Certain Exempt Organizations Granted Waiver from Estimated Tax Penalties Arising from Parking Lot Tax

Additional relief, in the form of a waiver of penalties on underpayment of estimated taxes due on Form 990-T, has been given to certain tax-exempt organizations for 2018 in Notice 2018-100.  The guidance was issued on the same day as Notice 2018-99 which provided guidance on computing the amount of employee parking benefit that is to be treated as UBTI by the exempt organization.

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IRS Provides Temporary Guidance on TCJA Changes to Employer Providing Parking

In Notice 2018-99 the IRS has provided guidance to employers and tax-exempt organizations attempting to deal with provisions in the Tax Cuts and Jobs Act dealing with employer-provided parking.

As the Notice explains:

As amended by the Act, § 274(a)(4) generally disallows a deduction for expenses with respect to QTFs provided by taxpayers to their employees, and § 512(a)(7) generally provides that a tax-exempt organization’s UBTI is increased by the amount of the QTF expense that is nondeductible under § 274.

The notice provides guidance on computing the amount of disallowed deduction (for taxable entities) and UBTI (for tax-exempt organizations) to be recognized under this provision.

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IRS Provides Guidance on Deferral for §83(i) Stock, Allows Employers to Effectively Opt-Out of the Program

Notice 2018-97 provides guidance to taxpayers about issues related to IRC §81(i), a provision added by the Tax Cuts and Jobs Act that allows employees in certain situations to defer recognition of income when receiving stock or having an interest in such stock vest.

The Notice as meant to provide some additional clarity in the application of this provision for three areas:

  • The application of the requirement in section 83(i)(2)(C)(i)(II) that grants be made to not less than 80% of all employees who provide services to the corporation in the United States,

  • The application of federal income tax withholding to the deferred income related to the qualified stock, and

  • The ability of an employer to opt out of permitting employees to elect the deferred tax treatment even if the requirements under section 83(i) are otherwise met.

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IRS Releases Automatic Change Revenue Procedure for TCJA Revenue Conformity

The IRS has addressed how taxpayers will gain permission to change their methods of accounting to comply with changes made by Congress in the Tax Cuts and Jobs Act to IRC §451 (found at IRC §451(b)) that require a taxpayer with an “applicable financial statement” (AFS) who is recognizing revenue for tax purposes under the accrual basis using the all events test to treat the test as satisfied no later than when revenue is recognized in the AFS.  The guidance is found in Revenue Procedure 2018-60.

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Taxpayer Still Must Provide Some Evidence Related to Business Use of Cell Phone

Beginning in 2010 cellular telephones were no longer considered “listed property” subject to the strict substantiation rules of IRC §274(d).  But, as was noted, in the case of Archuleta v. Commissioner, TC Summary Opinion 2018-55, that doesn’t mean that a taxpayer should not have documentation of the expense and what portion related to business use.

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Taxpayer Warned About Filing Tax Court Petitions Primarily for Delay

While taxpayers have a right to take disputes to the U.S. Tax Court and payment of the amount due is delayed until the proceeding is complete, under IRC §6673 the Court is authorized to impose up to a $25,000 penalty if it appears the Court was being used primarily to delay payment.  In the case of The Community Law Firm Inc. v. Commissioner, TC Memo 2018-198 the taxpayer was warned that their history suggested they were filing in the Tax Court principally to delay action and that continuing this practice could lead to the imposition of the penalty.

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IRS Fails to Show Taxpayer's Action Was a Change of Accounting Method

In the case of Thrasys, Inc. v. Commissioner, TC Memo 2018-199, the Tax Court found that the IRS was not entitled to summary judgment on the agency’s argument that the taxpayer had engaged in a prohibited change of accounting method.

A taxpayer is prohibited from changing an accounting method without IRS permission.  As the Tax Court explained:

A taxpayer generally “may adopt any permissible method of accounting” when filing his first return. Id. para. (e)(1); see Pac. Nat'l Co. v. Welch, 304 U.S. 191, 194 (1938). But a taxpayer who “changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary.” Sec. 446(e); see Silver Queen Motel v. Commissioner, 55 T.C. 1101, 1105 (1971) (“[T]he notion of changes in accounting method necessarily implies that a new accounting method is being substituted for a previously regularly used accounting method.”).

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IRS Extends Most 2018 Withholding Interim Rules to Cover 2019

After deciding in September 2018 to give up on the revisions to Form W-4 found in the draft 2018 Forms W-4 released in June, the IRS in Notice 2018-92 has decided to continue for the most part with interim rules that were found in Notice 2018-14 for the 2018 tax year and, in the case of one such rule, until April 30, 2019.

The IRS, facing criticism regarding the more complex draft Form W-4 initially proposed, had indicated on September 20, 2018, that implementation of the revised Form W-4 fully incorporating changes made in the Tax Cuts and Jobs Act (TCJA) would be delayed until 2020.  The IRS will be releasing a 2019 Form W-4 before the end of this year that will make “minimal changes to the 2018 Form W-4.”

