Real Property Foreclosure and Cancellation of Debt Audit Technique Guide Issued by IRS

The IRS issued a new Audit Technique Guide entitled Real Property Foreclosure and Cancellation of Debt Audit Technique Guide that is meant to provide guidance to agents who encounter issues involving foreclosures and/or cancellation of debt.  However, as is true of many other such guides, the guide also provides a reasonably useful primer on the tax treatment in this area and contains some hints about the National Office of the IRS’s thinking on certain issues that may not be clear.

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Innocent Spouse Relief Denied Based on Fact Taxpayer Would Have Discovered Errors Had She Looked at Reurn

In the case of Panetta v. Commissioner, TC Summary Opinion 2015-16, the Tax Court did not have sympathy for a taxpayer claiming innocent spouse relief when:

  • The underpayment arose from excess expenses claimed in the business she ran and
  • She failed to review the returns prepared by her ex-husband before they were filed
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Fifth Circuit Strikes Down Tax Court View that §1234A Eliminates Ordinary Loss on Abandonment of Capital Asset

In the view of the Tax Court (but not the Fifth Circuit) the taxpayer and the IRS didn’t understand the real issue, but the Tax Court sent them back to look at the issue in a different way, resulting in a potentially significant decision in the case of Pilgrim’s Pride Corporation v. Commissioner, 141 TC No. 17.  The case ended up turning on the issue of whether it is possible for a taxpayer to achieve an ordinary loss when abandoning a security under the current version of IRC §1234A.

While the decision has been overturned on appeal (Pilgrim’s Pride v. Commissioner, CA5, 115 AFTR 2d ¶ 2015-477, reversing 141 TC No. 17), it remains to be seen if the Tax Court will continue to apply this view of IRC §1234A outside the confines of the Fifth Circuit.

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Proposed Revenue Procedure That Would Provide Safe Harbor Slot Machine Session Treatment Issued by IRS

The IRS has proposed, via Notice 2015-21, an optional “safe harbor” method of determining slot machine sessions for purposes of tracking gambling wins and losses.  The notice contains a proposed revenue procedure that would be effective for tax years ending on or after its date of publication.  So it’s important to note the IRS is neither endorsing this method for returns currently being prepared, nor giving any assurance that this method will be respected for 2015.

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FEMA Issued Form 1099C Years After Actual Cancellation of Debt, Taxpayer Not Liable for Tax in Year IRS Questioned

Erroneous Forms 1099C continue to plague clients and they often come from sources that an adviser would think should know better.  In the case of Bacon v. Commissioner, TC Summary Opinion 2015-15 the offending issuer was, like in the case of Kleber v. Commissioner, TC Memo 2011-233, an agency of the United States government, though this time it was the Federal Emergency Management Agency (FEMA) rather than the U.S. Navy.

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Relief from Estimated Tax Penalties Provided for Farmers and Fishermen Unable to File 2014 Returns by March 1, 2015 Due to Erroneous Forms 1095-A

With the problems arising from the erroneous Forms 1095-As issued by the Department of Health and Human Services that was announced on February 20, the IRS advised taxpayers to hold off on filing returns until corrected forms were issued.  However, certain qualifying farmers and fisherman can qualify for relief from the general requirement to pay estimated taxes quarterly, being able to pay the entire balance due with their return without a penalty so long as it is filed on or before March 1 of the following year.

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Truck Dealer's Service Buildings Not Asset Class 57.1 Property, Required to Use 39 and Not 15 Year Recovery Period

In Chief Counsel Advice 201509029  the IRS disagreed with a taxpayer’s position that certain buildings on the taxpayer’s new and used heavy and medium-duty trucks and trailers sales and leasing facility qualified as 15 year property under asset class 57.1 of Revenue Procedure 87-56.  Assets in that classification qualify for a 15 year, rather than 39 year, life for purposes of depreciation.

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Late Election Relief Granted Where Partnership Tax Adviser Failed to Follow Through on Providing Guidance to LLC Members on Making Qualified Real Property COD Election

Sometimes events occur during an engagement that can cause an advisor to lose focus and fail to take into account issues the adviser knows about.  That appears to have been the case in a series of private letter rulings, each of which basically duplicates what is found in PLR 201509020.

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IRS Asks for Comments on Guidance to Be Issued on Cadillac Plan Tax That Takes Effect in 2018

The next item the IRS has turned its sights on with regard to the Affordable Care Act is the “Cadillac tax” found in IRC §4980I on high cost coverage that will take effect for taxable years beginning after December 31, 2017.  In Notice 2015-16 the IRS details proposed approaches to dealing with various issues under that tax.

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Whistleblower Settlement Taxable as Ordinary Income, Not Excludable as Personal Injury Settlement Nor a Capital Gain from Sale of Personal Goodwill

In the case of Duffy v. United States, US Court of Federal Claims, 115 AFTR 2d ¶2015-438 the taxpayers were looking to either exclude $50,000 in a legal settlement from income or have it taxed as capital gains—and they succeeded in neither attempt.

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Procedures for Obtaining Work Opportunity Credit Certifications for 2014 Hires Outlined by IRS

The IRS has issued another notice to “clean up” problems created by Congress’s delay in extending expired code provisions, waiting until late December to pass the Tax Increase Prevention Act of 2014 (TIPA 2014).  In Notice 2015-13 the IRS provided procedures to be used for employers that hired individuals that retroactively qualify as “targeted” individuals during the period where the work opportunity credit under IRC §51 had expired. 

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Attempt to Avoid Fees on Transferring IRA Creates Late Rollover, IRS Grants Relief

A taxpayer who received advice from an adviser at a financial institution to which he planned to transfer her IRA was given relief by the IRS in PLR 201508021.  That by itself is not unusual, but the nature of the “deficiency” in the advice was a bit unusual, as the situation was one where the IRS could have concluded that this was actually a taxpayer error, something the IRS has generally not been willing to forgive.

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Estate Did Not Permanently Set Aside Funds for Charitable Purpose When It Knew of Possibility of Prolonged Litigation

The Tax Court had to decide when a part of the gross income of an estate is considered “permanently set aside” for a charitable purpose as defined in IRC §642(c)(2) in the case of Estate of Belmont v. Commissioner, 144 TC No. 6.  In such a situation an estate would be allowed a charitable contribution deduction for the year in which this occurred.

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Methods for Obtaining Electronic Consent for Employer to Request Refunds of FICA Published in Proposed Form

In Notice 2015-15 the IRS attempts to address what constitutes employee’s consent to support a claim for refund of FICA taxes by an employer.  Specifically the notice contains a proposed revenue procedure that would provide for requirements for employers who obtain electronic consent from their employees. 

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