One of the key developments keeping those CPAs who specialize on the “accounting and auditing” (or A&A as we tend to refer to it) side of the profession jumping has been the soon to be implemented standard titled “Revenue from Contracts with Customers” FASB Accounting Standards Update 2014-09, which makes significant changes to revenue recognition, particularly the timing of such recognition of revenue. 

Of course, for those of us working in the tax arena, when you start talking about timing of recognition you realize that if any of this either does flow onto a tax return or a taxpayer reasonably would like to have it do so to keep tax and book the same in this area you realize you are dealing with an “accounting method” which would require IRS permission to change under IRC §446.  And we also realize the timing of the inclusion of an item of income is governed under the IRC by IRC §451.

The IRS has been aware of this potential problem as well, and now has released a proposed Revenue Procedure to allow for certain automatic changes in accounting methods.  This proposed procedure, on which the IRS is seeking comments, is found in IRS Notice 2017-17.

Image copyright damedeeso / 123RF Stock Photo

In Revenue Procedure 2017-28 the IRS clarified rules related to obtaining employee consents when an employer request a refund of overpaid FICA and RRTA taxes.  The procedure makes minor changes to the draft ruling issued along with Notice 2015-15.

The new procedure applies to consents requested on or after June 5, 2017.  Employers who have already issued requests for consents prior to that date will not need to send out new consent requests and it will not affect the validity of any consents received after that date that were requested prior to June 5.  Employers may still rely on the proposed revenue procedure found in Notice 2015-15 for consent request issued prior to June 5, 2017.

Image copyright binaryproject / 123RF Stock Photo

The question of a taxpayer being able to establish timely mailing of a document when a private postage meter is used was considered in the case of Grimm v. Commissioner, TC Memo 2017-44.

IRC §7502 is what many professionals refer to as the “timely mailing equals timely filing” rule, but the rule isn’t quite so simple.  Rather, under IRC §7502(a) a document is deemed filed timely if the postmark applied by the United States Postal Service shows a date on or before the deadline for filing.  If a postmark is not applied by the U.S. Postal Service then the IRS is granted the authority to write regulations outlining whether and if such other postmark may be treated as evidence of timely filing

Image copyright abluecup / 123RF Stock Photo

A taxpayer found that he could not take advantage of the foreign earned income exclusion found at IRC §911 because he failed the “abode” test in the case of Lock II v. Commissioner, TC Summary Opinion 2017-10.

Image copyright letterstock / 123RF Stock Photo

The First Circuit Court of Appeals determined that a District Court went beyond the law in attempting to mitigate an unfair result in the case of Robb Evans & Associates, LLC v. United States, CA1, Case Nos. 15-2540 & 15-2552.

The case involved the always confusing concept of a claim of right under IRC §1341.  This rule provides that if a taxpayer included an item in gross income in a prior year because it appeared the taxpayer had an unrestricted right to the item that is more than $3,000, and the amount is repaid in a later year, the taxpayer can, on the return for the year of repayment, either take a deduction for the amount repaid or claim a credit for the amount of additional tax paid when the item was originally included in income.

Image copyright scyther5 / 123RF Stock Photo

The fact that a medical treatment may not be recognized as a proper treatment by medical authorities does not mean that federal tax law will deny the taxpayer a deduction for such expenses.  In a bench opinion, the Tax Court in the case of Malev v. Commissioner, Tax Court Case No. 1282-165 held that the taxpayer would be allowed a deduction for such expenses even though the only diagnosis she cited as evidence of her condition took place after the treatments in question, calling into question her belief that her unusual treatment had cured her.

The Court noted that the treatments the taxpayer sought to deduct related to her spinal conditions were outside the norm, noting:

Concerned that conventional treatments for her condition posed too much risk, or were or would be ineffective, Petitioner subscribed to various forms of treatment from four individuals, none of whom would be commonly recognized as a conventional medical caregiver. And to be sure, none of the methods utilized by these individuals would commonly be recognized as a conventional medical treatment. The methods Petitioner subscribed to might be termed “alternative medicine” by the polite, but we expect the less tolerant would characterize the treatments in other than legitimate or complimentary terms.

