), including an exemption for their tax refund, and were not limited, as the bankruptcy trustee had argued, solely to exemptions permitted under the Idaho law that might otherwise apply since the debtors were not domiciled in Arizona for the 730 days preceding the filing of bankruptcy. The court found that the trustee did not point to a single exemption under Idaho law that the debtors could claim and, thus, to hold as the trustee had urged would result in a de facto denial of all exemptions to the debtors which, the court said, is counter to the well-established principle that exemption statutes are to be liberally construed in favor of the debtors.

COVID-19

IRS Extends Deadline for Sporting Goods Excise Tax Return and Payments: In Notice 2020-48, the IRS provides that any person with a federal sporting goods excise tax payment due, and a requirement to file a return, under the sport fishing and archery equipment numbers on Part II of Form 720, on July 31, 2020, is determined to be affected by the COVID-19 emergency and such deadline is automatically postponed to October 31, 2020. This relief is automatic and, thus, affected taxpayers do not have to call the IRS, file any extension forms, or send letters or other documents to receive this relief.

Credits

IRS Issues 2021 Inflation Adjustments for Premium Tax Credit: In Rev. Proc. 2020-36, the IRS issued calendar year 2021 indexing adjustments for the applicable percentage table in Code Sec. 36B(b)(3)(A)(i) that is used to calculate an individual's premium tax credit under Code Sec. 36B. The IRS also updated the required contribution percentage in Code Sec. 36B(c)(2)(C)(i)(II), which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Sec. 36B, for plan years beginning after calendar year 2020.

IRS Issues Temporary Relief from Certain Low-Income Housing Credit Rules: In Notice 2020-53, the IRS issued temporary relief pursuant to Code Sec. 7508A(a) and Reg. Sec. 1.43-13(a) from certain requirements under the low-income housing tax credit rules of Code Sec. 42 for qualified low-income housing projects and under Code Sec. 142(d) and Code Sec. 147(d) for qualified residential projects. The notice, which is in response to the COVID-19 pandemic, amplifies Notice 2020-23, Rev. Proc. 2004-39, Rev. Proc. 2014-49, and Rev. Proc. 2014-50.

Deductions

IRS Issues Temporary Regs on Carrybacks of Consolidated Net Operating Losses: In T.D. 9900, the IRS issued temporary regulations under Code Sec. 1502 that permit consolidated groups that acquire new members that were members of another consolidated group to elect in a year subsequent to the year of acquisition to waive all or part of the pre-acquisition portion of an extended carryback period under Code Sec. 172 for certain losses attributable to the acquired members where there is a retroactive statutory extension of the NOL carryback period under Code Sec. 172. The regulations respond to the enactment of Section 2303 of the CARES Act (Pub. L. 116-136), which retroactively extends the carryback period under Code Sec. 172 for tax years beginning after 2017 and before 2021.

Prop. Regs Would Amend NOL Guidance for Consolidated Returns: In REG-125716-18, the IRS issued proposed regulations that would amend the rules under Code Sec. 1502 to provide guidance implementing recent statutory changes to Code Sec. 172 and would withdraw and re-propose certain sections of previously issued proposed regulations relating to the absorption of consolidated net operating loss carryovers and carrybacks. In addition, the proposed regulations update regulations applicable to consolidated groups that include both life insurance companies and other companies to reflect statutory changes and would affect corporations that file consolidated returns.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-57, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

Employment Taxes

Restaurateur Who Lived "High on the Hog" Deserved Enhanced Prison Sentence: In U.S. v. Minner, 2020 PTC 178 (8th Cir. 2020), the Eight Circuit affirmed a 36-month prison sentence of a taxpayer, who owned a chain of restaurants called the Rowdy Beaver, after he was found guilty of failing to collect or pay employment taxes for his restaurants' employees. While the prison sentence was slightly higher than the guidelines of 27 to 33 months, the court said it was appropriate given that the taxpayer's fraud lasted nine years and, during that time, the taxpayer was "living high on the hog" with an expensive house, real estate, boats, and significant amounts of cash.

Christian Media Network Owner Can't Claim Religious Exemption from Taxes: In Lloyd v. Comm'r, T.C. Memo. 2020-92, the Tax Court held that a taxpayer who operated several Bible-focused websites and internet-based radio stations was liable for income and self-employment taxes, and substantial penalties for failing to file income tax returns and pay income and self-employment taxes for years 2005 - 2010. The court rejected the taxpayer's argument that he was a functioning church entitled to a religious exemption after noting that the income tax laws contain no exemption from tax for an individual "functioning as a church."

IRS Updates the Deferral of Employment Tax Deposit FAQs: On the IRS.gov website, the IRS updated its FAQs relating to the deferral of employment tax deposits and payments through December 31, 2020, as a result of the enactment of changes made by Section 3 of the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act). The IRS notes that the PPP Flexibility Act, enacted on June 5, 2020, amended Section 2302 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by striking the rule that would have prevented an employer from deferring the deposit and payment of the employer's share of social security tax after the employer receives a decision that its PPP loan was forgiven by the lender and, thus, an employer that receives a PPP loan is entitled to defer the payment and deposit of the employer's share of social security tax, even if the loan is forgiven.

Foreign

Final Regs Address Deduction for FDII and GILTI: In T.D. 9901, the IRS issued final regulations that (1) provide guidance on the deduction for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI), and (2) coordinate the deduction for FDII and GILTI with other provisions in the Code. These regulations generally affect domestic corporations and individuals who elect to be subject to tax at corporate rates for purposes of inclusions under subpart F and GILTI.

