IRS Confirms Sequestration Reduction Will Not Apply to §53(e) Corporate Minimum Tax Credit Refunds

The IRS confirmed that AMT credit refunds under the Tax Cuts and Jobs Act will not be subject to reduction under sequestration in an announcement on the IRS website (Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations (fiscal year 2019)).  However, claims for years beginning before January 1, 2018 by taxpayers making an election under IRC §168(k)(4) will be subject to a 6.2% sequestration reduction for claims processed on or after October 1, 2018 and on or before September 30, 2019.

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New York State Publishes Position on Requirements for Out of State Sellers to Collect Sales Tax

New York has published guidance on how it will handle out of state sellers following the Wayfair decision in Notice N-19-1.  The Notice provides:

A business that had no physical presence in New York State but has both made more than $300,000 in sales of tangible personal property delivered in the state and conducted more than 100 sales of tangible personal property delivered in the state in the immediately preceding four sales tax quarters is required to register as a sales tax vendor, and collect and timely remit the applicable state and local sales tax. 1 The sales tax quarters are: March 1 through May 31, June 1 through August 31, September 1 through November 30, and December 1 through February 28/29.

Note that, unlike South Dakota’s requirement to collect the tax if a taxpayer has over $200,000 in sales or 100 transactions, in this case, the seller has to have both $300,000 in sales and more than 100 sales in a year.  However, while New York’s standard is more forgiving here than South Dakota’s, the announcement is not all good news for out of state sellers.

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Limited Waiver of Underpayment of Estimated Tax Penalties Offered to Individuals on 2018 Taxes

The IRS has announced a somewhat modest waiver of underpayments of 2018 estimated taxes in Notice 2019-11.

Due to changes in the tax law under the Tax Cuts and Jobs Act, the IRS modified the withholding tables and calculations. However, many employees simply used the withholding allowances they had used in the past rather than going through the IRS withholding calculator.  As well, the calculator does not necessary properly take all situations into account.

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Supreme Court to Review Case Regarding When a State May Impose Its Income Tax on a Trust

The US Supreme Court has agreed to look at under what circumstances a state can impose its income tax on a trust by granting certiorari in the case of North Carolina Dept. of Revenue v. Kaestner Family Trust, Case No. 18-457.

Last July the North Carolina Supreme Court decided that the state had no right to impose its income tax on a trust that, while it had a North Carolina beneficiary, was established in New York, did not have a North Carolina trustee and had no property in North Carolina.  (See the prior article on Current Federal Tax Developments that discussed the original case along with another case on state taxation of trusts at Two States Find Their State’s Statutes for Taxing Trusts Violate Due Process Clause.)

Image copyright Moal Olivier

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Income Verification and Certain Other User-Fee Programs Reopened by IRS

The IRS announced that the agency will reopen the Income Verification Express Program and some user-fee based program (IRS Statement - IRS Reopens IVES, Some Fee-based Programs,  These programs had been suspended during the government shutdown.

The IRS statement notes the reasons why the agency is reopening these programs:

While the IRS remains closed during the partial government shutdown, the agency recognizes the immediate hardship incurred if information is not available through the Income Verification Express Service (IVES) program as well as by taxpayers who have been unable to certify their residency in the United States for certain tax treaty benefits or by those who have been unable to obtain photocopies of tax returns.

Photo by Finn Hackshaw on Unsplash

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Syndicate Rules May Create Problems for Small Businesses and §163(j) Interest Limits

An exception to the general rule that small businesses are exempt from the §163(j) limits on the deduction for business interest applies to any entity that is a “tax shelter.”  The most likely problem to arise that many may not initially notice is that the organization might meet the definition of a syndicate.

In an article published on January 11, 2019, Tax Notes Today had a story that featured comments from Tony Nitti, CPA that discussed the potential issues that may arise with the interest deduction limitation under §163(j) and the syndicate rules

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Second Draft Version of Publication 535 Removes Real Estate and Insurance Agents/Brokers from SSTB Category

In the full draft revision (January 7, 2019) of Publication 535, the IRS removed the language that had previously included real estate agents and insurance agents as specified service trades or businesses from the full publication.

