The IRS, deciding that discretion is the better part of valor, has backed off a position staked out related to “Bad Boy” provisions in non-recourse loan documents in a Chief Counsel Advice, effectively reversing its position in Generic Legal Advice AM 2016-001.  Now the IRS believes that, generally, such provisions will not convert the debt from nonrecourse to recourse debt, a result that would torpedo the expected tax effects of many real estate partnerships.

While philosophers may still debate the question of whether a noise is made if a tree falls in the forest and no one hears it, the Tax Court has no doubt that if a person does not receive a K-1 from a partnership that had income, nor receive a cash distribution that indicates there was income allocable to him, the taxpayer nevertheless must recognize the income.  The reality of this was discovered by a blogger in the case of Lamas-Richie v. Commissioner, TC Memo 2016-63.

Nik Lamas-Richie had founded a gossip blog about Scottsdale, Arizona.  As the Court described, “[t]his Web site initially posted gossip about local topics, including ‘the cool kids in Scottsdale who thought they were celebrities.’”  Discovering success, he decided good gossip wasn’t limited to the west’s most western town, expanding the site to cover regional and then national gossip.

After letting the list stand unchanged for 11 years, for the second year in a row the IRS has updated the list of authorized private delivery services in Notice 2016-30.  Although various all services from DHL Express were dropped in Notice 15-38 (the first update in 11 years to the list), the new notice adds various services offered by DHL Express.

Under IRC §7502(f) the IRS is authorized to designate certain private delivery services (referred to as “PDSs”) to count for the timely filing/timely paying rule of IRC §7502.  Generally this puts such services on a par with sending the document and/or payment via certified mail so long as the taxpayer retains the required proof of timely presentation of the package to the service. 

Contributions can no longer be made by individuals who are otherwise eligible to contribute to Health Savings Accounts beginning with the first month the individual is eligible for benefits under title XVIII of the social security act (otherwise known as Medicare).  [IRC §223(b)(7)]  In Information Letters 2016-0014 and 2016-0003 the IRS addressed the maximum contributions for individuals who enroll in Medicare during the year.

As the provision requires a taxpayer to be eligible for benefits and one of basic requirements to be eligible is that the taxpayer must register of Medicare—so merely attaining age 65 is not, by itself, enough to trigger the limitation.  If an individual has otherwise equivalent coverage (perhaps provided by an employer for employee that is working upon attaining age 65) the person can still be eligible to make a contribution.

The IRS has published the Standard Industry Fare Level (SIFL) rates and terminal charges for the first six months of 2016 in Revenue Ruling 2016-10.

The issue of the taxable status of awards received by a taxpayer from his tax adviser was addressed in the case of Cosentino v. Commissioner, TC Memo 2014-186.  While the Tax Court granted the taxpayer a victory, the IRS has announced nonacquiesence with regard to this case (AOD 2016-01).

A key issue when a taxpayer receives a damage award related to negligent tax advice is whether the amounts received will be taxable income to the taxpayer or not.  Generally when a taxpayer receives questionable tax advice, the taxpayer will file a claim against the adviser and argue for damages for taxes, interest and penalties.  The argument for the tax payment generally is based on the claim that if the taxpayer had known the action the adviser was suggesting would not have led to the claimed tax savings, the taxpayer would have taken other actions to reduce his taxes.

Tax advisers who look over tax cases and read opinions need to be careful about the level of reliance they place on statements made by the court in the case that do not directly impact the ultimate decision.  Merriam Webster’s online dictionary defines dicta as “a judge's expression of opinion on a point other than the precise issue involved in determining a case.”

In the case of Senyszyn v. Commissioner, 146 TC No 9, the Tax Court ended up ultimately ruling in the opposite manner to a rather clear statement the Court had made in the case of Anderson v. Commissioner, T.C. Memo. 2009-44.

Under IRC §6501(c)(9) the IRS has an unlimited statute of limitation to assess gift taxes on a gift that is not reported on a gift tax return absent adequate disclosure, even if a Form 709 was filed for the year in question to report other gifts. 