IRS Finalizes Regs on Income Subject to a High Rate of Foreign Tax: In T.D. 9902, the IRS issued final regulations under the global intangible low-taxed income and subpart F income provisions regarding the treatment of income that is subject to a high rate of foreign tax. The final regulations affect U.S. shareholders of foreign corporations and relate to changes made by the Tax Cuts and Jobs Act of 2017.

IRS Addresses the Treatment of Certain Income Subject to a High Rate of Foreign Tax: In REG-127732-19, the IRS issued proposed regulations under the subpart F income and global intangible low-taxed income provisions regarding the treatment of certain income that is subject to a high rate of foreign tax. The proposed regulations also include information reporting provisions for foreign corporations to facilitate the administration of certain rules in the proposed regulations and would affect U.S. shareholders of controlled foreign corporations.

Healthcare

Prop. Regs Would Amend Rules for Grandfathered Group Health Plans: In REG-130081-19, the IRS issued proposed regulations regarding grandfathered group health plans and grandfathered group health insurance coverage that would, if finalized, amend current rules to provide greater flexibility for certain grandfathered health plans to make changes to certain types of cost-sharing requirements without causing a loss of grandfather status. In the IRS's view, the proposed amendments are appropriate because they would enable these plans to continue offering affordable coverage while also enhancing their ability to respond to rising healthcare costs and, in some cases, the proposed amendments would also ensure that the plans are able to comply with minimum cost-sharing requirements for high deductible health plans so enrolled individuals are eligible to contribute to health savings accounts.

Partnerships

Chief Counsel Addresses Section 965 Partnership Adjustments and Limitations Period: In PMTA-2020-8, the Office of Chief Counsel was asked for guidance on the statute of limitations for adjustments relating to Code Sec. 965 for various types of partnerships. In response, the Chief Counsel's Office advised that, provided no other extensions or suspensions of the statute of limitations on making assessments on Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) and non-TEFRA/non-Bipartisan Budget Act of 2015 (BBA) partnerships or adjustments to BBA partnerships apply, then (1) for partnerships subject to TEFRA, assessments of tax related to adjustments to the partnership items of the partnership may be made (i) for all partners and all partnership items, within three years from the date the partnership return is filed (or the due date, if later), and (ii) for a specific partner who has a net tax liability described in Code Sec. 965(h)(6), within six years from the date the partner's return was filed (or due date, if later) for assessing the Code Sec. 965 net tax liability; (2) for partnerships subject to BBA, adjustments to the partnership-related items of the partnership may be made (i) for all partnership-related items, within three years of the date the partnership return is filed (or due date, if later) or the date an administrative adjustment request is filed, and (ii) within six years if any item of gross income required to be included under Code Sec. 951(a) (which includes the Code Sec. 965(a) inclusion amount) was omitted by the partnership; and (3) for partnerships not subject to BBA or TEFRA, assessments of tax may be made (i) within three years from the date the partner's return was filed (or the due date if later) for all items on the partnership return, or (ii) within six years for the net tax liability described in Code Sec. 965(h)(6).

Procedure

Sentence of Taxpayer Who Filed False Returns Based on "Legacy Trusts" Affirmed: In U.S. v. Blake, 2020 PTC 199 (7th Cir. 2020), the Seventh Circuit upheld a 36-month prison sentence of a taxpayer who had engaged in a fraudulent tax scheme that he claimed he only participated in after unnamed users in internet chat rooms persuaded him that the federal government was holding hidden bank accounts for its citizens - "legacy trusts" - that could be accessed through various legal maneuvers. The court found the prison sentence to be appropriate after noting that the taxpayer, who has a master's degree in business administration, filed false tax returns and received almost $150,000 from the IRS as a refund claimed on one of those returns.

Court Upholds Prison Sentence of Former IRS Employee Who Stole Taxpayer Checks: In U.S. v. Gambrell, 2020 PTC 187 (4th Cir. 2020), the Fourth Circuit affirmed the prison sentence of a former IRS employee who was found guilty of intercepting taxpayer checks and money orders and depositing them into her own bank account. While the government had recommended a lighter prison sentence than the sentence that was imposed, in part because of the IRS's culpability in hiring someone with a previous criminal record, the Fourth Circuit found that the increased prison time was appropriate in light of the severity of the charges and also concluded that the government had complied with its plea obligations to the former IRS employee.

Taxpayer's Case Is Moot Since No Live Controversy Remained: In Ruesch v. Comm'r, 154 T.C. No. 13, the Tax Court dismissed a challenge by the taxpayer to an IRS certification of her delinquent tax liability was a "seriously delinquent tax debt" under Code Sec. 7345 because the IRS subsequently reversed the certification as being erroneous. The court also concluded that, because it did not have jurisdiction under Code Sec. 7345 or any other provision to consider the taxpayer's challenge to her underlying liability for penalties, there remained no live controversy between the taxpayer and the IRS and the case was thus moot.

Chief Counsel Addresses Effect of Superseding Returns on the Statute of Limitations: In CCM 202026002, the Office of Chief Counsel advised that, for purposes of Code Sec. 6501 and the determination of when the statute of limitations begins in a situation where one tax return is filed and then a second tax return (a superseding return) is subsequently filed before the return due date, there is no effect on the statute of limitations because a return filed before the last day prescribed for filing is deemed filed on the last day. However, the Chief Counsel's Office noted, where the first return is filed before the last date prescribed for filing, and a second return is subsequently filed during the extension period, the statute of limitations begins running on different dates and, under Zellerbach Paper Co. v. U.S., 293 U.S. 172 (1934), the original return, not the superseding return, starts the limitations periods under both Code Sec. 6501 and, with respect to refunds, Code Sec. 6511.

