Taxpayers may form related entities for various purposes, some tax related and some not tax related.  But they may try and assign expenses between the various entities for reasons that don’t appear to have support based on the facts of the case, often in order to achieve a tax advantage.  But under the tax law a business deduction under IRC §162 is only allowed to an entity to the extent the expense represents an ordinary and necessary business expense of the entity claiming the deduction.

The Tax Court found that was not the case for certain expenses claimed in the case of Key Carpets, Inc. v. Commissioner, TC Memo 2016-30.

The IRS posted information on its website, “IRS Compliance Questions on the 2015 Form 5500-Series Returns,” indicating that certain portions of the 2015 Form 5500 series forms should not be completed.

The limited reach of the financial disability tolling provisions added by Congress to §6501 was again highlighted in the case of McAllister v. United States, US Court of Federal Claims, No. 1:13-cv-01026.

IRC §6511(h) provides an exception to the general statute of limitations provisions under §6511 for filing a claim for refund in cases of financial disability.  In April of 2015 the IRS, in Chief Counsel Memorandum 201515019 (which we discussed in an article posted back in April of 2015), concluded that the provision did not extend the general rule for when a taxpayer must file a claim for refund from years losses are carried to from a “financial disability” year.

Under IRC §170(f)(11) a taxpayer who donates a contribution of property in excess of $5,000 must obtain a qualified appraisal of the property and attach it to his/her return in order to obtain a charitable contribution deduction.  However, under IRC §170(f)(11)(a)(ii), no appraisal is required for readily valued property—and, cash would seem to be the best example of “readily valued property.”

But what if the cash, while being legal U.S. tender, consisted of collectible coins whose value was in excess of the face amount of the coins?  Does the fact that the coins represented “cash” mean that no appraisal is necessary?

The contracting partnership (which had two construction companies as partners) asking for the ruling in PLR 201608005 was looking to see if certain payments the contractor received prior to actually beginning work on portion of a project could be considered partnership liabilities.

The contract in question referenced two types of payments to be made by the customer.  One type of payment would be made under standard progress payment terms—if the partnership was in compliance with the contract at the time each payment milestone was reached, a payment would be due.  These payments were not the ones the contractor was asking to be ruled as liabilities.

The other type of payment was a “Notice to Proceed” payment that the customer was to make when it gave the partnership notice to proceed to the next phase of construction.  These payments were made before the completion of the work and, in fact, before any expenses were incurred by the partnership on that phase of the project.

Being a date late in filing a Tax Court petition is a problem, as the Tax Court loses jurisdiction once the time period for the filing expires.  In the case of Berkshire 2006-5 LLP et al. v. Commissioner, TC Memo 2016-25 the taxpayer looked to overcome that problem by noting that the tax matters partners of the partnership in question had been dissolved before the final partnership administrative adjustment (FPAA) was issued.

The case involves the scheduled to be repealed TEFRA partnership examination procedures[1], which applied to the partnership in question.  Under IRC §6223(a) the IRS is required to send a copy of the FPAA to the tax matters partner (TMP).  Under IRC §6226(a) the TMP may file a petition challenging the FPAA with the Tax Court within 90 days after the FPAA is mailed to the TMP.

Related taxpayers were allowed to treat a charitable contribution as made by a partnership rather than a related corporation that accidentally made the contribution in the case of Green v. United States, 117 AFTR 2d ¶ 2016-418, DC WD Okla., Case No. CIV-13-1237-D.

The case involved Hob-Lob Limited Partnership which owns many, not all, Hobby Lobby Stores.  Hobby Lobby (the corporation) paid $7.5 in contributions to two charitable organizations in 2004.  The taxpayers claimed that this had been a mistake, and that the contributions were intended to have been made by the partnership, of which a 99% interest was held by the taxpayer in this case.

The IRS in Private Letter Ruling 201607004 ruled that a particular state organization’s payments to subsidize residential solar photovoltaic systems was an energy conversion subsidy under IRC §136 that was excludable from income.

Under this program the organization will pay the consumer a subsidy to cover part of the cost of installing an approved photovoltaic system.  The organization is entitled to any credits and any other “tradable energy or environmental related commodity produced or created by the PV systems.”  The organization insures that the size of the unit installed is not larger than what would be expected to be necessary to provide for the customer’s use of electricity.

All too often we, as tax practitioners, are tempted to say that a matter is “just timing” when looking at whether something has been properly handled on a tax return.  That is, it was properly included in income or properly deducted, just perhaps in the wrong year. 

But, as we all know when we think about the issue, “just timing” is actually a very important issue to our clients and the IRS, as well in the financial reporting arena when preparing financial statements.  But tax rules and FASB’s provisions don’t look at the matter in the same way.

In the Trade Facilitation and Trade Enforcement Act of 2015 (HR 644), passed and sent to the President for signature on February 11, 2016, Congress has raised the minimum penalty amount for the case where a taxpayer fails to timely file certain returns (including income, estate and gift tax returns) within 60 days of the date they are due to $205 or 100% of the tax due (whichever is less).

The IRS delayed the due date for filing the first Forms 8971 in Notice 2016-19.  Previously in Notice 2015-57 the IRS had delayed the date for initial filings of any return due prior to February 29, 2016 to February 29, 2016. 

The IRS has pushed that date back by one month in this ruling, along with the required notices to beneficiaries.  

The only issue remaining to be decided by the Tax Court in the case of Brinks, Gilson & Lione a Professional Corporation v. Commissioner, TC Memo 2016-20 was whether the corporation could escape the accuracy related penalty under IRC §6662 for a substantial understatement of tax.

In this case the corporation had conceded the issue of whether a portion of what it had paid in salaries to shareholders should be treated as dividends.  The resulting tax assessments for each of the years in question exceeded 10% of the tax required to be shown on the return[1], in which case the penalty will automatically apply unless the taxpayer can show it qualifies for one of the exceptions.

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.