Steve Backemeyer, a cash basis farmer, purchased seed, chemicals, fertilizer and fuel in 2010 which he intended to use when planting crops in 2011.  Being on the cash basis, these items were deducted on his 2010 income tax return, filing married filing joint with his wife.  However, Steve died in March 2011 and these supplies were inherited by his wife.  His wife took up the farming business, using these supplies to plant the crop in 2011.  She claimed these items, valued as of the date of Steve’s death, as a deduction on her 2011 return, also a joint return filed with her deceased husband.

In the case of Estate of Steve K. Backemeyer et al v. Commissioner, 147 TC No. 17 the IRS argued that the tax benefit should prevent this double deduction of the same expenses for the same crop, requiring the deduction to be removed from the taxpayers’ 2010 tax return.  But the Tax Court found that both deductions were allowed in this situation.

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The organization in LTR 201649017 was found to be pursuing too narrow of a business interest to qualify as an exempt business league under IRC §501(c)(6), thus its request for exemption was denied.

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The IRS has issued the early release copies of the 2017 percentage method tables for income tax withholding in Notice 1036.

The tables are to be used to compute the taxes to be withheld from wages paid in 2017 by employers using the percentage method tables.  They will eventually be published in Circular E for 2017.

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Temporary (TD 9799) and identical proposed regulations (REG-102952-16) have been released by the IRS to implement the expanded due diligence rules imposed on tax preparers as part of the Protecting Americans from Tax Hikes Act of 2015.  The PATH Act expanded the preparer due diligence requirements that originally applied to returns claiming an Earned Income Tax Credit (EITC), first added by Taxpayer Relief Act of 1997, to apply to returns claiming the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC) and American Opportunity Tax Credit (AOTC).

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The special rule for exclusion from income of cancellation of debt income related to the discharge of certain home mortgage debt (IRC §108(a)(1)(E)) was only extended by Congress through December 31, 2016 in the PATH Act.  However, Congress did provide that the relief would apply to discharges after that date if certain events took place before December 31, 2016 that had the effect of entering into an agreement to cancel the debt at some later date.

In Notice 2016-72 the IRS provides guidance about how that “special rule” would apply to the Federal Housing Finance Agency’s (FHFA’s) principal reduction modification program (PRMP) and the Home Affordable Modification Program (HAMP).

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A divided Tax Court has overruled its previous decision in the BMC Software, Inc. v. Commissioner, 141 TC No. 5, a case that was overturned on appeal by the Fifth Circuit, and found that accounts receivable established in a Revenue Procedure 99-32 closing agreement didn’t create related party indebtedness in the case of Analog Devices Inc., et al, v. Commissioner, 147 TC No. 15.  The Court therefore allowed the company’s entire dividends received deduction under IRC §965.

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The taxpayer in the case of The Malulani Group, Limited and Subsidiary v. Commissioner, TC Memo 2016-209 was facing a problem with its attempted §1031 exchange—it was unable to locate properties to identify as replacement properties as the 45-day period for doing in its deferred exchange was running down.  The taxpayer decided to identify properties held by a related entity (MBL) as properties to be acquired in order to complete the transaction.

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If a taxpayer ends up with a worthless security, the loss from writing off that security is treated as a capital loss.  While, generally, to have a capital gain or loss there must be a sale, IRC §165(g) provides a special rule for worthless securities.

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The IRS has announced an extension of the due date for providing Forms 1095-B and 1095-C to individuals in Notice 2016-70.  The Forms 1095-B and 1095-C are used to report to individuals whether they possessed minimum essential coverage (MEC) for the year and, for employees of applicable large employers, whether they had an offer of MEC that provided minimum value as well as information to determine that offered coverage was affordable. 

Individuals use that information to determine if they are subject to a shared responsibility payment for failure to have MEC for some or all of the year, as well as whether the individual qualifies for a tax credit that offsets a portion of the cost of any insurance they obtained from the applicable exchange.

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The IRS has granted educational institutions an additional one-year reprieve from penalties if they fail to provide information on the amounts actually paid to the institution for the year in question on Form 1098-T and rather provide information solely on the amounts billed to the student.  No penalties will be assessed against institutions that report tuition billed rather than tuition paid on Forms 1098-T for 2017 per Announcement 2016-42.

Announcement 2016-17 originally provided a one year reprieve for 2016 Forms 1098-T from the law change enacted as part of the Protecting Americans from Tax Hikes Act of 2015.

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The “anti-Cohan” rule found in IRC §274(d) cost the taxpayer a deduction for expenses related to use of an Aston Martin in the case of Roy v. Commissioner, TC Summary Opinion 2016-77.

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In PLR 201645017 the IRS denied tax-exempt status to a religious organization that established a coffee shop that it planned to use to spread a religious message to members of the community.  The exemption was denied because the IRS determined, under the facts of the case, that a substantial portion of the organization’s operations would be devoted to operating the coffee shop in a commercial manner.

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To most practitioners, at first glance the facts in the case of Fitzpatrick v. Commissioner, T.C. Memo. 2016-199 would appear to doom Christina Fitzpatrick to being liable for the 100% trust fund penalty related to unpaid payroll taxes for the wine bar that was partially owned by her husband and for which she worked.

These “bad facts” included the fact that:

• Christina had signature authority over the bar’s checking account
• Christina signed payroll checks regularly
• Christina selected and arranged to hire Paychex to handle the restaurant’s payroll

However, despite that apparent level of control, the Tax Court found that Christina was not a responsible party based on other facts in the case.

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