Details matter in tax law, especially when the taxpayer was involved in setting up the details.  In the case of Makric Enterprises, Inc. v. Commissioner, TC Memo 2016-44 a failure to make sure that the right corporation was sold as part of the agreement proved very expensive to the taxpayers—in the amount of $2,839,780.

There were two corporations involved in this matter—one of which was a holding company (Makric Enterprises, Inc.) whose only asset was the stock of a wholly owned subsidiary (Alpha Circuits, Inc.).  A third party became interested in buying the business conducted by Alpha.

In June the IRS extended the dates for both hiring and applying for certification in Notice 2016-40.

With spring training underway in Arizona (where this author lives), it's appropriate to have a baseball tie in to a tax development, so we turn to one of the great insights given to us by a player of the sport:

“It’s like déjà vu all over again.”

The above quote, attributed to Yogi Berra, is appropriate to the IRS returning again to dealing with the mess left by Congress’s late in 2015 decision to retroactively extend the Work Opportunity Credit. The IRS has issued another notice to “clean up” problems created by Congress’s delay in extending expired code provisions, waiting until late December to pass the Protecting Americans from Tax Hikes Act of 2015 (PATH), just as the Congress did one year earlier. 

In Notice 2016-22 the IRS provided procedures to be used for employers that hired individuals that retroactively qualify as “targeted” individuals during the period where the work opportunity credit under IRC §51 had expired. 

Accrual basis taxpayers who receive advanced for the sale of goods prior to the actual sale of such goods may, under Reg. §1.451-5, defer recognition of such income until the earliest of:

• The year in which the income would be properly accruable under the taxpayer’s method of accounting for tax purposes;
• The year in which the income is recognized for financial statement purposes; or
• The end of the second year following the year of receipt. [Reg. §1.451-5(b)1, (c)]

But what about a taxpayer who sells gift cards which can be deemed for either goods sold by the taxpayer or services the taxpayer sells?  That situation exists in many contexts, as retailers often offer for sale, in addition to products, servicesFor instance, appliance/electronics stores offer, in addition to the goods, various extended warranty, delivery, repair and installation services.  In TAM 201610017 the National Office advised that such entities may make use of a partial deferral.

In Notice 2016-23 the IRS has asked for comments on the new partnership audit regime imposed by the Bipartisan Budget Act of 2015.  The new regime replaces the TEFRA partnership audit regime with one that not only unifies the examination of the income, expense and credit items of the partnership at the partnership level (rather than requiring an examination of each partner) as was true of the TEFRA regime, but also defaults to computing and collecting a tax assessment at the partnership (rather than individual partner) level as part of the exam.

The system is mandated for tax years beginning on or after January 1, 2018, but taxpayers may elect to use the system for tax years beginning November 2, 2017.

March 23 Update:  The IRS has announced in Notice 2016-27 that the first forms will now be due on June 30, 2016, and not March 31, 2016 as originally provided in Notice 2016-19 that accompanied these proposed regulations.

Coming up on the second extended due date for the first filings of Form 8971, the “consistent basis reporting” form required to be filed by estates that filed a Form 706 that showed tax due after July 31, 2015 that would have been due on or before March 31, 2016, the IRS has released proposed regulations (REG-127923-15) and a temporary regulation (TD 9757) that provide guidance for the initial filings, as well as other filings due before the publication of final regulations.

In the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 Congress added new IRC §6035.  The provision imposed two reporting mandates on estates in order to prevent estates from paying estate tax based on one claimed value and then later having heirs claim a higher basis in the asset for income tax reporting, arguing that the estate’s value was in error or, more likely, just betting that the IRS would never actually discover the discrepancy.

One of the more confusing areas of the tax law involves the mitigation provisions found at IRC §§1311-1314.  The case of Costello v. Commissioner, TC Memo 2016-33 deals with the potential application of these provisions to a trust and its beneficiaries that arose when the IRS made an assessment on the examination of the trust that it later agreed was in error.

The question of how much detail the IRS must provide in making an adjustment under IRC §482 was the issue decided by the Tax Court in the case of Guidant, LLC v. Commissioner, 146 TC No. 5.

IRC §482 is meant to deal with cases where taxpayers may be tempted to use transactions between related entities to manipulate a tax result by having the transactions take place under terms that are markedly different than would result from a true arms-length transaction between unrelated parties.

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.