In the case of Duffy v. Commissioner, TC Memo 2020-108,[1] the Tax Court gave its view of what impact a state’s law had on whether a debt in question was recourse or nonrecourse.

Short Sales: Recourse vs. Nonrecourse Debts

In this case the issue was key because the taxpayers had entered into a short sale of a residence that had total outstanding debt secured by the property in excess of its fair market value.

Petitioners sold the Gearhart property in March 2011 for $800,000. JPMorgan Chase agreed to accept $750,841 of the proceeds in full satisfaction of the mortgage loan that encumbered the property. The documents which the parties stipulated regarding petitioners’ sale of the Gearhart property do not include any judicial filings by JPMorgan Chase and make no reference to judicial proceedings to enforce petitioners’ obligation to the bank.[2]

The $750,841 that JPMorgan Chase accepted in full payment was $626,046 less than the unpaid principal balance of that mortgage at the time.[3]

The IRS has revised its guidance on what constitutes virtual currency on its webpage, but there was a bit of confusion that was generated with comments from IRS Chief Counsel Michael Desmond on the day following the change. Now the IRS has issued a clarification that may help to resolve this matter, at least in most cases.

The IRS has released final regulations modifying the dollar limits for vehicles subject to a fleet average valuation rule or having personal use valued using the cents-per-mile valuation method found in Reg. §1.61-21.[1]

The IRS announced an expansion of relief to additional individuals who borrowed funds to attend school and later had that debt cancelled in Revenue Procedure 2020-11.[1]

The IRS had previously granted relief to those who attended schools owned by Corinthian College, Inc. (CCI) or American Career Institutes, Inc. (ACI) and had their loans discharged by the Department of Education under the “Closed School” or “Defense to Repayment” programs.  This relief was limited to those who had attended schools owned by CCI or ACI.[2]

In the case of Breland v. Commissioner, TC Memo 2019-59[1] (May 29, 2019) two different issues were decided by the Tax Court:

• Did the taxpayers properly substantiate the basis of property sold by producing only a Form 8824 from a prior return when the property was obtained as part of a like-kind exchange?

• What was the actual sales price and cancellation of debt resulting from the foreclosure sale of the taxpayer’s properties?

In Notice 2019-8 the IRS has set the maximum values for 2018 for employer provided vehicles under which the cents per mile method (Reg. §1.61-21(e)) or fleet-average valuation rule (Reg. §1.61-21(d)) may apply.

The IRS is making a significant increase in this number.  The agency explains its reasoning as follows:

Consistent with the substantial increase in the dollar limitations on depreciation deductions under section 280F(a), as modified by section 13202(a)(1) of the Act, the IRS and the Treasury Department intend to amend Treas. Reg. § 1.61-21(d) and (e) to incorporate a higher base value of $50,000 as the maximum value for use of the vehicle cents-per-mile and fleet-average valuation rules effective for the 2018 calendar year. Further, the IRS and the Treasury Department intend that the regulations will be modified to provide that this $50,000 base value will be adjusted annually using section 280F(d)(7) for 2019 and subsequent years.

The IRS has addressed the taxation of payments made to farmers under a trade aid package (the Market Facilitation Program or MFP) in PMTA 2018-021.  The MFP program gives direct payment to producers of certain crops that have been adversely affected by tariffs.

The memo deals with both the issue of whether such payments are part of gross income under IRC §61 and as self-employment income under IRC §1402.

The Tax Court and U.S. District Court were considering the same basic issue for different years for the same taxpayers.  The courts came to opposite conclusions in the issue.  The United States District Court for the Western District of New York ruled in 2017 that the taxpayers in Perkins v. United States, No. 1:16-cv-00495, plausibly stated a claim for exemption from taxation for the 2010 sale of gravel based on two treaties between the United States and the Seneca Nation.  But in a case looking at the same two cases, the Tax Court decided in the case of Perkins v. Commissioner, 150 T.C. No. 6 that no exemption was available to the taxpayers under those treaties for sales of gravel in other years.

Alice Perkins is an enrolled member of the Seneca Nation and had received permission from the Seneca Nation to remove and sell gravel from lands held by Nation.  She and her husband lived on Seneca property.  For the years in question they sold gravel which they had mined from Seneca lands.

