IRS Plans to Issue Regulations Prohibiting Defined Benefit Plans From Offering to Accelerate Annuity Payments Being Made to Satisfy Required Minimum Distribution Rules

In Notice 2015-49 the IRS announced that it proposes to amend the regulations related to required minimum distributions under IRC §401(a)(9) to provide a defined benefit plan will generally not be permitted to replace any annuity being paid with a lump sum payment or other accelerated form of distribution.  The IRS plans to make these regulations effective generally as of July 9, 2015.

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Substantial Compliance Not Sufficient to Save QDRO, But Order Correcting Deficiencies After Death Creates a Valid QDRO

In the case of Yale New Haven Hospital v. Nicholls v. Nicholls, No. 13-4725-cv, CA2, reversing in part, revising in part US DC Connecticut, No. 3:12-cv-01319-WWE, the Second Circuit Court of Appeals had to determine if benefits in four plans had been partially assigned to the decedent’s former spouse via Qualified Domestic Relations Order. 

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Guidance Provided to Hospitals on Publication of Provider Lists as Part of Financial Assistance Policy

Notice 2015-46 provides guidance to charitable hospitals on how to comply with the requirement in Reg. §1.501(r)‑4(b)(1)(iii)(F) that a hospital must include a provider list in its financial assistance policy (FAP).   The list must include all providers, other than the hospital itself, that deliver care in the facility and specify whether the individual providers are or are not covered by the FAP.

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Pump and Dump Scheme Did Not Equate to Theft, So Loss on Shares was Capital Rather Than Ordinary

In the case of Greenberger, et al v. Commissioner, 115 AFTR2d ¶2015-844, US DC ND Ohio, No. 1:14-cv-01041 the issue is not whether the taxpayers had incurred a deductible loss—the IRS agreed that was so.  Rather the question was the nature of the loss.

Specifically the issue was whether the loss represented a theft loss (deductible as an ordinary loss under IRC §165 or was rather a capital loss that could only offset other capital gains or be slowly absorbed against $3,000 of other income each year.

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Fact Refund Claim Is Still Sitting in Taxpayer's Account as a Credit for a Future Year Does Not Allow IRS to Revise Amount of Refund Allowed

In Chief Counsel Email 201526007 the IRS addressed the issue of whether the IRS retained the right to supplement or amend a refund claim due to the fact that a credit from that claim is remains available for use in the taxpayer’s account.

While emails generally only give us one side of the conversation (and thus often omit significant facts), it appears an IRS employee was wondering about the ability to supplement or amend a prior protective refund claim on which the IRS had acted by allowing a claim and then crediting it to the taxpayer’s account to be used for future taxes.  Thus a change in the allowed claim would flow directly to the balance that was available to be applied against the taxpayer’s tax liability in a period that was still open.

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Penalty Relief Available for Taxpayers Who Fail to Make Tax Deposits by Electronic Means Due to Inability to Obtain a Bank Account

The IRS has issued a memorandum that outlines relief available for taxpayers unable to comply with the electronic tax deposit requirements for taxes and thus are subject to a potential penalty of 10% of such taxes under IRC §6656.  In SBSE-04-0615-0045 the IRS has provided guidance to its employees regarding reasonable cause penalty relief for taxpayers unable to obtain a bank account in time to make the deposit.

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Supreme Court Rules Health Care Credits Available to Individuals in Federal Exchanges

While obtaining conflicting results in different Circuit Courts of Appeal on matters occurs from time to time, it’s not often the conflicting decisions are issued on the same day.  But this is what occurred with regard to the validity of IRS regulations for the premium tax credit under IRC §36B.

The Court of Appeals for District of Columbia found that the regulations were invalid in the case of Halbig, et al. v. Burwell, CA DC, 114 AFTR 2d ¶ 2014-5068.  However, the Fourth Circuit concluded that the regulations were valid in the case of King v. Burwell, 114 AFTR 2d ¶ 2014‑5071.

When this occurs, the Supreme Court often steps in and, in a case of this importance, is virtually forced to do so.  In its decision in the appeal of the Fourth Circuit decision the Court, in a 6-3 decision, decided that the Fourth Circuit was correct—the regulations were valid, though the exact logic of the opinion suggests that the issue actually had to be decided by the United States Supreme Court (King v. Burrell, USSC, No. 14-114, 115 AFTR 2d ¶2015-841)

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Failure to Provide Factual Support for Claimed Disability Costs Taxpayer Change of Avoiding 10% Addition to Tax

While in update courses we tend to discuss the nuances of the law, in real world tax return and IRS examination contexts our client’s problems most often are not the law, but rather the lack of records and documentation to establish the client’s right to a claimed tax benefit.  That certainly was the problem in the case of Trainito v. Commissioner, TC Summary Opinion 2015-37.

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Final Portability Regulations Issued by IRS

With the temporary regulations on portability set to expire at the end of June, 2015, the IRS issued the final regulations on the portability election under IRC §2010 in TD 9725.  These regulations generally apply to estates of decedents dying on or after June 12, 2015 and gifts made on or after that date.