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Anti-Clawback Proposed Regulations Released by IRS

After having faced criticism for not addressing the clawback issue in previous tax laws, Congress granted the IRS explicit authority[1] to issue regulations to prevent “clawback” of prior gifts if the increased basic exclusion amount (BEA) provided for in the Tax Cuts and Jobs Act (TCJA) reverts to a lower amount after 2025 as also provided for in TCJA.  The IRS has issued proposed regulations (REG-106706-18) to provide information on the anti-clawback protect to be provided for the estates of those “unlucky” enough to live to see 2026.

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S Shareholder Likely Cannot Be Penalized Under IRC §6695(g), but Corporation Itself May Be Liable

In Chief Counsel Email 201846005 the IRS discusses the potential issues with imposing the due diligence penalty under IRC §6695(g) against the 25% owner of an S corporation.  The issue related to the risk of hazards of litigation in such a pursuit.  But the email gives information on the application of this penalty.

Under IRC §6695(g), a tax preparer may be penalized for failing to exercise due diligence in his/her preparation of returns if certain information is not obtained for taxpayers claiming certain benefits.  Originally the penalty was limited to claims for the earned income tax credit, but Congress has expanded the penalty to cover claims for the child tax credit, additional child tax credit and American opportunity tax credit.  In the Tax Cuts and Jobs Act Congress branched out beyond credits to impose the requirements on preparers of a return where the taxpayer claims head of household filing status.

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Taxpayer, Never Having Filed a Joint Return, Could Not Obtain Innocent Spouse Relief

A taxpayer who filed her petition in Tax Court asking for innocent spouse relief under IRC §6015 discovered that the Tax Court could not offer her relief because there, in fact, had not been a joint return filed.  In the case of Abdelhadi v. Commissioner, TC Memo 2018-183, the Tax Court ruled that because she had filed a petition for redetermination of the deficiency, the Court could only rule whether she was entitled to §6015 style relief—and, not having actually filed a joint return, there was no such relief available.

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Opportunity Zone Proposed Regulations Issued

The IRS has issued proposed regulations dealing with certain aspects of qualified opportunity funds. I have a number of sessions on the East Coast I am in the middle of presenting and haven’t had time to write up a detailed outline of the regulations.

But I will cover the regulations in the audio and video podcast for October 22 that will be posted on this site (https://www.currentfederaltaxdevelopments.com/podcasts/ is the page with the most often weekly presentations).

And I have also created a copy of the IRS PDF that has Adobe bookmarks for the regulations and preamble that can make it easier to work with the document as you are planning for clients that you can download below.

Proposed Regulations for Opportunity Zones with Adobe Bookmarks.

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Pastoral Offerings Were Taxable Compensation to Pastor Despite Not Requesting Such Contributions

In the case of Felton v. Commissioner, TC Memo 2018-168, the Tax Court was faced with a minister who claimed that $200,000 given to him by parishioners in addition to their regular offers were gifts and not compensation.

The issue has its beginnings in a tradition for some evangelical churches that Reverend Felton discovered as he began his career in the ministry.  As the opinion notes:

Reverend Felton found his vocation at Tuskegee University, where he assisted the dean of the school’s chapel while still a student. He also first learned about “shake-hand” money at that chapel — the custom in some evangelical churches of handing donations to the pastor on the way out of the church. Reverend Felton didn’t like the way the chapel handled these donations and silently resolved to do things differently if he ever had a church of his own to run.

The church Reverend Felton presided over used envelopes to allow members of the congregation to designate what their contributions would be used for, including a line that allowed for pastoral contributions.  Contributions made with such envelopes would be accounted for by the church, with the donors given statements regarding their contributions. 

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Treasury Officials Discuss Issues Related to §199A

Since the passage of the Tax Cuts and Jobs Act, the meetings of the American Bar Association Section of Taxation have produced comments from officials with the Treasury and the IRS that have given hints to the shape of future guidance to be issued on the law.  The October meeting in Atlanta has produced new information about the application of the provisions of §199A.

The proposed regulations issued earlier this year provided for a de minimis rule where the performance of what would be in the category of a specified service trade or business would not cause the underlying business to be treated as such if the gross receipts were below specific floors.  For a business with gross receipts of $25 million or less, the floor is set at 10% or less of gross receipts.  For businesses with gross receipts above $25 million, the floor drops to 5% or less of gross receipts.

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Proposed Regulations on SALT Workaround Do Not Impact Deductions Under Other Provisions of the Law

In Information Letter INFO 2018-0030 the IRS has given limited additional information on the clarification the agency issued on September 5 regarding the state tax deduction workaround proposed regulations on August 23 (REG-112176-18).

The proposed regulations would require taxpayers to reduce charitable contribution deductions by the amounts of any state tax credits received for contributing if the credit exceeds 15% of the amount of the contribution.  In the later clarification, the IRS and Treasury stated that this regulation did not change the treatment of amounts paid that might be deductible under IRC §162(a) as an ordinary and necessary business expense.

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