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Clients who receive legal settlements often believe that because they have been awarded damages for a wrong that occurred the payment is not subject to income taxes.  But the tax law is not so simple.  The default under federal tax law, found at IRC §61(a), is that all items of income are taxable, with the burden falling on the taxpayer to point out an exception that applies in his/her case.

The case of Ritter v. Commissioner, TC Memo 2017-185, looks at an award received by a homeowner whose house was taken in a foreclosure proceeding.  The taxpayer received a payment related to a settlement between the lender and the government to deal with, as the Office of the Comptroller of the Currency labeled it, “deficiencies and unsafe or unsound practices in [Chase Bank’s] residential mortgage servicing and in the Bank’s initiation and handling of foreclosure proceedings.”

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In the case of Kahmann v. Commissioner, TC Summary Opinion 2017-35 the IRS was suspicious that the taxpayers had understated their gross income from their business for the year.  Some of this suspicion arose because the taxpayers failed to turn over bank statements for the business to the agent when they were requested. 

The agent was forced to issue summonses to banks where she was aware the taxpayers maintained at least three accounts. She obtained those accounts to be able to perform a bank deposits analysis, looking for unreported income.

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In Rev. Rul. 2017-10 the IRS has published the terminal charge and standard industry fare level mileage rates for the first six months of 2017.  These rates are used under Reg. §1.61-21(g)’s rule for valuing noncommercial flights on an employer-provided aircraft. 

The rates are revised every six months, and these rates cover flights occurring between January 1, 2017 and June 30, 2017.

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In Notice 2017-3 the IRS has set the maximum values for 2017 for employer provided vehicles under which the cents per mile method (Reg. §1.61-21(e)) or fleet-average valuation rule (Reg. §1.61-21(d)) may apply.

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In a letter to Representative Patrick Murphy dated September 23, 2016 the IRS Commissioner stated to payments made to victims of the Orlando mass shootings at the Pulse nightclub in June by charities do not represent taxable income to those victims.

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The taxpayer in White v. Commissioner, TC Memo 2016-167 looked back to a 1919 IRS ruling in support of his position that his payments from a church was not taxable to him due to having taken a vow of poverty.  In what isa citation form that most taxpayer likely have never seen, the taxpayer cited O.D. 119, 1919-1 CB 82.

As the Tax Court noted:

In part, O.D. 119 stated: “A clergyman is not liable for any income tax on the amount received by him during the year from the parish of which he is in charge, provided that he turns over to the religious order of which he is a member, all the money received in excess of his actual living expenses, on account of the vow of poverty which he has taken.”

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The concept of “crowdfunding” has becoming a increasingly important way of getting access to funds for certain projects. In fact, a June 2015 post on Forbes (http://www.forbes.com/sites/chancebarnett/2015/06/09/trends-show-crowdfunding-to-surpass-vc-in-2016/#bce560444b52) indicated that crowdfunding is expected to grow to over $34 billion in 2016, surpassing amounts invested by the venture capital industry.

But what is not terribly clear to many is what the tax treatment of a crowdsourcing program should be, especially given the wide variety in structures and conditions involved in such programs. In Information Letter 2016-0036 the IRS, while not giving a hard and fast answer to the question, did indicate what issues should be considered in determining the tax effects.

The IRS discovered that an S corporation had been “holding back” a large number of checks received in the fourth quarter of its tax year and not depositing them until January of the following year and, not surprisingly being on the cash basis of accounting, not reporting that income until it was deposited in the bank account. Given that the income was constructively received in the earlier year, the IRS issued notices of deficiency that required the taxpayers to pick up that income in the earlier year.

However while the IRS removed the January deposits that were from checks received in the prior year in two of the three years for which it issued notices, the IRS left the January deposits in gross receipts for the first year under exam. The taxpayers in Squeri, et al v. Commissioner, TC Memo 2016-116 protested that the IRS could not do that.

Whether or not certain payments made to employees who participated in an employer’s wellness program was discussed in CCA 201622031.

The memorandum was looking at programs that attempted to differentiate themselves from the program described in Revenue Ruling 2002-3.

The IRS has published the Standard Industry Fare Level (SIFL) rates and terminal charges for the first six months of 2016 in Revenue Ruling 2016-10.