The IRS has expanded its view of what doesn’t work for treating an LLC member’s income as not subject to self-employment tax in Chief Counsel Advice 201640014.

Image Copyright gstockstudio / 123RF Stock Photo

The IRS in Notice 2016-58 provided updated special per diem effective for the period from October 1, 2016 to September 30, 2017.  These special rates include the rate for the special transportation industry meals and incidental expenses (M&IE) rate, the rate for the incidentals-only deduction and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The special transportation industry rates for 2016-2017 are $63 for any locality of travel in the continental United States and $68 for any locality of travel outside the continental United States.  The general rules for qualifying to use these rates and how to use them are found in Section 4.04 of Revenue Procedure 2011-47.

Image Copyright valentint / 123RF Stock Photo

The IRS, as promised in the regulations issued to implement the portability election under IRC §2010, has now issued a revised Revenue Procedure (Revenue Procedure 2016-49) which modifies the conditions under which a QTIP election will be deemed invalid that were contained in Revenue Procedure 2001-38.

The qualified terminable interest property (QTIP) election under IRC §2056(b)(7) is designed to allow a trust to be created to hold property passing to a surviving spouse with an interest that terminates at his/her death, with ultimate disposition controlled by the trust document itself.  When the election is made, the surviving spouse agrees to treat the property as part of his/her estate despite having an interest that normally would be considered solely a life estate.  With that election in place, the property qualifies for the unlimited marital exclusion at the first death.

Image Copyright stockbroker / 123RF Stock Photo

An estate that owned a 99% interest in an LLC whose only asset was an account with Madoff Securities looked to claim a theft loss deduction on its estate tax return in the case of Estate of Heller v. Commissioner, 147 TC No. 11.

Image Copyright alexskopje / 123RF Stock Photo

The IRS in News Release IR-2016-125 provided information regarding the use of private debt collectors to pursue unpaid taxes mandated by Congress in the Protecting Americans from Tax Hikes Act of 2015.

The IRS had been mandated to begin using the private agencies earlier this year, but the IRS has delayed the beginning of the program and will, per the announcement, begin using the agencies in the spring of 2017, though an exact date for the start was not announced.

Image Copyright alexskopje / 123RF Stock Photo

Sometimes taxpayers may adopt a plan on paper that would create tax savings, but then turn a blind eye with regard to actual compliance with the plan.  That was the issue in the email advice discussed below

Despite the fact that a SUB Trust plan summary description indicated that benefits it would pay would be limited to those who qualified for state unemployment benefits, the failure of the employers submitting lists of employees to be paid under the plan to confirm the employees had received stated unemployment meant the payments were not treated as FICA-exempt supplementation unemployment benefits (Chief Counsel Email 201639015).

Image Copyright vectorshots / 123RF Stock Photo

In a letter to Representative Patrick Murphy dated September 23, 2016 the IRS Commissioner stated to payments made to victims of the Orlando mass shootings at the Pulse nightclub in June by charities do not represent taxable income to those victims.

Image Copyright andreypopov / 123RF Stock Photo

An unusual arrangement that provided disability benefits was at issue in the case of Estate of Barnhorst v. Commissioner, TC Memo 2016-177.  The key issue was whether the benefit paid by the program in 2010 represented payments under an accident or health plan under IRC §105(a) and, if so, did the benefits received represent payments not related to the absence from work under IRC §105(c).  The IRS claimed that, in reality, this was simply a deferred compensation plan and should be taxed as such.

Image Copyright rawpixel / 123RF Stock Photo

The taxpayer in the case of Exelon Corp. et al. v. Commissioner, 147 T.C. No. 9 had a major gain that it did not want to pay current tax on—almost $1.6 billion.  The gain would occur when an acquired entity disposed of its fossil fuel power plants. 

The taxpayer was approached with a potential solution—engage in a purported §1031 exchange.  The taxpayer acquired power plants from tax exempt public utility companies as the claimed replacement property, plants which they then leased back to those entities.  Referred to as a “sale in, lease out” (SILO) transaction, it was a packaged transaction sold to the taxpayer.

Image Copyright domdeen / 123RF Stock Photo

An often contentious issue for taxpayers who have real estate is determining if a piece of property does or does not represent a capital asset when it is sold.  The case of Boree v. Commissioner, 118 AFTR 2d ¶ 2016­5207, CA11, No.14-15149 posed just such an issue.

There is no question that Mr. Boree initially acquired the land in 2002 with the intent to develop the land and sell the property as over 100 lots.  Such a plan will cause the lots to be treated as property held for sale in the ordinary course of business.

Image Copyright ximagination / 123RF Stock Photo

Determination of what is alimony is known to be a contentious issue in taxes, especially because Congress in 1984 created a full independent federal definition by which payments are tested for classification as tax alimony, regardless of the intent of the parties or what state law may call a payment.  In the case of Leslie v. Commissioner, TC Memo 2016-171 the payments involved amount to $5,568,200.

These payments represented 10% of the fee the taxpayer’s former spouse received for his work as an attorney in litigation related to the failure of Enron.  There were three payments made, one for $4,000,000 in November of 2008, one for $1,560,000 in December of 2009 and a final payment of $8,200 made in June of 2010.

Image Copyright aruba2000 / 123RF Stock Photo

The taxpayer in White v. Commissioner, TC Memo 2016-167 looked back to a 1919 IRS ruling in support of his position that his payments from a church was not taxable to him due to having taken a vow of poverty.  In what isa citation form that most taxpayer likely have never seen, the taxpayer cited O.D. 119, 1919-1 CB 82.

As the Tax Court noted:

In part, O.D. 119 stated: “A clergyman is not liable for any income tax on the amount received by him during the year from the parish of which he is in charge, provided that he turns over to the religious order of which he is a member, all the money received in excess of his actual living expenses, on account of the vow of poverty which he has taken.”

Image Copyright icetray / 123RF Stock Photo

The private inurement prohibition applies to an exempt organization, even if that organization is clearly serving an individual that would otherwise been a reasonable recipient of benefits from a charity.  The IRS pointed that out in denying an application for tax exempt status in PLR 201637017.

Private inurement is an issue for many potential organizations that a client may be motivated to form, as often a personal experience and a problem of a specific individual will be the genesis of the idea to form the organization.  But the regulations under §501(c)(3) provide a strict prohibition on “private inurement” as the IRS points out in the ruling:

Treas. Reg. Section 1.501(c)(3)-1(c)(2) states regarding the distribution of earnings that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals.

Image Copyright juliatim / 123RF Stock Photo

An IRS memorandum discusses the potential facts that would and would not be relevant in determining if a taxpayer can have failure to file and failure to pay penalties abated for reasonable cause (CCA 201637012).

In this case a taxpayer had appointed a person to act under a durable power of attorney.  She later filed her tax return late for a year, subjecting her to failure to pay and failure to file penalties.  However, the holder of the power of attorney petitioned a state court for appointment of an Emergency Guardian and Conservator for the taxpayer because the power holder believed she suffered from dementia.  A court found that the taxpayer was an “incapacitated person.”

Image Copyright alexskopje / 123RF Stock Photo