However, what happens if the omitted gift does not create gift taxes in the year in question but the omission of that gift from the prior gifts on later returns causes the taxes for that year to be understated?  Does the IRS get an unlimited statute on those later returns to collect the tax that would have been due if the omitted gift had been included in the “prior gifts” portion of the gift tax calculation for those later years?

Qualified Subchapter S Trusts (QSSTs) are one of the limited set of trusts that are eligible S corporation shareholders upon the election of the beneficiary to treat the trust in this manner.  However, such trusts must have terms that conform to requirements imposed by the law in order for the trust to be eligible, upon the beneficiary’s election, to be treated as such a trust.

In PLRs 201614002 and 201614003 the taxpayers were asking the IRS whether a binding, nonjudicial settlement under state law regarding the trust’s language could be used to solve what otherwise appeared to be problems with the terms of trusts for which an S election was desired.

Victoria Dieringer’s estate plan left her estate, consisting largely of a majority interest of stock in a closely held realty management company, to a trust and a few charitable organizations.  The trust provided that it would distribute the assets it received (which included all of the stock) to a qualified §501(c)(3) private foundation. 

However the IRS objected to the amount claimed as the deduction for the transfer to the private foundation on the estate tax return, arguing that the deduction should be for far less than the value of the stock on the date of Victoria’s death in the case of Estate of Dieringer v. Commissioner, 146 TC No. 8.

Of the three issues raised in the case of Thiessen v. Commissioner, 146 TC No. 7, the first will likely evoke a sense of déjà vu in some readers.  And you will be right—the facts for the first issue (did the beneficiaries of two IRAs participate in prohibited transactions causing the entire IRA balances to be immediately taxable) are very similar to those the Tax Court had previously ruled upon in the case of Peek v. Commissioner, 140 TC 216 back in 2013.

However the taxpayer would introduce two defenses to the imposition of tax in this situation the court would view—but the Court would not use the step transaction doctrine to view the transaction in the taxpayer’s favor in these areas.

Thomas Ryther’s wholly owned corporation, Knight Steel, failed in 2004.  Knight Steel had been in the business of fabricating steel frames and in the process of doing so generated scrap steel which it simply piled up.  When Knight Steel passed through Chapter 7 on its way to the grave, the bankruptcy trustee abandoned that scrap steel because it appeared to be worthless.

Tom, however, who was financially challenged at this point, decided that since he had a large pile of scrap steel and needed money he’d look at whether he could get something for it.  And Tom discovered that, far from being worthless, there was a ready market for the scrap steel.  From 2004 to 2010 Tom sold various amounts of the steel to provide himself with cash.

Tom reported the amounts as ordinary income, but the IRS asserted that Tom should also pay self-employment tax on the amounts in question.  The Tax Court, in the case of Ryther v. Commissioner, TC Memo 2016-56, took up the question of whether Tom owed self-employment tax on this income.

In a series of private letter rulings (PLRs 201613001, 201613002 and 201613003) the IRS issued a ruling on how to handle a situation where both the related party loss rules of IRC §707(b)(1)(a) and the substantial built-in loss rules of §743(d) applied to a transaction.

The cases involved the sale of a partnership interest to a grantor trust by a partnership in a transaction that triggered a disallowed loss to the seller under the related party rules of IRC §707(b)(1)(a). 

The IRS announced that, for forms filed on or before April 19, 2016, the agency will generally accept either the current December 2015 version of Form 3115 or the prior December 2009 version of the form [Announcement 2016-14].  However, the use of the new form will be mandated in those situations where situations where the IRS has mandated the use of new form specifically in guidance published in the Internal Revenue Bulletin.

In the vast majority of cases the form is being filed to be granted automatic consent to a change in method of accounting under provisions promulgated by the IRS well before the December 2015 form was published, so this relief will cover the vast majority of filings, albeit only for a relative short period (on April 19 the new form will become mandated)

The IRS has updated and revised the procedures for the use of Appeals for cases that are docketed before the Tax Court in Revenue Procedure 2016-22, revising Revenue Procedure 87-24.

As most practitioners are aware, cases where the taxpayer files a challenge to the IRS’s proposed assessment with the Tax Court are often referred back to Appeals in an attempt to resolve the matter without a need to go to Tax Court.