Generally the portability rules are one of the most significant developments in the area of estate taxation since the introduction of the unlimited marital deduction for transfer tax purposes in the Economic Recovery Tax Act of 1981 and, when combined with the significantly increased unified credit, significantly modifies the issues to be decided when a couple establishes an estate plan. 

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No Closing Letters to Be Issued for Estate Returns Filed After June 1, 2015 Unless Taxpayer Specifically Makes a Request

The IRS announced a change in policy regarding estate tax closing letters in their web pages.  On the page labeled “Frequently Asked Questions on Estate Taxes” (FAQ) the IRS announced that for estate returns filed on or after June 1, 2015 the IRS will no longer automatically issue closing letters.

For returns filed after June 1, 2015 the IRS will only provide closing letters if requested by the taxpayer.  The FAQ does not contain information about how taxpayers are to initiate such requests or details of the process, including whether the IRS plans to charge a user fee for obtaining such a letter.

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Nonrecourse Determination for Debt under §752 Does Not Control Treatment for Nature for Determining Cancellation of Debt Rules for §61(a)(12)

In tax law (and, in fact, law in general) confusion may reign because words are often given a specific definition in a particular context—such as when dealing with a particular statute or regulation.  That limited scope may exist even though an identical term is used in a very similar context—such as the same term having different (though somewhat related) meanings for two different provisions of the Internal Revenue Code.

In Chief Counsel Advice 201525010 the IRS looks at the issue of “nonrecourse debt” under the tax law and the fact that the term is used in two very different contexts.

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Proposed Regulations on Which Taxpayers May Rely Issued for ABLE Accounts

The IRS announced in New Release IR-2015-91 that the agency has issued proposed regulations for the Achieving a Better Life Experience (ABLE) accounts created by Congress in December of 2013.  Such state sponsored accounts are available to benefit certain individuals who had a disability condition that began before their 26th birthday.

The proposed regulations, found at REG-102837-15, provide guidance to the states setting up such programs, designated beneficiaries of such programs and other interested parties.  These regulations are meant to provide the more detailed guidance the IRS referred to in Notice 2015-18.

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IRS Office of Professional Responsibility Concedes That Case Law Holds It Lacks Authority to Regulate Tax Return Preparation

The IRS Office of Professional Responsibility has apparently “thrown in the towel” regarding the 2014 holding of the United States District Court for the District of Columbia in the case of Ridgely v. Lew, et al, USDC DC, No. 1:12-cv-00565, 2014 TNT 138-11 that the OPR does not have the authority to regulate tax return preparation under Circular 230.

In Fact Sheet FS-2015-19 the IRS provides information about online information provided by the agency about Circular 230.  But at the end of the second paragraph of the fact sheet the agency concedes that “[t]ax return preparation is not “practice” as currently defined by case law.”

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2015 Security Summit Report Released Addressing Actions to Take to Combat Tax Related Identity Theft

Identity theft (IDT) related to tax returns has become a growing problem for many of our clients—and we quite often get to break the news to the client when a client’s electronically filed return gets rejected because a return has already been filed.  The IRS brought together a group of interested parties in the tax arena to form a group to work on dealing with the problem.  The parties included state revenue departments and most of the major tax software vendors (including Intuit, CCH and Thompson Reuters).

The group has issued a 2015 Security Summit Report that outlines recommendations for the taxing agencies and tax professionals to attempt to control the identity theft problem.

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IRS Issues Audit Technique Guide on Nonqualified Deferred Compensation Plans

The IRS has issued a new audit guide.  The Nonqualified Deferred Compensation Audit Techniques Guide (June 2015) has been issued by the IRS to guide agents in examining such programs.

The guide considers issues in all aspects of nonqualified deferred compensation (NQDC) arrangements, including:

  • Timing of inclusion in income and deduction by employer
  • Constructive receipt and economic benefit doctrines
  • Payroll tax implications of such plans
  • Application of the provisions of §409A to such plans
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Fact IRS May Have Had Knowledge of Omission from Unrelated Exam Was Not a Bar to Assessment Under Six Year Extended Statute

The Eighth Circuit, in the case of Heckman v. Commissioner, Docket No. 14-3251, affirming TC Memo 2014-131, held that a taxpayer did not escape the six year statute of limitations for assessments when the taxpayer claimed the IRS had been made aware of the underlying issues during an examination of the retirement plan from which the taxable distribution arose.  The IRS, per the taxpayer, became aware of the existence of the distribution during that exam prior to the expiration of the standard three-year statute of limitations.   But the Eighth Circuit found that the IRS was not required to pursue needles in the haystack of information that might otherwise be vaguely available to the agency.

The plan in question as an employee stock ownership plan which, during the examination in question, had its status as a qualified plan revoked.  The plan in question had not filed a Form 5500 for 2001-2003, a fact the IRS did not notice until April 2007 during an unrelated examination.

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