Keeping CPAs Up to Date on Tax Matters
A site devoted to articles on current developments in federal taxes geared toward CPAs in tax practice.
Charitable contributions are complicated with regard to trusts. In Chief Counsel Advice 201651013 the question involved a modification of a trust that allowed the distribution of trust assets to a charity.
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Read MoreIt has taken awhile (twenty-four years to be exact), but Congress enacted a relief provision to deal with the fact that the Department of Defense had been withholding taxes on lump-sum severance payments to combat-injured veterans despite that income being found to be excludable from taxable income under IRC §104(b)(3). The bill, the “Combat-Injured Veterans Tax Fairness Act of 2016” H.R. 5015 was signed into law on December 16.
In the case of St. Clair v. United States, 778 F. Supp. 894 (E.D. Va 1991) these one-time lump sum severance payments were held to be excludable from taxable income. However, per a Tax Analysts news article describing the bill, the Defense Finance and Accounting Service said an error with its payment system caused taxes to be improperly withheld from 14,000 veterans receiving these payments.
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The IRS released the mileage rates for 2017 in Notice 2016-79. The standard business rate is set at 53.5¢ per mile (down from 54¢ per mile for 2016). The charitable mileage rate is set at 14¢ per mile (unchanged from 2016). The standard mileage rate for medical care under §213 or for moving under §217 is set at 17¢ per mile (down from 19¢ for 2016).
The portion of the standard mileage rate treated as depreciation for an automobile used for business is 23 cents for 2013, 22 cents for 2014, 24 cents for 2015, 24 cents for 2016 and 25 cents for 2017.
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Read MoreThree partnerships found that the Tax Court generally agreed with the IRS that the interest they paid to purchase land, as well as property taxes they paid on the land, had to be capitalized under IRC §263A as part of the cost of production for the almond trees they began growing on the land in the case of Wasco Real Properties I, LLC et al v. Commissioner, TC Memo 2016-224.
The three partnerships in this case had purchased land that they planned to use for growing almonds. After the land was purchased the entities began planting almond trees that would eventually produce a crop of almonds.
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Read MoreIn the case of Community Education Foundation v. Commissioner, T.C. Memo. 2016-223 the taxpayer was contesting the IRS’s revocation of the organization’s tax exempt status under IRC §501(c)(3). The IRS was not alleging that the organization carried on something that wasn’t in line with its exempt purpose, but rather simply that the organization was actually carrying on any purpose.
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Read MoreThe 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.
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Read MoreA 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.
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Read MoreIn 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.
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Read MoreThe taxpayer in the case of United States v. August Bohanec et ux, USDC CD Ca., No. 2:15-cv-04347 was found to have willfully failed to file FBAR forms. The taxpayer was hit with the enhanced penalty of $100,000 or 50% of the balance in the accounts for being found willfully in violation.
This was true despite the fact that the taxpayer in question had attempted to enter the IRS’s Voluntary Disclosure Program for Offshore Accounts. But the IRS rejected their application to enter the program and the Court found they had “made several misrepresentations under penalty of perjury” in their application to enter the program.
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Read MoreSteve 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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Read MoreThe 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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Read MoreUpdate: The 21st Century Cures Act was signed into law on December 13.
The U.S. Senate has approved the 21st Century Cures Act, agreeing to the House amendments to the Act. The bill contains, among numerous other provisions, a provision (Act Section 18001) that will exempt certain small business health reimbursement arrangements (HRAs), including those reimbursing private insurance premiums, from the $100 per day penalty for a non-compliant group health plan provided by adding a new exception to IRC §9831. The President has announced that he will sign the bill.
In Notice 2013-54 the IRS held that an employer that reimburses individual insurance policies would generally be found to have a group health plan that failed to comply with the requirements of the Affordable Care Act. Under IRC §4980D an employer operating a non-compliant plan would be subject to a $100 penalty per day per affected employee for the period the plan was operated.
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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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Read MoreTemporary (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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Read MoreThe IRS has adopted final regulations (TD 9798) to increase fees for entering into installment agreements and add new levels for determining a fee in proposed regulations (REG-108792-16). The changes take effect on January 1, 2017.
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Read MoreDue to an increase in phishing attacks directed at preparers, the IRS announced that many of those who have e-services access to transcripts and have used the service will in the past year will need to revalidate their accounts or risk losing access (IRS Website, Important Update about Your e-Services Account). However, those who registered after May 2016 will not be required to validate their identity, since the IRS has been using the “Secure Access” validation system since that date.
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Read MoreThe 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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Read MoreA 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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Read MoreThe Department of Justice has filed in the United States District for the Northern District of California for a “John Doe” summons to be issued to Coinbase, Inc. for a list of all United States persons who conducted transactions in a “convertible virtual currency” between January 1, 2013 and December 31, 2015 (In the Matter of the Tax Liabilities of John Does; No. 3:16-cv-06658, USDC Northern California). The key “convertible virtual currency” in question in this matter is Bitcoin.
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Read MoreIn Revenue Procedure 2016-57 the IRS has announced a new fast-track mediation program for small businesses and self-employed individuals, replacing the Small Business/Self-Employed Division Appeals FTM program found in Revenue Procedure 2003-41). The new program, the SB/SE fast-track mediation collection program (FTMC), replaces the old FTM program.
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