Retirement Plans

Since Divorce Decree Was Not a QDRO, Ex-Spouse Not Entitled to Retirement Benefits: In Crowder v. Delta Airlines, Inc., 2020 PTC 184 (11th Cir. 2020), the Eleventh Circuit held that a taxpayer was not entitled to her ex-husband's retirement plan benefits after his death. The court noted that the taxpayer could have been entitled to such benefits if her divorce decree was a QDRO that gave her, as an alternate payee, rights to receive all or a portion of her ex-husband's plan benefits or directed that she, as the "former spouse . . . be treated as a surviving spouse of" her ex-husband.

Court Excuses Taxpayer from Penalty Assessed During Tumultuous Period in Her Life: In Seril v. Comm'r, T.C. Memo. 2020-101, the Tax Court held that, while a taxpayer who received distributions from her retirement account was taxable on the distributions, a portion of the distributions used for qualified higher education expenses was not subject to the penalty tax under Code Sec. 72(t). In addition, the court concluded that the taxpayer was not liable for the penalties assessed by the IRS because she exercised good faith in her tax reporting and the period during which the return was prepared was a very tumultuous period in her life.

IRS Clarifies Mid-Year Safe-Harbor Amendment Requirements: In Notice 2020-52, the IRS clarifies the requirements that apply to a mid-year amendment to a safe harbor 401(k) or 401(m) plan that reduces only contributions made on behalf of highly compensated employees. The notice also provides temporary relief in connection with the ongoing COVID-19 pandemic from certain requirements that would otherwise apply to a mid-year amendment to a safe harbor 401(k) or 401(m) plan adopted between March 13, 2020, and August 31, 2020, that reduces or suspends safe harbor contributions.

Tax-Exempt Organizations

Code Section 265 Can't Be Used to Disallow Contributions Used In Computing UBTI: In CCA 202027003, the Office of Chief Counsel advised that Code Sec. 265(a)(1) cannot be applied to disallow a Code Sec. 170 charitable contribution when calculating a tax-exempt organization's unelated business taxable income (UBTI) under Code Sec. 512(a)(1). The Chief Counsel's Office concluded that a charitable contribution is not allocable to tax-exempt income, but instead arises from a donor's charitable intent to voluntarily transfer money or property without receiving any benefit in return.

Tax Return Preparers

IRS Finalizes Regs Reducing Tax Return Preparer PTIN Fees: In T.D. 9903, the IRS issued final regulations relating to the user fees on tax return preparers which are substantially the same as the proposed regulations. The final regulations reduce the amount of the user fee to apply for or renew a preparer tax identification number (PTIN) from $33, plus $17 payable to a third-party contractor, to $21, plus $14.95 payable to a third-party contractor and affect individuals who apply for or renew a PTIN.

Appeals Court Affirms 96-Month Prison Sentence of Tax-Return Preparer: In U.S. v. Jeffries, 2020 PTC 200 (6th Cir. 2020), the Sixth Circuit affirmed the 96-month prison sentence and fine of $100,000 imposed on a tax-return preparer convicted of conspiring to defraud the United States and aiding the preparation and presentation of false income tax returns. The court noted that the taxpayer had secured large refunds for clients by filing false or misleading returns on their behalf, resulting in the underpayment of more than $1 million in taxes.

June 2020

Accounting

An In-Depth Look: The Paycheck Protection Program Flexibility Act. On Wednesday, June 3, the Senate passed the Paycheck Protection Program Flexibility Act of 2020. The bill, which had previously passed the House and which President Trump signed on Friday, makes significant improvements to the Paycheck Protection Program (PPP) by easing the rules for loan forgiveness. Changes include extending the covered period during which a PPP loan recipient may use loan proceeds and still be eligible for loan forgiveness, raising the percentage of nonpayroll expenses for which such loans may be used, and extending the timeframe that an employer has to rehire employees and creating a new exemption for situations in which such rehires are not possible. The bill also repeals a rule that would have prevented borrowers whose loans are forgiven from taking advantage of a provision in the CARES Act that allows the deferment of an employer's share of payroll taxes. H.R. 7010. Read more....

IRS Issues June 2020 Applicable Federal Rates: In Rev. Rul. 2020-12, the IRS issued a ruling which prescribes the applicable federal rates for June 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

Bankruptcy

FDIC Is Owner of Bankrupt Corporation's Federal Tax Refund: In In re United Western Bancorp, Inc., 2020 PTC 157 (10th Cir. 2020), on remand from the Supreme Court, the Tenth Circuit held that, applying Colorado state law, the Federal Deposit Insurance Corporation, as receiver for United Western Bank (the Bank), is the owner of a $4 million federal tax refund rather than the Bank's parent company, which is in bankruptcy. Earlier this year, in Rodriguez v. FDIC, 2020 PTC 72 (S. Ct. 2020), the Supreme Court held that state law, rather than a common law rule known as the "Bob Richards" rule, is well-equipped to handle disputes involving corporate property rights, including ones that involve federal bankruptcy and a tax dispute.

