The IRS has published on its website a notice reminding businesses of the changes in due dates for information returns this year along with more significant penalties (Increase in Information Return Penalties, IRS Website).

Last year, as part of the Protecting Americans Against Tax Hikes Act (PATH), Congress moved forward the due date for certain information returns and increased the penalties applicable to such returns.  To assist the IRS in combating refund fraud, the due date for selected information returns to be filed with the government is moved forward to January 31.

Image copyright vladvm / 123RF Stock Photo

A construction contract requiring grading and soil compaction of the area for building foundations for houses was found to qualify for completed contract treatment in Technical Advice Memorandum 201650014.

Under IRC §460, the general rule is that long term construction contracts must be reported under the percentage of completion method (PCM) for tax purposes.  However, under IRC §460(e)(1)(A) a home construction contract does not require the use of PCM and the contractor may instead use the completed contract method of accounting.

Image copyright dbvirago / 123RF Stock Photo

In Chief Counsel Email Advice 201650017 the IRS confirmed what had been strongly hinted at in private letter rulings issued that allowed late portability elections under IRC §2010—that relief is not available to estates if a Form 706 was otherwise required to be filed but the estate did not do so.

The IRS has traditionally taken the position that its authority to grant taxpayers relief to make elections after their due date is limited to elections whose date is set by regulations.  If a date is set by statute, the IRS position is that the agency lacks the authority to grant relief.

Image copyright srcnnr / 123RF Stock Photo

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.

Image copyright fotomandm / 123RF Stock Photo

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.

Image copyright 3103 / 123RF Stock Photo

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.

Image copyright zoeytoja / 123RF Stock Photo

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).

Image copyright tashatuvango / 123RF Stock Photo

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).

Image copyright mrgao / 123RF Stock Photo

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.

Image copyright hafakot / 123RF Stock Photo

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.

Image copyright pockygallery / 123RF Stock Photo

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.

Image copyright sentavio / 123RF Stock Photo

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.

Image Copyright rawpixel / 123RF Stock Photo

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.

Image Copyright icetray / 123RF Stock Photo

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.

Image copyright buschmen / 123RF Stock Photo