Image copyright mindscanner / 123RF Stock Photo

The case of Izen v. Commissioner, 145 TC No. 5 involved the question of whether a taxpayer had complied with the requirements of IRC §170(f)(12) for his donation of his interest in an aircraft to a museum in Houston.

IRC §170(f)(12) was enacted to impose additional substantiation requirements for taxpayers claiming donations of used motor vehicles, boats and airplanes.

Image copyright gudella / 123RF Stock Photo

Morgan Stanley, in a Form 10-K filed with the Securities and Exchange Commission on February 27, disclosed that it had discovered errors in information reporting forms provided to the IRS for the years from 2011-2016. The erroneous data related to cost basis information reported to the IRS and retail brokerage clients.

Since 2011 brokers have been required to report to the IRS, as part of the Form 1099-B reporting, basis on securities sold during the year that were acquired after various dates depending on the type of security.

Image copyright sarahdesign / 123RF Stock Photo

The IRS has yet again bailed out the Congress after a new law imposed a deadline for taking action that was simply unworkable (in this case, for calendar year plans 90 days after the law was enacted).  In Notice 2017-20 the IRS has granted relief from notices that were required to be given to employees eligible to be covered by a qualified small employer health reimbursement arrangement (QSEHRA), a requirement added by the 21st Century Cures Act that enacted December 13, 2016.

An employer with fewer than 50 employees who does not offer group plan to any employees is eligible to establish a qualified small employer health reimbursement arrangement. [IRC §9831(d)]  However, an employer establishing such an arrangement is required to give written notice to all eligible employees at least 90 days before the beginning of a year for which a QSEHRA is provided.  [IRC §9831(d)(4)]

Image copyright mtkang / 123RF Stock Photo

The IRS and the taxpayer in the case of Estate of Kollsman v. Commissioner, TC Memo 2017-40 had wildly different values that each ascribed to two paintings.  In the view of the estate the paintings in question were valued at $500,000 and $100,000 respectively.  But the IRS position was that the paintings were far more valuable, arguing at trial that the proper values were $2,100,000 and $500,000 respectively.

One reason the IRS was skeptical of the estate’s value was the that the more valuable of the two paintings was sold 3 ½ years later for a $2,100,000 hammer price and a full price paid by the buyer of $2,434,500, well above the estimated $500,000 value.

Image copyright retrorocket / 123RF Stock Photo

The IRS announced in News Release IR-2017-41 that it has now made available lists of approved exemption applications that were obtained using Form 1023-EZ, Streamlined Application for Recognition of Exemption.

The information, provided in the form of an Excel spreadsheet, provides approved applications by year beginning with mid-2014 when the streamlined form was first released.  The IRS will release updated information quarterly.

Image copyright blankstock / 123RF Stock Photo

Whenever taxpayers are paying for services between related entities the same interests control, the IRS is known to be skeptical of the reality of the arrangement.  The IRS questioned just such an arrangement in the case of Kauffman v. Commissioner, TC Memo 2017-38.

The taxpayer in this case was a realtor and cinematographer who operated several single member LLCs (all of which were treated as disregarded entities) and a C corporation.  The IRS was questioning payments made from one of the LLCs to the C corporation of $191, 000 for “consulting fees” and $75,000 in “commissions and fees.”

Image copyright jrcpics / 123RF Stock Photo

The taxpayer in the case of Scheurer v. Commissioner, TC Memo 2017-36 claimed that he either had a large business bad debt loss or a partnership loss related to funds that he stated he had advanced to a business being operating by a friend of his.  Unfortunately for Mr. Scheurer, the Tax Court did not accept either claim.

Mr. Scheurer had a friend, Kevin Zinn, who was planning to start a robo-call operation, marketing his company’s services to individuals with high credit card debt.  For a fee, the organization (Continental Financial Services, referred to as CFS) would contact the individual’s bank and attempt to negotiate a lower interest rate.  If a prospect agreed to hire CFS, the prospect would be charged an upfront fee that would be charged to the prospect’s credit card,

Images copyright koonkhunstockphoto / 123RF Stock Photo