Final regulations have been issued by the IRS (TD 9785) revising regulations under IRC §7701 for the definitions related to marriage as they apply to the Internal Revenue Code.  These regulations take into account the Supreme Court’s holdings on same sex marriage found in the cases of Obergefell v. Hodges (135 S. Ct. 2584 (2015)) and  Windsor v. United States (133 S. Ct. 2675 (2013)).

The final regulations generally reflect the revisions found in the proposed regulations (REG-148998-13) issued in October 2015.  Rather than revised the language throughout the regulations to remove the terms “husband” and “wife” the IRS decided to issue a broad clarifying definition in Reg. §301.7701-18.

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In the case of Shea Homes, Inc. v. Commissioner, 142 TC No.3, the question of the scope of contracts of a homebuilder when making use of the completed contract method was the key issue.  The issue would end up not just before the Tax Court, but also be dealt with by the Ninth Circuit Court of Appeals.

The taxpayer developed large planned residential communities which had substantial common area developments and improvements required by the localities in which the developments were located. 

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The IRS, likely hoping to reduce the number of letter ruling requests related to late IRA rollovers, has released Revenue Procedure 2016-47 that provides automatic relief for certain late rollovers of IRAs and qualified plan distributions.  The procedure generally allows a plan administrator, IRA custodian or trustee to rely upon a certification from a taxpayer in accepting a rollover from a taxpayer that he/she meets certain requirements qualifying for automatic relief from late rollovers.  However, if the administrator, custodian or trustee is aware the certification is not correct, he/she will not be allowed to rely on the certification.

Previously Revenue Procedure 2013-16 provided for automatic relief only in limited situations related to errors committed by financial institutions.  Otherwise a taxpayer generally had to apply and pay for a private letter ruling granting relief.

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With the growth of the “sharing economy” involving organizations like Uber and Airbnb, the IRS has determined there is a need for guidance for individuals who are involved in providing such services. 

Many of these individuals have not previously operated a business, nor may they even realize that they truly are operating a business that will trigger special tax issues and obligations.

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The non-profit corporation in United States v. Detroit Medical Center, CA6, Case No. 15-1279, received a refund of payroll taxes along with interest on that overpayment from the IRS.  However, the organization was dismayed to find that it had been interest at a lower rate than it had expected to be paid.

The IRS noted the group of hospitals was organized as a corporation under corporate law and paid the lower rate of interest provided in IRC §6621(a)(1) for a “large corporation.” 

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As we are all aware, the Internal Revenue Code imposes penalties for the late filing of a tax return (IRC §6651(a)(1)) as well as for the late payment of taxes due on a return (IRC §6651(a)(2)).  The penalty does not apply, though, in either case if the failure is due to “reasonable cause and not due to willful neglect.”  In the case of Rogers v. Commissioner; T.C. Memo. 2016-152 the Tax Court found that the taxpayer had such reasonable cause when she mistakenly believed she was not required to file a return, and such a mistaken belief was found to be reasonable in her case.

As the Court notes in this case, “reasonable cause” is inherently very much a facts and circumstances situation and merely believing no return is required to be filed is not sufficient in and of itself—rather, the taxpayer must have arrived at this conclusion via a good faith effort to determine his/her responsibilities under the tax law.  But the taxpayer’s overall situation and their level of sophistication are taken into account to see if the taxpayer’s conduct meets the reasonableness standard.

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In order to claim deductions related to a trade or business, the taxpayer must be able to show not just that the expenditures were incurred by the taxpayer for a legitimate trade or business reason, but also that the trade or business in question has actually begun operation.  The IRS was not disputing that the taxpayer had an honest intent to operate a trade or business for which she incurred expenses, but rather that the business had not commenced operations in the case of Tizard v. Commissioner, T.C. Summ. Op. 2016-42.

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In an email, the Chief Counsel’s office considered the employment status of an adult companion sitter (Chief Counsel Email 201633034).  The email was in regard to information to be contained in training materials, likely for either IRS agents or programs like VITA where volunteer preparers would be trained.

As the proposed training materials explain:

Companion sitters are individuals who furnish personal attendance, companionship, or household care services to children or to individuals who are elderly or disabled.

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Filing partnership returns late now subjects the partnership to significant penalties.  Under IRC §6103 the partnership is penalized $195 per month per partner, up to a maximum of ten months, for each month or fraction of a month the partnership return is filed after the due date (including extensions actually granted).  However, no penalty applies if the partnership can show the failure is due to reasonable cause. [IRC §6698(a)]

In the case of In re: Refco Public Community Pool LP, Banktruptcy Court for the District of Delaware, Case No. 14-11216, 118 AFTR 2d ¶ 2016-5085 the bankruptcy plan administrator challenged the IRS’s claim for late filing penalties of $3,662,000 for the years 2005-2007.

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Delores Gragg in 2006 and 2007 was a licensed real estate agent who had sufficient hours in the real estate activity to be treated as a real estate professional under IRC §469(c)(7).  Based on that qualification alone, she and her husband took the position that she should be allowed to be treated as materially participating in the rentals and thus all losses be allowed in full on their returns without regard to Section 469.

However the Ninth Circuit Court of Appeals, considering this “automatic material participation” argument for the first time, rejected this view in the case of Gragg v. United States, Case No. 14-16053, CA9 affirming a decision of the U.S. District Court of Northern California.

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