Some provisions of the Internal Revenue Code aren’t referenced very often and even though they may have existed for years have never actually had a court analyze in depth.  One such provision in the Code was the subject in the case of Jones v. Commissioner, 146 TC No. 3.

Generally the expenses of employee are required to be deducted as an itemized deduction which poses several disadvantages vs. other business expenses which are deducted in computing adjusted gross income.  If the taxpayer must itemize a deduction, the deduction is subject to the 2% floor on miscellaneous itemized deductions before any benefit can be received and entirely nondeductible in computing the alternative minimum tax.

Beyond the simple issue that it may lead to an IRS claim that the taxpayer owes additional taxes, an IRS inspection of the taxpayer’s books and records is also simply a huge (and often expensive) inconvenience.  IRC §7605(b) is meant to limit that disruption by giving the IRS “one shot” at the records on an audit.

The IRS has released a number of inflation adjusted figures for 2016 that were added by the Protecting Americans from Tax Hikes Act of 2015 in Revenue Procedure 2016-14.  With the relatively low rate of inflation, adjustments either are zero or a relatively small amount for the affected items.

The limitation for §179 expensing for 2016 will remain at $500,000, but the phase-out starting point will rise by $10,000 to $2,010,000 in 2016.

For taxable years beginning in 2016 the monthly limitation under IRC §132(f)(2)(A) for qualified transit benefits will be $255.

For taxable years beginning in 2016 the limitation on the above the line deduction of expenses for elementary and secondary school teachers will remain at $250.

The IRS took a look at a number of issues related to liabilities and at-risk rules related to partnership interest in the Chief Counsel Advice 201606027.  The advice relates to a partnership that acquired existing hotels and renovated them, but did not operate the hotels.  One of the partners executed a guarantee on the otherwise nonrecourse debt that could be triggered if certain conditions were met. 

In Chief Counsel Advice 201605017 the IRS National Office looks at how property used both for business and personal purposes is to be treated with regard to a like kind exchange under IRC §1031.

In Notice 2016-12 the IRS has set the maximum values for 2016 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 announced in the February Exempt Organization Update email that small tax exempt organizations filing the “e-Postcard” Form 990-N online will see changes in how they file in 2016.

Effective February 29, 2016 submissions of the Form 990-N will now be handled directly by the IRS via the irs.gov site.   Previously the form had been submitted through the website of the Urban Institute.

Organizations will need to complete a short registration process with the IRS before being able to use the new site.

The Seventh Circuit Court of Appeals had cause to cite the following from the case of Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149 (1974):

"[W]hile a taxpayer is free to organize [her] affairs as [she] chooses, nevertheless, once having done so, [she] must accept the tax consequences of her choice, whether contemplated or not, and may not enjoy the benefit of some other route [she] might have chosen to follow but did not."

This was not good news for the taxpayer in the case of Estate of Stuller, et al, v. United States, 117 AFTR 2d ¶ 2016-379, CA7, Docket No. No. 15-1545.

One of the major disadvantages of an S corporation involves the rather strict rules that must be followed to maintain it status.  One of the key rules involves the one class of stock requirement found at IRC §1361(b)(1)(D).  If an S corporation has outstanding more than one class of stock, as defined in Reg. §1.1361-1(l)(1), its S status is terminated as of the first day that second class of stock is found to exist.

In PLR 201605002 the taxpayers found that what they wanted to do ran afoul of these rules. While the taxpayers were able to persuade the National Office that this was inadvertent and they received the right to fix the issue and still be considered an S corporation, that only happened after the taxpayers went to the expense of obtaining their own private letter ruling.

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.