The Tax Court, expanding on its earlier decision in the case of Estate of Belmont v. Commissioner, 144 TC No. 6, found that an estate which did not (unlike Belmont) end up spending a portion of the funds supposedly set aside for charity still failed to meet the requirements of §642(c) to have permanently set aside funds for charity due to a pending legal dispute.

In the case of Estate of DiMarco v. Commissioner, T.C. Memo. 2015-184 the Court found that the estate was aware of a potential contest by both the end of the tax year where it attempted to claim to have set aside the funds and by the date the return was actually filed.  The potential dispute over the estate could reasonably be expected to require an expenditure of estate funds and it more than than remotely possible that the expenditure could be substantial.

Final regulations (TD 9739) have been published by the IRS detailing the requirements for a transaction to be deemed a tax free F reorganization under the provisions found at IRC §368(a)(1)(F).

An “F” reorganization is defined as “a mere change in identity, form, or place of organization of one corporation, however effected.” [IRC §368(a)(1)(F)]  A corporation that is the survivor of an F reorganization takes over all of the attributes of its predecessor and is, for all practical purposes, treated as the same corporation as the predecessor for federal tax purposes.

The IRS has provided in final regulations (TD 9740) that a private foundation may rely in good faith in making a determination that a foreign organization is a charitable organization that is not itself a private foundation by relying in good faith upon written advice from any of the following tax practitioners:

• Attorney
• Certified Public Accountant
• Enrolled Agent

who are subject to IRS regulation via Circular 230 (traditional Circular 230 practitioners).

S corporation have always had issues with the risk of becoming a C corporation by accident. One of the key problems for an S corporations is the risk of having excess passive income (as defined by §1362(d)(3)(C)(i)) if the S corporation is determined to have accumulated earnings and profits as of the end of the tax year. If the corporation has such excess passive income for three straight years, the S election terminates at the end of the third year. [IRC §1362(d)(3)]

Generally, excess passive income is defined as the corporation having passive investment income in excess of 25% of its gross receipts for 3 consecutive years.  Despite the use of the word “passive” the income being discussed here is not generally income related to the passive activity rules of IRC §469.  Rather, passive income is generally defined as gross receipts from royalties, rents, dividends, interest, and annuities. [IRC §1362(d)(3)(C)(i)]  Various special exceptions apply to the inclusion of these types of income, most importantly related to rents derived in the active trade or business of renting property. [IRC Reg. §1.1362-2(c)(5)(ii)(B)(2)]

The fact that the IRS waives a penalty in one year does not require that the IRS must waive the penalty in a later year was the holding of the United States District Court of the District of South Dakota in the case of Battle Flat, LLC v. United States, Docket No. 5:13-cv-05070 (2015 TNT 184-15).

The issue in this case involved a partnership that filed its returns late for a number of years. 

The IRS in Notice 2015-63 provided updated special per diem effective for the period from October 1, 2015 to September 30, 2016.  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 IRS has issued Notice 2015-68 that outlines some clarifications the IRS plans to make to information reporting for minimum essential coverage (MEC).  

The notice covers a number of special situations including as described in its first paragraph:

This notice advises taxpayers that the Treasury Department and the Internal Revenue Service intend to propose regulations under § 6055 of the Internal Revenue Code (1) providing that health insurance issuers must report coverage in catastrophic health insurance plans described in § 1302(e) of the Affordable Care Act enrolled in through an Affordable Insurance Exchange (Exchange, also known as a Health Insurance Marketplace), (2) allowing electronic delivery of statements reporting coverage under expatriate health plans unless the recipient explicitly refuses consent or requests a paper statement, (3) allowing filers reporting on insured group health plans to use a truncated taxpayer identification number (TTIN) to identify the employer on the statement furnished to a taxpayer, and (4) specifying when a provider of minimum essential coverage is not required to report coverage of an individual who has other minimum essential coverage. This notice also invites comments on issues relating to solicitation of taxpayer identification numbers (TINs) of covered individuals; advises that the governments of United States possessions or territories, namely American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands, are not required to report coverage under Medicaid and the Children’s Health Insurance Program (CHIP); and provides that the state government agency sponsoring coverage under the Basic Health Program is required to report Basic Health Program coverage.

The IRS is considering reversing course and issuing regulations under a provision added to the IRC in 1993.  In proposed regulations (REG-138344-13) the IRS proposed a method by which a charity might file an information return with the IRS that would satisfy the contemporaneous acknowledgement requirement for donations in excess of $250 required by IRC §170(f)(8).  However, this guidance would not be effective until after the regulations are published as final only for contributions on or after that date. Thus, this reporting will not be available to taxpayers or organizations for any current or past contributions.

The Tax Court in Steinberg v. Commissioner, 141 TC No.8 (referred to as Steinberg I), reversing the position it had previously taken, held that the value of a gift could be reduced when the recipients of the gift agreed to assume any potential estate tax if the donor died within three years. 

Generally if a donor dies within 3 years of the date of a gift, the value of the gift and the resulting gift tax is added back to the donor’s estate pursuant to IRC §2035(b).  While the estate gets credit for the gift tax paid, the inclusion of the gift tax in the estate results in a transfer tax being imposed on both the gift in question and the gift tax itself.  In the absence of such a provision, a tax could dramatically reduce his/her transfer taxes by making deathbed gifts.

The Tax Court decided that a taxpayer who had voluntarily filed an amended return in response to an IRS examination of her claim of a refundable first time homebuyer credit had not had a previous chance to challenge the tax due in the case of Canaday v. Commissioner, TC Summary Opinion 2015-57.

The issue goes back to the return Ms. Canaday filed for 2008 on April 15, 2009 in which she claimed a first time homebuyer credit.  In 2011 the IRS opened an audit of her return in 2011 and in May of that year she filed an amended return on which she no longer claimed the refundable credit.  On the basis of the return the IRS issued a notice and demand for additional tax.  In 2013 the taxpayer filed a request for audit reconsideration, now apparently believing she really should have qualified for the credit.  The IRS denied that request.

In response to concerns about potential exposure of a private foundation and its manager to the tax under §4944(a) if it makes an investment this not a program related investment (PRI) but which would still further its charitable purposes the IRS issued Notice 2015-62. 

A tax is imposed both on a private foundation and an investment manager if the foundation makes an investment that jeopardizes the carrying out of any of its exempt purposes.

Sometimes there are hardships that may make it difficult for a taxpayer to file certain reports electronically even where such filing is required.  In Revenue Procedure 2015-47 the IRS has issued guidance on requesting such a hardship waiver for plan administrators that are required to file Forms 5500-EZ (Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan) and/or Form 8955-SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits).

If the tax law provides for an application for special treatment to be made in such time and manner as the IRS may require, can a taxpayer make the application if the IRS hasn’t gotten around to writing any regulations or provided other guidance on the subject?  This was the issue addressed by Chief Counsel Memorandum 201537021.

The open transaction doctrine, if applicable to a case (and that’s a really big if), provides that a taxpayer generally treats amounts received as a return of capital until the taxpayer’s basis has been entirely recovered.  Unfortunately for the taxpayers in the case of Friedman v. Commissioner, TC Memo 2015-177, the Tax Court did not find their situation to be one where that doctrine applied.

In Revenue Procedure 2015-44 the IRS has officially terminated the Appeals arbitration program that was currently running with Revenue Procedure 2006-44.  The program was mandated by Congress in IRC §7123(b)(2) where Congress ordered the IRS to establish a pilot program for arbirtration.