Charitable Deduction

Court Takes Midpoint of IRS's and Taxpayer's Valuations in Determining Easement's Value: In Johnson v. Comm'r, T.C. Memo. 2020-79, the Tax Court determined the value of a conservation easement that covered part of the taxpayer's ranch by taking the midpoints of the valuations determined by each side's experts. The court concluded that the diminution in the value of the taxpayer's ranch was $648,776 and the conservation easement's value was $372,919.

Credits

Premium Tax Credit Unaffected by Suspension of Personal Exemption Deduction: In REG-124810-19, the IRS issued proposed regulations which clarify that the premium tax credit in Code Sec. 36B is unaffected by the suspension of the personal exemption deduction, which is reduced to zero for tax years beginning after December 31, 2017, and before January 1, 2026. While the regulations are proposed to apply to tax years ending after the date the final regulations are adopted, the IRS said that taxpayers may rely on the regulations immediately.

Rehabilitation Credit Is Allocated Over a Five-Year Period: In REG-124327-19, the IRS issued proposed regulations on the Code Sec. 47 rehabilitation credit, including rules to coordinate the new five-year period over which the credit may be claimed with other special rules for investment credit property. The regulations are proposed to apply to tax years beginning on or after the date the regulations are published as final; however, taxpayers may rely on the proposed regulations for qualified rehabilitation expenditures paid or incurred after December 31, 2017, in tax years beginning before the date the regulations are finalized, provided the taxpayers follow the proposed regulations in their entirety and in a consistent manner.

IRS Changes Beginning-of-Construction Requirement for Certain Tax Credits: In Notice 2020-41, the IRS modifies prior guidance on the beginning-of-construction requirement for both the production tax credit for renewable energy facilities under Code Sec. 45 and the investment tax credit for energy property under Code Sec. 48. In response to the Coronavirus Disease 2019 (COVID-19) pandemic, the IRS (1) provides that the continuity safe harbor provided and extended by prior IRS notices is further extended for projects that began construction in either calendar year 2016 or 2017, and (2) provides a 3 1/2 month safe harbor for services or property paid for by the taxpayer on or after September 16, 2019 and received by October 15, 2020.

Employee Benefits

IRS Provides Guidance on Employees Using Benefits for COVID-19-Related Charities: In Notice 2020-46, the IRS provides that cash payments employers make to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo will not be treated as compensation. Similarly, the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer; however, employers may deduct the cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the applicable requirements.

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-45, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

Estates, Gifts, & Trusts

Gift Transfer Document Determines Gift Valuation, Not Donor's Intention: In Nelson v. Comm'r, T.C. Memo. 2020-81, the Tax Court held that two gifts of limited partnership interests that were transferred by a taxpayer were not valued at fixed dollar amounts as the taxpayer had argued but were instead valued at percentage interests. The court noted that, while the intention may have been to transfer dollar values of the limited partner interests, the gift transfer document provided otherwise.

Advances to Son Were Partially Loans and Partially Gifts: In Estate of Bolles v. Comm'r, T.C. Memo. 2020-71, the Tax Court held that advances made by a taxpayer to her son, prior to her death, were loans through 1989 but, after that, were gifts. The court noted that the decedent expected her son to repay the loans because she expected him to be a successful architect but realized by the end of 1989 that he was unlikely to be successful and repay her advances.

Federal Grants

Federal Circuit Affirms Federal Claims Court Decision in Section 1603 Grant Case: In California Ridge Wind Energy LLC v. U.S., 2020 PTC 155 (Fed. Cir. 2020), the Federal Circuit affirmed the Court of Federal Claims and held that two windfarm owners had not proved that proposed development fees were properly included in their cost bases when applying for a cash grant from the federal government under Section 1603 of the American Recovery and Reinvestment Tax Act of 2009. The court noted that it was the windfarm owners' burden to justify the amount of the development fees it claimed in support of the grant amount and the owners had not done so.

Foreign

IRS Provides a Waiver for Meeting Time Requirements Relating to Foreign Earned Income: In Rev. Proc. 2020-14, the IRS provides a waiver under Code Sec. 911(d)(4) for the time requirements that must be met for individuals electing to exclude their foreign earned income who must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. The procedure adds the Democratic Republic of the Congo, Haiti, Sudan, and Venezuela to the list of waiver countries for tax year 2019 for which the minimum time requirements are waived.

List of Countries That U.S. Has Information Exchange Agreements in Force Is Updated: In Rev. Proc. 2020-15, the IRS supersedes Rev. Proc. 2019-23 by providing an updated list of countries with which the United States has in force an information exchange agreement, such that bank deposit interest paid to residents of such countries must be reported by payors to the extent required under Reg. Sec. 1.6049-8(a) and Reg. Sec. 1.6049-4(b)(5). The revenue procedure adds one country, Singapore, to this list.

Gross Income

Upfront Payments to Class-Action Attorney Are Income in Year Received: In Novoselsky v. Comm'r, T.C. Memo. 2020-68, the Tax Court held that a class action litigation attorney, who received upfront payments from clients to support the cost of litigation, had to include those payments in income in the year received and could not, instead, treat them as loans. The court also found the taxpayer liable for accuracy-related penalties after noting that the taxpayer had considerable experience with contingent fee litigation and fee-sharing agreements and the proper tax treatment of such payments was not a novel issue for him.

