In PLR 201652029 the IRS was asked to grant an organization a tax exemption under §501(c)(3).  The organization was one formed to grant annual scholarships to graduating seniors of a particular high school who met certain criteria.

Initially this seems like a reasonable request since the organization’s purpose was to further education, and it was going to grant scholarships based on merit-based criteria.  But it turns out that criteria caught the IRS’s attention when the IRS looked at applying those criteria to what had actually taken place in the past.

Image copyright zimmytws / 123RF Stock Photo

In Notice 2017-10 the IRS has identified certain syndicated conservation easement transactions as listed transactions for purposes of Reg. §1.6011-4(b)(2) and IRC §§6011 and 6112.

Image copyright muzhik / 123RF Stock Photo

Merely being a guarantor of a rather large outstanding partnership debt was not sufficient to allow a deduction for losses flowing through from a partnership in the case of Hargis v. Commissioner, TC Memo 2016-232.

The case involved a question of proving basis both in S corporations in which the husband was a shareholder and basis in LLCs taxed as partnerships in which the wife was a partner.  The S corporation issue was fairly simple—the debts did not flow directly from the husband to the S corporation, so there was no basis provided by the debt.

Image copyright tomnamon / 123RF Stock Photo

The IRS has extended a special eligibility rule for taxpayers making an automatic change of accounting method by one year in Notice 2017-6. 

Taxpayers were required to make various changes in their accounting methods to comply with the revised tangible property regulations that took effect in 2014.  However, some of these taxpayers have discovered they need to make additional changes to comply with those regulations they had not noticed previously.

Image copyright dorian2013 / 123RF Stock Photo

The tax law may be “unfair and unjust” but that doesn’t allow a taxpayer to ignore the law to arrive at what he may believe is a more just result.  That’s the key lesson the case of Walter S. Mack Jr. et ux. v. Commissioner, T.C. Memo. 2016-229 provides.

Mr. Mack was a partner in a law firm.  He received K-1s from two law firm related partnerships for 2011 that showed total income of $479,473.  However, he only reported income of $75,000 from the partnerships on his Form 1040 for that year. 

Image copyright zhudifeng / 123RF Stock Photo

Organizations that wish to qualify as a tax-exempt organization under IRC §501(c)(3) must serve a public rather than private interest pursuant to Reg. §1.501(c)(3)-1(d)(ii).  That issue tripped the application of the organization that is the subject of PLR 201651016.

Image copyright hafakot / 123RF Stock Photo

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. 

Image copyright icetray / 123RF Stock Photo

It 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.

Image copyright niyazz / 123RF Stock Photo

In 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.

Image copyright gustavofrazao / 123RF Stock Photo

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