In a previous version of the document the IRS, issued on December 19, 2018, the IRS had provided the following definition of a brokerage business:

Brokerage services, including arranging transactions between a buyer and a seller for a commission or fee such as stock brokers, real estate agents and brokers, insurance agents and brokers, (emphasis added) and intellectual property brokers;

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Filing Season Set to Begin on January 28, Refunds to Be Issued Even if Partial Government Shutdown Continues

In News Release IR-2019-01 the IRS announced that it will begin processing tax returns this year on January 28, 2019 and, despite the partial government shutdown, will issue refunds that may be due on returns filed this year.

The release notes:

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

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Discussion Draft for Technical Corrections for TCJA Posted by Representative Brady

The day before moving from Chairman of the House Ways and Means Committee to the ranking member of the committee, Rep. Kevin Brady released a discussion draft of the technical corrections to the Tax Cuts and Jobs Act.

Normally I’d not not worry much about a document issued by the ranking minority member of the committee, but in this case it does outline what a principal author of TCJA now believes needs to be fixed. Time will tell how many of these changes make it into law.

Discussion Draft of Technical Corrections for TCJA

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IRS Significantly Raises Limits On Value of Vehicles for Cents Per Mile and Fleet-Average Valuation Rule

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.

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IRS Issues Safe Harbor Procedure on Charitable Contribution Credits That Apply to Payments Made for a Trade or Business

(Modified to add commentary on applicability date of the safe harbor)

In Revenue Procedure 2019-12 the IRS released a set of safe harbor rules that apply to C corporations and certain passthrough entities that receive a state tax credit for amounts paid to organizations qualified under §170(c).

The procedure was issued in response to proposed regulations issued in 2018 that will apply to charitable contributions made by individuals after August 27, 2018. In such cases, an individual must reduce any charitable contribution claimed by any state tax credit received for making the contribution exceeds 15% of the contribution amount.

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Loan Financial Adviser Found Not Liable to Repay in FINRA Action Treated as Ordinary Income

In the case of Connell v. Commissioner, TC Memo 2018-213, the taxpayer (who was employed by Merrill Lynch) attempted to classify the amount of a loan that was forgiven as part of a Financial Industry Regulatory Authority’s (FINRA) decision in a dispute he had with Merrill Lynch as a capital gain.

The taxpayer had been a financial adviser since 1974.  In 2009 when he discovered that Smith Barney, with whom he was then associated, was going to be acquired by Morgan Stanley, he decided to look for other employment opportunities.  The best offer he received was from Merrill Lynch which he accepted.

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IRS Draft Publication Includes Real Estate and Insurance Agents and Brokers as SSTBs

On January 7, 2019 the IRS issued a revised draft version of the publication that returns to the position taken in the proposed regulations. Click here to go to that story.

The draft copy of the §199A  section of Publication 535 released by the IRS on December 19, 2018, in describing what is a specified service trade or business has language in it that does not track what was found in the proposed regulations released in August.  The issue involves whether “services performed in the field of brokerage services” includes services performed by real estate agents, real estate brokers, insurance agents, etc. or is limited to the brokerage of financial products.

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Final Regulations for CPAR Audit Regime Released by the IRS

The IRS has issued the final version of regulations for the new centralized partnership audit regime (CPAR) that will apply to tax returns for partnership tax years beginning after December 31, 2017. This set of final regulations completes the regulations on CPAR. Separate sets of final regulations that deal with the election out of the CPAR regime and the partnership representative had previously been released.

The proposed regulations can be downloaded from the IRS website via the following link:

TD 9844 - Final CPAR Regulations

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Revenue Procedure Released to Deal with ADS Depreciation Issues for Electing Farm and Real Property Businesses and Section 179 Changes Found in TCJA

In Revenue Procedure 2019-08 the IRS gives information on the following items following the enactment of the Tax Cuts and Jobs Act:

  • Qualified real property under IRC §179;

  • Alternative depreciation system (ADS) depreciation of real property with the new 30 and 40 year lives; and

  • Handling the transition to ADS depreciation for certain property of electing farming and electing real property businesses.

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