Healthcare

IRS Issues PCORTF Fee for Policy Years Ending After October 1, 2019: In Notice 2020-44, the IRS provides that the adjusted applicable dollar amount that applies for determining the Patient-Centered Outcomes Research Trust Fund (PCORTF) fee for policy years and plan years ending on or after October 1, 2019 and before October 1, 2020 is equal to $2.54. This adjusted applicable dollar amount was determined using the percentage increase in the projected per capita amount of the National Health Expenditures published by HHS in February 2019.

Procedure

IRS Invites Public to Comment on 2020-2021 Priority Guidance Plan: In Notice 2020-47, the IRS invited the public to submit recommendations for items to be included on the 2020-2021 Priority Guidance Plan, which the IRS uses each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. While there is no particular format in which to submit the recommendations, the IRS encouraged the public to briefly describe the recommended guidance and explain the need for the guidance.

Interest Rates for the Third Quarter of 2020 Announced: In Rev. Rul. 2020-13, the IRS announced the interest rates for the 3rd quarter of 2020. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning July 1, 2020, will be 3 percent for overpayments (2 percent in the case of a corporation), 3 percent for underpayments, 5 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 0.5 percent.

Government's Suit Against Taxpayer Was Filed Within Failsafe Period: In U.S. v. Weiss, 2020 PTC 156 (E.D. Pa. 2020), a district court held that, because a government suit against a taxpayer who owed the IRS $773,000 was filed 64 days after the Supreme Court denied certiorari in the taxpayer's case, the suit was begun within the 90-day "failsafe" period in Code Sec. 6330(e)(1). Thus, the court found that the government's suit was not barred by the statute of limitations as had been argued by the taxpayer.

Retirement Plans

Temporary Relief from Certain Physical Presence Requirements Provided: In Notice 2020-42, in response to the public health emergency caused by the Coronavirus Disease 2019 (COVID-19) pandemic, and the related social distancing that has been implemented, the IRS issued temporary relief from the physical presence requirement in Reg. Sec. 1.401(a)-21(d)(6) for participant elections required to be witnessed by a plan representative or a notary public, including a spousal consent required under Code Sec. 417. While this temporary relief, which covers the period from January 1, 2020, through December 31, 2020, is intended to facilitate the payment of coronavirus-related distributions and plan loans to qualified individuals, it applies to any participant election that requires the signature of an individual to be witnessed in the physical presence of a plan representative or notary.

RICs and REITs

IRS Modifies Safe Harbor in Rev. Proc. 2017-45 for RICs and REITs: In Rev. Proc. 2020-19, the IRS provides temporary guidance regarding the treatment of certain stock distributions by publicly offered real estate investment trusts (REITs) and publicly offered regulated investment companies (RICs). Specifically, in recognition of the need for enhanced liquidity during the current period of economic disruption, the guidance modifies the safe harbor provided in Rev. Proc. 2017-45, by temporarily reducing the minimum required aggregate amount of cash that distributee shareholders may receive to not less than 10 percent of the total distribution in order for Code Sec. 301, by reason of Code Sec. 305(b), to apply to such distribution.

Tax-Exempt Organizations

Prop. Regs Address Excise Tax on Certain Tax-Exempt Org Remuneration: In REG-122345-18, the IRS issued proposed regulations under Code Sec. 4960, which imposes an excise tax on remuneration in excess of $1,000,000 and any excess parachute payment paid by an applicable tax-exempt organization to any covered employee. The regulations affect certain tax- exempt organizations and certain entities that are treated as related to those organizations.

Withholding Taxes

Prop. Reg Addresses Income Tax Withholding on Certain Periodic Payments: In REG-100320-20, the IRS issued a proposed regulation that provides rules for federal income tax withholding on certain periodic retirement and annuity payments to implement an amendment made by the Tax Cuts and Jobs Act of 2017 to Code Sec. 3405(a)(4). The proposed regulation would affect payors of such periodic payments, plan administrators that are required to withhold on such payments, and payees who receive such payments.

May 2020

Capital Gains

Partnership's Receipt of Settlement Award Is Capital Gain Income: In NCA Argyle LP v. Comm'r, T.C. Memo. 2020-56, the Tax Court held that a damage award obtained by a partnership as a result of litigation with a former business partner is capital gain income because it was received in exchange for the partnership's joint venture interest. The court rejected the IRS's argument that the settlement was ordinary income after noting that the award was the result of an arm's length negotiation between adversarial parties.

COVID-19

House Passes $3 Trillion HEROES Act Bill: The House of Representatives, by a vote of 208-199, passed a $3 trillion piece of legislation, the HEROES Act (H.R. 6800), aimed at helping financially burdened state and local governments, extending special unemployment benefits and direct payments to individuals, and strengthening businesses, health care programs, and essential workers during the coronavirus pandemic. The bill, which includes extensive tax provisions, is not expected to receive serious consideration in the Senate, but may serve as the House's opening offer in negotiations over the next round of COVID-19 legislation.

Former Pharmacist Granted Early Release Due to COVID-19 Virus: In U.S. v. Harper, Jr., 2020 PTC 139 (W.D. Va. 2020), a district court granted compassionate early release due to the threat of the COVID-19 virus to a 62-year old former pharmacist, currently incarcerated in a North Carolina correctional facility, who has numerous underlying medical conditions (including left ventricular hypertrophy, chronic obstructive pulmonary disease, asthma, hypertension, emphysema, and sleep apnea). The former pharmacist had been sentenced to 41 months and ordered to pay over $5 million in restitution after failing to pay over to the IRS payroll tax he withheld from his employees' checks.

