Under Reg. §301.7701-3(c)(1)(iv) an LLC that makes an election to change its classification may not, without IRS approval, change its classification again within 60 months of that change of classification.  However, this rule does not apply to the entity’s initial classification.  In that case, the organization could change its classification to an acceptable alternative at any time without IRS approval, even if that was less than 60 months after the initial classification.

In PLR 201622020 the situation involved an LLC that was formed but which sat dormant from its formation until it finally acquired assets at a later date.  This LLC now wished to be taxed as an organization taxed as a corporation, but asked the IRS to allow it to treat this election as an initial election and not a change of classification that would trigger the 60 month waiting period before a change of classification could be undertaken without IRS approval.

As a tax-exempt organization it’s a bad situation to lose your exemption for a failure to file the required tax forms for three consecutive years.  But, as the association that requested reinstatement of their status as a §501(c)(6) organization discovered in PLR 201622033, it’s worse to discover that the IRS believes you never really were qualified to be treated as such an organization.

Whether or not certain payments made to employees who participated in an employer’s wellness program was discussed in CCA 201622031.

The memorandum was looking at programs that attempted to differentiate themselves from the program described in Revenue Ruling 2002-3.

In Revenue Procedure 2016-32 the IRS announced a reduction in the 2016 user fee for certain exempt organization applications effective July 1, 2016.

The fee for organizations filing Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code will be reduced from $400 to $275. 

Since the Supreme Court had changed how the validity of a regulation was determined in the case of Mayo Found. for Med. Educ. & Research v. United States, 562 U.S. 44 (2011), the taxpayer in Santos v. Commissioner, TC Memo 2016-100 decided to challenge a regulation on the books since 1967.

Mr. Santos, an enrolled agent with a master’s degree in taxation, decided to attend law school, graduating in 2011 and was admitted to practice law in the state of California in 2014.  Mr. Santos sought to claim a deduction for the $20,275 he had paid in 2010 for tuition and fees in attending law school.

Treaties between the United States and other countries provide for special rules that will potentially override the standard tax treatment found in the Internal Revenue Code.  The taxpayer in the case of Cole v. Commissioner, TC Summary Opinion 2016-22 believed he had found a provision that would remove from tax the gain on sale of stock he had disposed of following becoming a permanent resident of Israel.

Mr. Cole in the year in question was both a United States citizen and a permanent resident of Israel.  He had purchased shares of Neogen Corporation prior to moving to Israel.  After moving to Israel he sold those shares for a net gain of $114,947.

In the case of Terry v. Commissioner, TC Memo 2016-88, the taxpayer was disputing paying $550 in taxes that represented the increase in taxes shown as due on the amended return he had filed. 

That might seem usual, since Mr. Terry had admitted he had understated his 2011 taxes by $550.  However, Mr., Terry pointed out that his original return had shown a refund due of $1,745 and, in fact, the IRS had not yet sent those funds to him or applied them against taxes for another year.

The IRS in a memorandum issued by the Small Business Self Employed Division (SBSE-05-0416-0016) has outlined how the agency will approach requests for offers in compromise for businesses that cultivate and sell marijuana in states where state law makes such activities lawful.

The memorandum will supplement procedures found in the Internal Revenue Manual at IRM 5.8.5 (Offers in Compromise—Financial Analysis) and 5.8.7 (Offers in Compromise, Return, Terminate, Withdraw, and Reject Processing).

Under IRC §162, generally deductions are allowed for “ordinary and necessary” business expenses.  However, the IRS is known to pay special attention to any such expenses paid to related parties, which was the IRS’s concern in the case of H. W. Johnson, Inc. v. Commissioner, TC Memo 2016-95.  In this case the IRS was questioning both compensation paid to two corporate officers and payments made for “administration fees” to an LLC owned by the same two officers.

While the IRS believed the amounts were not justified in either case, the Tax Court did not agree, finding instead that the corporation had justified the amounts paid as reasonable ordinary and necessary expenses.

In the case of Kunkel, et, al v. Commissioner, Case No. 15-2232, the Seventh Circuit affirmed the Tax Court’s decision in the case of Hartland Management Services, et al v. Commissioner, TC Memo 2015-8. 

The a majority of the panel from the Third Circuit Court of Appeals determined that the Tax Court had misapplied the all events test in the case of Giant Eagle, Inc. v. Commissioner, Case No. 14-3961, CA3, reversing  TC Memo 2014‑146.

When the IRS issued the list of automatic accounting method changes as a separate Revenue Procedure in Revenue Procedure 2015-13 in early 2015 rather than as an appendix to the general Revenue Procedure in accounting method changes, the clear implication was that this would allow the IRS to issue a comprehensive list of changes on a more regular basis.  Revenue Procedure 2016-29 is the first time the IRS takes advantage of this structure, creating a comprehensive list of automatic changes, update for new automatic changes issued since Revenue Procedure 2015-13, superseding that procedure and incorporating changes made since the issuance of that procedure.

Following the issuance of Revenue Procedure 2015-13, the IRS had issued modifications/additions to the automatic list in Revenue Procedures 2015-33 and Revenue Procedure 2016-1.  Thus to obtain the complete list of automatic changes and current rules an adviser would need to check Revenue Procedure 2015-13 along with those changes.  

The IRS has issued temporary (TD 9768, Regs. §§301.7705-1T and 301.7705-2) and proposed regulations (REG-127561-15, Proposed Regs. §§31.3511-1, 301.7705-1 and 301.7701-2) that will govern the Certified Professional Employer Organization (CPEO) program that Congress enacted as IRC §7705 at the end of 2014 as part of the ABLE Act of 2014.  The program, which was supposed to begin accepting applicants in the summer of 2015 will actually begin accepting applications on July 1, 2016.

As part of the release of the regulations, the IRS also announced the agency’s intent to release a pair of Revenue Procedures, one outlining the application process to become a PEO and another detailing the ongoing requirements to maintain certification.

If a partnership owns an LLC it treats as a disregarded entity under the check the box rules, may partners of the partnership be treated as employees of the disregarded entity, receiving a W-2 and obtaining certain tax beneficial fringe benefits open to employee but not partners?  The IRS says the answer has always been no, but since some read the existing regulations otherwise the agency has issued Temporary Regulation §301.7701-2T(e)(8)(i) (TD 9766) and an identical proposed regulation (REG-114307-15).

The “check the box” provisions found in Reg. §301.7701-2 were created to deal with state law entities that had no direct equivalent under federal law (with the prime example being limited liability companies (LLCs)).  Under those rules, the taxpayer elects to treat the entity “as if” it was an entity the IRC has a treatment for, picking from a list that depends on the number of owners.