Some additional guidance has emerged on the self-employment tax status of member-managers of an PLLC in the case of Castigliola, et al v. Commissioner, TC Memo 2017‑62. 

Like the members in the case of Renkemeyer, Campbell, & Weaver, LLP v. Commissioner, 136 TC 137 (2011) the individual members in this case were attorneys who practiced in a law firm.  However, unlike the attorneys in Renkemeyer, these attorneys did not claim that all income from the law firm was not subject to self-employment tax.

Rather, the attorneys had consulted with an experienced CPA well versed in tax matters and agreed to pay out guaranteed payments to each member that was equivalent to a reasonable salary for an attorney of that individual’s experience level in their locality.  The guaranteed payments were reported as self-employment income and self-employment tax was paid on those amounts.  To the extent the law firm had income in excess of the guaranteed payments, those amounts flowing out on the K-1s were treated as income not subject to self-employment tax.

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The Courts generally look to an “actual economic outlay” that makes the taxpayer poorer in some objective fashion to allow the taxpayer to claim basis in debt for an S corporation.  In the case of Phillips v. Commissioner, T.C. Memo 2017-61, the taxpayer argued that the fact that judgments had been entered against her should give her the right to treat a portion of the debt as basis for claiming losses.

The taxpayer owned 50% of an S corporation that fell on hard times during the real estate crisis, defaulting on several loans which had been guaranteed by Sandra.  The banks sued to collect on the guarantees and obtain judgments against Sandra.  However, Sandra had not actually made any payments on the debts.

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The IRS announced the beginning of the use of private collection agencies to collect overdue taxes in News Release IR-2017-74.  The program, mandated by Congress in late 2015, requires the IRS to transfer certain overdue accounts to private collection agencies. 

The release begins by describing how the program will work, noting that the IRS will first notify the taxpayer that their account is being transferred to a private agency and will send along Publication 4518 to describe the process for the taxpayer in question.

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In the case of the Mescalero Apache Tribe v. Commissioner, 148 TC No. 11 the Tax Court had to consider the taxpayer’s request to obtain information from the IRS regarding other taxpayers, specifically if those taxpayers had reported income received from the Tribe on their income tax returns.  Or, as the IRS claimed, did the law (specifically IRC §6103) prevent the agency from disclosing such information about other taxpayers.

The question arose because the IRS had decided in an examination that the Tribe had failed to treat certain individuals as employees that were, in the agency’s view, truly employees.  While the Tribe is still contesting that fact, the Tribe sought information from the IRS to reduce the amount due. Specifically, the Tribe wished to know if contractors they had been unable to contact had paid their taxes.

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Should a corporation that was required to incur certain costs to obtain regulatory approval for a merger be required to capitalize those costs as facilitative costs under IRC §1.263(a)-5(a)?  In Chief Counsel Advice 201713010 the IRS National Office decided the answer was no.

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The Protecting Americans from Tax Hikes Act of 2015 provided for a new way for certain businesses to receive the benefit of the research credit under IRC §41.  A qualifying small business may, in lieu of the income tax credit, receive a credit against the employer portion of social security taxes [IRC §41(h)].  The IRS has provided interim guidance on taking advantage of this provision in Notice 2017-23.

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The taxpayer corporation in this case had claimed deductions in 2011-2013 for management fees of $120,000, $36,000, and $42,000.  In each year, Home Team had transferred funds to Sacer Cor as it had cash available to transfer, and the funds were initially recorded as loans to Sacer Cor.  At the end of the year, some or all of the loans were reclassified as management fees.

The Court noted that the fees were based solely on Home Team’s ability to pay rather than being payments for specifically invoiced services.  Also, Sacer Cor had no employees for the years in question, although two of the Sacer Cor shareholders were employees of Home Team and were paid a salary by that organization.  The Court noted that Home Team did not produce any evidence of any services provided by Sacer Cor.

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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.

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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.

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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

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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.

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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.

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