Credits

Corporation Can't Claim Foreign Tax Credit Relating to STARS Transaction: In Wells Fargo & Co. v. U.S., 2020 PTC 132 (8th Cir. 2020), the Eighth Circuit affirmed a district court and held that a U.S. corporation was not entitled to a foreign tax credit on its 2003 tax return where the credit arose from a structured trust advantaged repackaged securities (STARS) transaction it entered into with a British bank. The court also affirmed that the corporation was liable for a negligence penalty after claiming that credit.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-37, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

FSA Carryover Amount Increased from $500 to $550: In Notice 2020-33, the IRS modified Notice 2013-71 to increase the carryover limit of unused amounts remaining as of the end of a plan year in a health flexible spending arrangement (health FSA) under a Code Sec. 125 cafeteria plan that may be carried over to pay or reimburse a participant for medical care expenses incurred during the following plan year. The notice increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation.

Foreign

Certain Activities Are Not Taken Into Account for Purposes of Form 8858: In Rev. Proc. 2020-30, the IRS provides that certain activities are not taken into account for purposes of Code Sec. 1503(d) or Form 8858, Information Return of U.S. Persons with Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs), as a result of travel restrictions and disruptions resulting from the global outbreak of the virus that causes COVID-19. The guidance provides relief to individuals that temporarily conducted activities in a foreign country that would not otherwise have been conducted there.

FBAR Penalties Apply to Taxpayer Parking Money in Offshore Accounts: In U.S. v. Guggenheim, 2020 PTC 126 (D. N.J. 2020), a district court concluded that a taxpayer owed $100,000 for willfully violating the Foreign Bank Account Report (FBAR) statute by not reporting money received from his father that was subsequently invested in an offshore company in the British Virgin Islands that held numerous foreign bank accounts. The court noted that the taxpayer also received about $450,000 in distributions from the foreign bank accounts that he did not report on his federal income tax returns.

FBAR Penalties Survive Taxpayer's Death: In U.S. v. Green, 2020 PTC 137 (S.D. Fla. 2020), a district court held that the IRS could recover unpaid financial penalties imposed on a taxpayer, who subsequently died, for willfully failing to timely file accurate Forms TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), for years 2010 and 2011. The court rejected arguments by the taxpayer's children that the FBAR penalties abated upon the taxpayer's death and stated that granting a windfall to estates of violators of the FBAR requirements because the violator suffered the paradoxical fortune and misfortune of passing away after the violation occurred and before the government filed suit against him or her for FBAR violations contradicts the remedial purpose of the FBAR filing requirements.

Prop. Regs Address Hybrid Arrangements and Allocation of Deductions: In REG-106013-19, the IRS issued proposed regulations that (1) adjust hybrid deduction accounts to take into account earnings and profits of a controlled foreign corporation that are included in income by a U.S. shareholder, (2) address, for purposes of the conduit financing rules, arrangements involving equity interests that give rise to deductions (or similar benefits) under foreign law; and (3) address the treatment of certain payments under the global intangible low-taxed income (GILTI) provisions. The proposed regulations affect U.S. shareholders of foreign corporations and persons that make payments in connection with certain hybrid arrangements.

IRS Finalized Rules Relating to Certain Hybrid Arrangements: In T.D. 9896, the IRS issued final regulations that (1) provide guidance regarding hybrid dividends and certain amounts paid or accrued pursuant to hybrid arrangements, which generally involve arrangements whereby U.S. and foreign tax law classify a transaction or entity differently for tax purposes, (2) address dual consolidated losses and entity classifications to prevent the same deduction from being claimed under the tax laws of both the United States and a foreign jurisdiction, (3) provide for information reporting to facilitate the administration of certain rules in the final regulations, and (4) affect taxpayers that would otherwise claim a deduction relating to such amounts and certain shareholders of foreign corporations that pay or receive hybrid dividends.

Partnerships

IRS May Adjust Partner's Outside Basis at the Partner Level: In CCA 202020001, the Office of Chief Counsel advised that a partner's outside basis in his/her partnership interest is an affected item that may be adjusted at the partner level without opening a partnership-level examination, if the partnership return is accepted as filed. According to the Chief Counsel's Office, when adjusting outside basis at the partner level in this manner, none of the partnership-item components of outside basis can be changed without opening a TEFRA proceeding.

Procedure

IRS Abused Its Discretion by Rejecting Couple's Proposed Installment Agreement: In Kirkley v. Comm'r, T.C. Memo. 2020-57, the Tax Court held that by sustaining a proposed levy notice and rejecting a couple's proposed installment agreement because the couple had not first sold almost all of their property, including their residence, the IRS abused its discretion. According to the court, the abuse of discretion arose from the IRS's erroneous assumption that the Internal Revenue Manual provides no discretion to IRS agents to accept an installment agreement unless the taxpayer first sells all of his or her property.

Husband's Testimony Doesn't Qualify as Credible Evidence to Shift Burden to IRS: In Larkin v. Comm'r, 2020 PTC 125 (D.C. Cir. 2020), the D.C. Circuit generally affirmed a Tax Court decision with respect to taxes and penalties owed by a married couple who are dual residents of the United States and United Kingdom and who paid no federal income tax for the four years they lived in the United Kingdom. With respect to the couple's claim that the burden of proof should have shifted to the IRS for their charitable-contribution deductions because they submitted adequate, credible evidence at trial, the D.C. Circuit found that, absent any documentation, the trial testimony of the husband, who is also a lawyer, did not qualify as "credible evidence" under Code Sec. 7491(a) that would shift the burden to the IRS.

