The taxpayers in the case of Wu v. United States, 118 AFTR 2d ¶2016-5154, CA 7 the taxpayers recognized they had made an error and made excess contributions to their IRAs in 2007, failed to grasp the error of their position for a number of years, and then withdrew the excess funds and earnings in 2010.  The taxpayers recognized that they owed an excess contribution tax of 6% (IRC §4973) for each year there remained an excess contribution.

But what they disputed was whether that excess contributions tax of 6% should apply to 2009 since they had withdrawn the funds by the unextended due date of their 2009 income tax return.  IRC §4973(b) provides that “any contribution which is distributed from the individual retirement account or the individual retirement annuity in a distribution to which section 408(d)(4) applies shall be treated as an amount not contributed.”

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A taxpayer that ended up buying back his S corporation stock from a corporation he had sold it to found the IRS was not willing to waive the requirement under IRC §1362(g) that the corporation would not be allowed to re-elect S status for five years (PLR 201636033).

In this case the individual, holder of 100% of the S corporation’s stock, sold the stock to another corporation.  The transfer of the shares to the corporation resulted in a termination of the corporation’s S status at that time.  Less than five years later the shareholder bought the stock back from the buyer—but now had a C corporation.

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How activities are grouped can have a major impact on a taxpayer’s ultimate tax liability under the passive activity regulations provided under IRC §469.  Generally, a proper grouping is governed by Reg. §1.469-4(c)(2).

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Following the Bobrow v. Commissioner (TC Memo 2014-21) decision, taxpayers discovered that, despite what the applicable IRS publication said, that once a taxpayer had completed a rollover from an IRA account the taxpayer had to wait another year to make a second rollover—even if that rollover came from a different IRA account.

But traditional IRAs aren’t the only type of tax advantaged account for which rollovers are allowed—Coverdell Education Savings Accounts (the accounts originally known as Education IRAs) are also eligible for rollover treatment found at IRC §530(d)(5) that is very similar to the language found at §408(d)(3)(B) the court opined on in the Bobrow case.  So do the same restrictions apply?

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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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