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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IRS Revises EPCRS Guidance with Main Changes in VCP Program Application and Payment

A 120-page revision to the Employee Plans Compliance Resolution System (EPCRS) has been issued by the IRS in Revenue Procedure 2018-52.  This system involves three distinct programs that deal with compliance issues arising in qualified retirement programs.  These programs are:

  • Self Correction Program (SCP)

  • Voluntary Correction Program with IRS Approval (VCP)

  • Audit Closing Agreement Program (Audit CAP)

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IRS Publishes Revised Special Per Diem Rates for Period from October 1, 2018 to September 30, 2019

The IRS in Notice 2018-77 provided updated special per diem effective for the period from October 1, 2018 to September 30, 2019.  These special rates include the rate for the special transportation industry meals and incidental expenses (M&IE) rate, the rate for the incidentals-only deduction and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The special transportation industry rates for 2018-2019 are $66 for any locality of travel in the continental United States and $71 for any locality of travel outside the continental United States.  These rates are the same as applied in the prior year.  The general rules for qualifying to use these rates and how to use them are found in Section 4.04 of Revenue Procedure 2011-47.

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IRS Issues Notice on Using Credit for Paid Leave Programs

Guidance has been issued by the IRS for employers looking to claim a credit under IRC §45S for paid family and medical leave in Notice 2018-71.  This provision was added to the law for two years as part of the Tax Cuts and Jobs Act (TCJA) enacted in late 2017.

Under the Family and Medical Leave Act of 1993 (FMLA) an employee is required to grant covered employees up to 12 weeks of leave for certain medical issues arises related to their health or that of certain related persons.  However, an employer is not required to pay employees while on such leave.  Rather, FMLA was meant to assure the employee had a job to return after coming back from such leave.

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Qualified Moving Expenses Incurred in 2017 Can Be Reimbursed by Employer Tax Free in 2018

Employer reimbursement of an employee’s moving expenses are no longer excludable from income under the Tax Cuts and Jobs Act.  But the law was not totally clear on whether the exclusion would apply for reimbursements paid in 2018 for moves conducted in 2017.  In Notice 2018-75 the IRS clarified that reimbursements made by an employer in 2018 for amounts paid in 2017 would continue to be excludable under the pre-TCJA rules.

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Taxpayer to Be Allowed to Attempt to Show Reasonable Cause for Failure to Supply Basis for Noncash Contribution

In the case of Belair Woods LLC v. Commissioner, TC Memo 2018-159, the Tax Court found that a taxpayer had neither fully nor constructively complied with the documentation requirements for a charitable contribution.  The Court held that this action constituted a failure in compliance despite the taxpayer having received advice from a consultant that an attorney had indicated that providing basis in the case of a contribution was not truly required.  

However, the Court determined that even though the taxpayer’s position was clearly wrong, there was still a possibility the taxpayer might be able to show it had reasonable cause for its failure that could preserve the deduction.  However, whether it had such cause or not must be determined in a later proceeding, since several material facts remained to be shown by the taxpayer to justify its reliance on the information relayed from the attorney.

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Qualified Retirement Plan Safe Harbor Explanations for Recipients Updated by the IRS

The IRS has revised the safe harbor notices for notices to qualified retirement plan participants who receive an eligible rollover distribution in Notice 2018-74, modifying and updating Notice 2014-74. The Notice was issued to update those documents for the following issues per the IRS explanation:

The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”), P.L. 115-97) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47, 2016-37 I.R.B. 346), and include other clarifying changes.

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