Court Upholds Summons Against Law Firm That Helped Clients With Foreign Accounts: In Taylor Lohmeyer Law Firm P.L.L.C. v. U.S., 2020 PTC 133 (5th Cir. 2020), the Fifth Circuit held that a district court did not err by granting a government petition to enforce a summons issued to a law firm, which provides estate and tax planning advice to its clients, notwithstanding the firm's blanket claim that all documents responsive to the summons are protected by attorney-client privilege. The summons was the result of a government investigation that arose because of an audit of one of the firm's clients, where the firm assisted the client in establishing foreign accounts and entities, and executing subsequent transactions relating to those foreign accounts and entities.

IRS Allows Taxpayers to Electronically Submit Ruling and Other Requests: In Rev. Proc. 2020-29, the IRS modified the procedures in Rev. Proc. 2020-1 to temporarily allow for the electronic submission of requests for private letter rulings, closing agreements, determination letters, and information letters under the jurisdiction of the IRS Office of Chief Counsel, and for determination letters issued by the IRS Large Business and International Division (LB&I). Until modified or superseded, both paper and electronic requests for advice described in the new procedure will be accepted.

Recovery Rebates

Lack of Dependent Info Means Some Will Receive $500 Payment after Filing 2020 Return: In IR-2020-86, the IRS clarified that, because it lacked dependent information for recipients of social security, railroad retirement, social security income and veteran affairs benefits, the 2020 recovery rebate payments under the CARES Act did not include the additional $500 per eligible child amount unless the IRS had received dependent information from non-filers before May 6, 2020. The IRS said that eligible recipients of the $500 per eligible child amount, who did not receive that benefit, can expect such amounts after filing a 2020 tax return.

RICs and REITs

IRS Issues Safe Harbor for Certain RIC and REIT Distributions: In Rev. Proc. 2020-19, the IRS modified Rev. Proc. 2017-45 solely with respect to distributions declared by a publicly offered real estate investment trust (REIT) or publically offered regulated investment company (RIC) on or after April 1, 2020, and on or before December 31, 2020. To enable publicly offered REITs and publicly offered RICs to conserve capital, the revenue procedure modifies the safe harbor provided in Rev. Proc. 2017-45, to temporarily reduce the minimum amount of cash that shareholders may receive to not less than 10 percent of the total declared distribution in order for the distribution to be taxable under Code Sec. 301.

Tax Return Preparers

IRS Proposes Reduction in PTIN Fee: In REG-117138-17, the IRS issued proposed regulations which would reduce the amount of the user fee that tax practitioners have to pay when they apply for, or renew, a preparer tax identification number (PTIN). The proposal would reduce the user fee from $33 per application or renewal to $21.

Tax-Exempt Bonds

IRS Expands Temp Rule Allowing Issuers to Purchase Some of Their Own Tax-Exempt Bonds: In Notice 2020-25, the IRS announced that it is temporarily expanding the circumstances and time periods in which a tax-exempt bond that is purchased by its state or local governmental issuer is treated as continuing in effect without resulting in a reissuance or retirement of the purchased tax-exempt bond solely for purposes of Code Sec. 103 and Code Sec. 141 through Code Sec. 150. The notice is effective May 4, 2020, and issuers may apply the notice retroactively to purchases on or after January 1, 2020.

IRS Addresses Public Approval Requirement for Certain Bonds in Light of Pandemic: In Rev. Proc. 2020-21, the IRS provides temporary guidance regarding the public approval requirement under Code Sec. 147(f) for tax-exempt qualified private activity bonds. Specifically, in light of the Coronavirus Disease 2019 (COVID-19) pandemic, the revenue procedure provides that hearings will be held by teleconference as described in the revenue procedure.

April 2020

Most Popular

An In-Depth Look at the Payroll Protection Program (PPP): In the face of unprecedented economic disruptions due to the Coronavirus (COVID-19) outbreak, a Payroll Protection Program was authorized as part of the CARES Act that was signed into law on March 27, 2020. This new loan program authorizes the Small Business Administration to guarantee $349 billion in new loans to eligible businesses and nonprofits and, if certain criteria are met, the loan may qualify for tax-free loan forgiveness. Because the loans are available until the later of June 30 or until the money runs out, time is of the essence in applying for such loans and business owners will need their tax advisor's help in navigating the requirements that must be met to obtain such loans. The following is in-depth look at the program, its benefits, the criteria that must be met to obtain a loan, and the rules for loan forgiveness. Read more....

In-Depth: A Tax Practitioner's Guide to the CARES Act (Client Letter Included) On Wednesday March 25, the Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion economic relief package featuring extensive tax provisions. On Friday, March 27, the House also overwhelmingly approved the legislation, which President Trump signed the same day. This article includes an in-depth discussion of the tax provisions in the CARES Act, a brief summary of its non-tax provisions, and links to sample client letters. Pub. L. 116-136. (published 3/31/2020). Read more....

