In the case of Asad and Akel v. Commissioner, TC Memo 2017-80 the IRS agreed each of the now divorced spouses should be liable for only a portion of the tax due, each qualifying for innocent spouse relief under IRC §6015 for tax liabilities arising from rental properties owned by the other spouse.

However, the taxpayers in this case, while accepting that neither should be liable for the entire balance due, argued that rather than using the allocation the IRS arrived at based on the ownership of the properties leading to the tax liability, each should be relieved of 50% of the liability.  That is, they proposed to split the tax evenly.

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Under IRC §6603 a taxpayer who believes a tax may be imposed against him/her in the future, but for which has not yet been assessed, may make a cash deposit with the IRS which will serve to stop the running of any interest on that tax at the date of the deposit if that tax is later assessed.  One such way a taxpayer might wish to make a deposit would be in a case where the taxpayer believed he/she potentially could be subject to transferee liability.

In the case of transferee liability, an individual becomes liable for another taxpayer’s tax based on certain transfers that were made to that person.  In essence, the transferee received assets which the law views as depriving the taxpayer that owed the tax of the ability to pay that tax.  In some cases, there may be multiple potential “transferees” that could be found liable. 

In Field Attorney Advice 20171801F the issue was whether a person who made such a deposit could direct the IRS to apply some or all of that deposit against the liability of another person found liable for the same liability?  And, if the person can direct the transfer, can an attorney-in-fact (that, is, a representative named a Form 2848, Power of Attorney and Declaration of Representative) for that person make that direction?.

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If the IRS erroneously informs a taxpayer that the last day for filing a Tax Court petition is later than the actual deadline (90 days after the IRS mailed its determination of final relief in this case as provided in IRC §6015(e)(1)(A)), does that extent the time the taxpayer has to file with the Tax Court?  In the case of Rubel v. Commissioner, CA3, No. 16-3526, the Third Circuit Court of Appeals ruled that the answer is no—the Tax Court lacks jurisdiction to hear the case once the 90-day period expires, despite the erroneous information provided by the IRS.

In the case in question the IRS had denied Nancy’s request for innocent spouse relief on January 4, 2016 for two tax years and on January 13, 2016 for another tax year.  The date 90 days from those dates were April 4, 2016 for the first two years and April 12, 2016 for the final year.

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In Rev. Rul. 2017-9 the IRS ruled on two different transactions involving three related corporations, one of which gives the IRS position on “North-South” spinoff transactions that the IRS had placed on its no rule list in 2013.  

The first situation, and the one which proves to be the most taxpayer friendly, involved three related corporations involved in a North-South spinoff.  P, the parent corporation, owns 100% of D, what will eventually be the distributing corporation in this arrangement.  D owns 100% of C, a corporation whose stock the taxpayer wishes to transfer upstream to P.

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In Revenue Procedure 2017-37 the IRS provided updated numbers for 2018 for health savings accounts and the related high deductible health plans.

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Although the TEFRA Partnership audit rules are now living on borrowed time, cases looking at new issues continue to arise under those rules, and many involve concepts that likely will carry over to the new partnership audit regime.  One such issue arose in the case of Malone v. Commissioner, 148 TC No. 16.

Congress in 1997 modified the TEFRA partnership audit rules to bring certain issues involving penalties applicable to partnership items under the TEFRA rules where the matter had to be decided in a partnership proceeding, and not in proceedings for individual partners.

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In the case of Sotiropoulos v. Commissioner, TC Memo 2017-75 argued that amounts she received from the United Kingdom for claims she submitted related to what the UK government was claiming in UK courts as tax shelters were not tax refunds.  She noted that the UK government was challenging those shelters in court and she believed it was likely she would need to repay those funds.

When a taxpayer claims a foreign tax credit under IRC §905(c)(1), she is required to notify the IRS of any later refund of some or all of the taxes used to compute the credit pursuant to IRC §905(c)(3), normally by filing an amended return.

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The exclusion for gain from the sale of qualified §1202 stock now is at 100% for stock acquired after September 27, 2010 so long as the taxpayer holds it for five years.  But a number of businesses are excluded from issuing such favored stock.  In PLR 201717010 the IRS looks at whether a taxpayer’s business would cause it to fail the test.

The potential benefit of §1202 is one of the reasons a small business might still consider forming as a C corporation (S corporation stock does not qualify for §1202 treatment) if it can otherwise meet the requirements, which will include a limit on gross assets, an “active business” test and the business cannot be on the list of “prohibited” businesses found at IRC §1202(e)(3).

