Notice 2016-16 provides a vehicle under which mid-year changes can be made to a safe-harbor §401(k) plan that will not be held to violate the safe harbor rules.

A major complicating factor when attempting to operate a §401(k) retirement plan in small and mid-sized businesses arising from the need to meet tests meant to insure that the benefits aren’t utilized to a significantly larger extent by the highly compensated employees (HCEs) as compared to non-highly compensated employees.  Elective contributions made by highly compensated employees are subjected the actual deferral percentage limitations (ADP testing) while an actual contribution percentage test (ACP testing) is applied to matching contributions and employee contributions.

Just in time for Groundhog Day, the IRS has now released the final version of both Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and the related instructions to the form.

The IRS has issued proposed regulations under IRC §401(a) (REG-147310-12), on which taxpayers may rely upon, that outline retirement age rules for government retirement plans, specifically providing for allowable normal retirement ages (NRA) under such plans.

The date of the “transaction” that lead to a failure-to-file penalty under IRC §6651(a)(1) was interpreted differently by the U.S. District Court that heard the appeal than by the original Bankruptcy Court in the case of United States v. Wilson, DC ND Cal., Case No. 3:15-cv-04118 reversing Wilson v. United States, Case No. 14-1106 (Bankr. N.D. Cal).

In the case of Davis v. United States, CA9, No. 13-16458, 117 AFTR 2d ¶ 2016-368 there was no question the IRS had failed to comply with a closing agreement reached with the partnership of which Mr. and Mrs. Davis were partners (with the “Mr. Davis” being Al Davis, long time controlling partner of the Oakland/Los Angeles Raiders during his life).  But the matter to be decided was whether the IRS’s failure to follow that agreement meant the assessment against Mr. and Mrs. Davis as partners was invalid.  Or, in the alternative, did the closing agreement constitute an agreement with the partners that triggered a shorter statute that the IRS had missed, also rendering the assessment invalid.

The effect of a restriction imposed on the IRS as part of an agreement to extend the statute of limitation was the matter before the court in the case of Hamilton v. United States, US DC Colorado, Civil Action No. 13-cv-00051-REB-KMT, 117 AFTR 2d ¶ 2016-341.

Quite often a taxpayer will be asked by the IRS to extend the statute of limitations on assessing tax during an exam or, as in this case, while the matter is pending before appeals.

In revising the annual Revenue Procedure (Revenue Procedure 2016-13) that contains the provisions that would provide for adequate disclosure for purposes of avoiding certain penalties under §6662 (accuracy related penalty imposed on taxpayers) and §6694 (paid preparer penalties), the IRS reduced the amount of information certain taxpayers must provide on Schedule M-3 to have adequate disclosure.

The issue of what items IRS can and cannot change that arose in “closed” years is the issue discussed in Chief Counsel Advice 201604017.  In this memorandum the question arose regarding whether the IRS can make adjustments to the amounts included in income under the special temporary provision that allowed for deferral of cancellation of indebtedness income under IRC §108(i).

Sometimes it’s difficult to get clients to understand that when Congress gives a tax break, they impose conditions that must be met to maintain that break.  That’s especially true with items such as retirement plans where some or all of the funds in there are, in the client’s view, my money that can be dealt with just like any other of my property.

In the case of Family Chiropractic Sports Injury & Rehab Clinic, Inc. v. Commissioner, TC Memo 2016-10, the taxpayer’s failure to respect the requirements to maintain a qualified retirement plan proved fatal to the hoped for tax benefits.

The IRS in Notice 2016-9 gave social welfare organizations additional time to notify the IRS of their intent to operate under IRC §501(c)(4) under IRC §506 that was added by the Protecting Americans from Tax Hikes Act of 2015 (PATH).  This new requirement applies to §501(c)(4) social welfare organizations established after December 18, 2015 and certain other organizations already in existence. 

The due date for notifications of intent to operate under IRC §501(c)(4) will be no earlier than 60 days after the publication of regulations that will prescribe the manner in which such organizations must notify the IRS.  At that point they will submit the information required by IRC §506.

As the agency did after Congress retroactively reinstated higher limits for excludable transit benefits provided by employers in the 2014 extender bill, the IRS has released virtually identical special procedures employers may use for 2015 if they have previously included excess transit benefits as taxable to employees.  The notice is required because Congress yet again retroactively restored the higher amounts, though this time the increase was made permanent.

The procedures, provided in Notice 2016-6, allow an employer to avoid the necessity of filing a Form 941-X and obtaining employee consents if the employer takes all adjustments into account on the fourth quarter Form 941.

Being "close" to what is required is not enoughtCongress has enacted rather detailed requirements that must be met in order to claim a charitable contribution deduction.  One of those is the requirement at IRC §170(h)(4)(B)(iii) that provides as one of the requirements to make a deductible contribution of a qualified contribution easement the following:

(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer's return for the taxable year of the contribution -

(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest…

As the taxpayers in the case of Gemperle v. Commissioner, TC Memo 2016-1 discovered, a failure to meet such requirements will be fatal to the claimed deduction.

Real estate held by a taxpayer could be either an asset held for investment, an asset used in a trade or business, an asset held for personal purposes or an asset held for sale to customers in the ordinary course of the taxpayer’s trade or business.   The nature of the property affects the tax treatment of any gain or loss incurred when the property is sold.

In the case of Evans v. Commissioner, TC Memo 2016-7, the determination of the reason Mr. Evans held the real estate would determine if he had an ordinary loss from the sale of a property or a capital loss. 

In the case of Wright v. Commissioner, 117 AFTR 2d ¶ 2016-319 the Sixth Circuit Court of Appeals reversed the holding of the Tax Court holding that an over the counter foreign currency option in a major currency is not a §1256 contract (TC Memo 2011-292).

The issue was of import because if it wasn’t, then the taxpayer would not be allowedloss created by a major-minor tax shelter.  The shelter involved two pair of options that were designed to offset each other, but due to the requirement that §1256 options be marked to market, the taxpayer recognizes the loss inherent in that loss (which is a major currency OTC option) but not the gain inherent on the offsetting option (the minor option).

The Tax Court found that an individual who was covered by a union contract was nevertheless an independent contractor for federal tax purposes in the case of the Quintanilla v. Commissioner, TC Memo 2016-5.

An organization that ran a farmer’s market was found by the IRS to not qualify as a tax exempt §501(c)(3) organization in Private Letter Ruling 201601014. 

The organization operates a marketplace where farmers, businesses and artisans sell their goods directly to the public.  It also organizes special events where local craft vendors sell their goods, cooking demonstrations and other educational programs for adults, monthly educational events for children, and space at the market for local non-profits to promote their activities.

The IRS had been 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 these regulations attracted a storm of controversy and in REG-138344-13

Neil Sadaka may have crooned that “breaking up is hard to do” but most often the IRS doesn’t get involved—but this case is an exception to that rule. In this breakup, the Tax Court determined that the IRS retained the right to determine whether amounts transferred from an individual’s former boyfriend represented gifts and that the taxpayer could not use the rescission doctrine to escape taxation on a $400,000 payment from said boyfriend she received that she later was order to return after a finding she obtained it by fraud.

The case in question is that of Blagaich v. Commissioner, TC Memo 2016-2 and involves matters taking place between Ms. Blagaich and her former boyfriend Mr. Burns in 2010, specifically transfers to Ms. Blagaich during that year, as well an agreement entered into during that year.