Accounting

IRS Issues May 2020 Applicable Federal Rates: In Rev. Rul. 2020-11, the IRS issued a ruling which prescribes the applicable federal rates for May 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

IRS Issues April 2020 Applicable Federal Rates: In Rev. Rul. 2020-9, the IRS issued a ruling which prescribes the applicable federal rates for April 2020. The ruling provides various prescribed rates under Code Sec. 1274 for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

COVID-19 Pandemic

Safe Harbors Provided for Modifications under CARES Act Forbearance Program: In Rev. Proc. 2020-26, the IRS provides safe harbors under which modifications to certain mortgage loans in connection with a forbearance program authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are not treated as replacing the unmodified obligation with a newly issued obligation, as giving rise to prohibited transactions, or as manifesting a power to vary for purposes of determining the federal income tax status of certain securitization vehicles that hold the loans. The revenue procedure also describes a safe harbor under which certain securitization vehicles are not treated as having improper knowledge of an anticipated default on the grounds that they acquired a mortgage loan with respect to which the borrower had participated in a forbearance program.

Deductions

Additional Guidance on Interest Expense Deduction Limitations Issued: In Rev. Proc. 2020-22, the IRS addresses the Code Sec. 163(j)(7)(B) election to be an electing real property trade or business and the Code Sec. 163(j)(7)(C) election to be an electing farming business for purposes of the business interest expense deduction limitation under Code Sec. 163(j). The guidance (1) provides that certain taxpayers can make a late election, or withdraw an election, under Code Sec. 163(j)(7)(B) or Code Sec. 163(j)(7)(C), as applicable, on an amended federal income tax return, an amended Form 1065, or an administrative adjustment request under Code Sec. 6227; and (2) describes the time and manner in which certain taxpayers can elect (i) out of the 50 percent adjusted taxable income (ATI) limitation for tax years beginning in 2019 and 2020, (ii) to use the taxpayer's ATI for the last tax year beginning in 2019 to calculate the taxpayer's Code Sec. 163(j) limitation for tax year 2020, and (iii) out of deducting 50 percent of excess business interest expense (EBIE) for tax years beginning in 2020 without limitation.

Employee Benefits

IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2020-27, the IRS provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).

Estates, Gifts, and Trusts

Deadlines Extended for Gift and Generation-skipping transfer Tax Returns: In Notice 2020-20, the IRS is providing federal income tax filing and payment relief on account of the Coronavirus Disease 2019 (COVID-19) emergency. In addition to the relief provided in Notice 2020-18, the IRS is providing additional relief to all taxpayers who have federal gift (and generation-skipping transfer) tax returns and payments due on April 15, 2020, by postponing such deadlines to July 15, 2020, and suspending associated interest, additions to tax, and penalties for late filing or late payment also until July 15, 2020.

Gross Income

Amount Received in Stock Disposition Was Taxable Interest and Not Capital Gains: In Goldring v. U.S., 2020 PTC 118 (E.D. La. 2020), a district court granted summary judgment to the IRS after finding that proceeds awarded to a taxpayer in connection with the disposition of her stock in a corporation via a cash-out merger were properly classified as taxable interest income. According to the court, although the taxpayer agreed to surrender her stock pursuant to an agreement that included statutory interest, the disputed character of the remaining amount of the payment did not reflect a gain from the sale or exchange from such stock, but instead represented statutory interest in order to compensate the taxpayer for the loss of use of her stock for a specific period of time.

Procedure

IRS Public Hearings to Be Held Telephonically: In Announcement 2020-4, the IRS advised that it would be conducting public hearings on notices of proposed rulemaking by telephone until further notice, and is encouraging taxpayers to submit public comments electronically. Individuals who want to testify (by telephone) at a public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing and the subject line of the email must contain the regulation number (REG-XXXXXX-XX) for the hearing and the word TESTIFY.

Form 4549 Signed by Taxpayer Was Not a Binding Contract: In Goldberg v. Comm'r, T.C. Memo. 2020-38, the Tax Court held that (1) a Form 4549, Income Tax Examination Changes, prepared by the IRS in April 2011 and signed by the taxpayer and his wife in May 2011, was not a binding contract under which the couple owed no interest for their 2004 tax year, and (2) with the exception of one time period out of 22 time periods between years 2007 and 2014, the taxpayer was not entitled to an abatement of interest under Sec. 6404(e)(1). The court sustained the IRS's notice of determination, with the exception of an abatement of interest for the one time period mentioned and concluded that the IRS Office of Appeals did not abuse its discretion in denying interest abatements for the other time periods.

Chief Counsel's Office Changes Procedures Relating to Chief Counsel Documents: In CC-2050-5, the Office of Chief Counsel announced changes to procedures relating to electronic clearance and digital signatures for Office of Chief Counsel documents and regulations. Effective immediately, where a physical document or file previously would have been used to clear a document, the same document may be submitted to the approving official electronically via email and the subject line of the email must reflect that the document is being submitted for clearance.

Chief Counsel's Office Explores Exception to Third-party Contact Rule: In CCM 202013015, the Office of Chief Counsel advised that IRS contacts with non-IRS federal, state, local, or foreign government agencies or their employees are generally not considered third-party contacts under Reg. Sec. 301.7602-2(f)(5); however, an exception to this general rule exists if the IRS contact with another government agency concerns that other government agency's business (such as a taxpayer contract with or employment by the other agency) with the taxpayer. Additionally, the Chief Counsel's Office concluded that the general exception that IRS contacts with a non-IRS government employee are not considered third-party contacts applies equally to IRS verbal discussions with the non-IRS government employee as to a formal request for documentary information and the very limited, in context, exception to this general rule for when the subject matter of the government's cause of action concerns the taxpayer's employment by, or business contract with, the Department of Justice would also be applied the same way.

 

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