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In the case of Redfield v. Commissioner, TC Memo 2017-71 the Tax Court was presented with a taxpayer that the Court clearly respected.  Mr. Redfield had served as a Marine, with tours of duty in Afghanistan, tours from which, in the words of the Court, “he emerged far from unscathed…”  But, unfortunately for Mr. Redfield, these considerations did not change the application of the rules regarding the time by which a taxpayer must file an election to claim the foreign earned income exclusion under IRC §911(a)(1).

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The IRS Tax Exempt and Government Entities division has published guidelines (TEGE-04-0417-0016) for agents to use to determine if the rules of IRC §72(p)(2) have been followed regarding the maximum amount an employee may borrow from a qualified retirement plan.

Under IRC §72(p)(1) a loan to a plan participant is to be treated as a taxable distribution to the participant.  However, if the loan meets the requirements of IRC §72(p)(2) it will not be treated as a taxable distribution.  Obviously, since an employee isn’t likely to want a loan on which he/she pays tax on and then still must repay, plans that offer loans generally have terms that require the loan to comply with the provisions of IRC §72(p)(2).

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In Field Attorney Advice 20171601F the IRS concluded that a taxpayer had used an inappropriate method to determine wages related to in-house research expense.  That allocation was used by the taxpayer in computing its research credit under IRC §41.

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In Rev. Rul. 2017-10 the IRS has published the terminal charge and standard industry fare level mileage rates for the first six months of 2017.  These rates are used under Reg. §1.61-21(g)’s rule for valuing noncommercial flights on an employer-provided aircraft. 

The rates are revised every six months, and these rates cover flights occurring between January 1, 2017 and June 30, 2017.

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While it is not impossible to qualify as a real estate professional under IRC §469(c)(7) if the taxpayer has a non-real estate full time job, it certainly is going to be difficult.  The limited number of hours in the year created a credibility problem for the taxpayer in Penley v. Commissioner, TC Memo 2017‑65, causing the Tax Court to find he had proven he qualified as a real estate professional.

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In what now appears to be an annual event, the IRS has released a revised comprehensive list of accounting method changes in Rev. Proc. 2017-30.  The new ruling replaces Rev. Proc. 2016‑29, issued approximately one year earlier.

The document is 337 pages long in the original PDF format published by the IRS.  The significant changes section begins on page 325 and continues through to page 330 of the document.  The new revenue procedure is effective for a Form 3115 filed on or after April 19, 2017 for a year of change ending on or after August 31, 2016.

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The IRS claimed that prior to the publication of Rev. Proc. 2016-47 those involved in the examination of a taxpayer’s return were barred from considering granting a waiver of the 60-day rollover period—the taxpayer had to have applied for a private letter ruling request for a waiver under Rev. Proc. 2003-16.  The Tax Court, ruling in the case of Trimmer v. Commissioner, 148 TC No. 14, did not find that the IRS was operating under any such restriction and ruled that the Tax Court had jurisdiction to consider whether the IRS had abused its discretion in refusing to grant such a waiver.

Mr. Trimmer suffered from major depressive disorder after a job he believed he had secured for himself to supplement his income after retiring from the New York Police Department fell through and he was unable to find substitute work.  Shortly after he began suffering from the disorder he received distribution checks from his retirement account.  He left the checks on his dresser at home for over a month and then deposited them into a regular, non-IRA bank account.

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Rev. Rul. 2003-7 provides that variable prepaid futures contracts (VFPCs) represent “open transactions” that are not subject to tax until the contract is finally settled and do not represent constructive sales of the stock under IRC §1259.  The case of Estate of McKelvey v. Commissioner, 148 T.C. No. 13 looks at whether an extension of the VFPC represents either a taxable settlement of the contract or a constructive sale of the related shares under IRC §1259, a question not previously addressed by the Tax Court.

Under a variable prepaid forward contract, a taxpayer agrees to pledge a certain amount of stock in exchange for receiving a payment of cash.  The contract provides that, at a specified date in the future the taxpayer will deliver either a number of shares of stock (either from the original pledged group or other shares the taxpayer has) or a cash payment.  The number of shares to be delivered varies over a specified range of shares, based on the price of the stock on the date the transaction is closed.  The shares that are pledged represent the maximum number that may need to be delivered.  As well, the party pledging the shares would retain the right to close out the contract at any time before the final settlement date, either by transferring shares or cash.

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In the case of Shea Homes, Inc. v. Commissioner, 142 TC No.3, the question of the scope of contracts of a homebuilder when making use of the completed contract method was the key issue.  And the IRS did not like the answer that either the Tax Court or the Ninth Circuit Court of Appeals gave, eventually releasing Action on Decision 2017-03 announcing the agency will not acquiesce in the decision, following it only on cases appealable to the Ninth Circuit that cannot be distinguished.

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