The IRS has adopted as final regulations the proposed regulations issued in June of 2014 that allowed for a streamlined application for tax-exempt status under IRC §501(c)(3) in T.D. 9819.  These same regulations were issued in 2014 as temporary regulations which, with the issuance of the same regulations in final form, are now withdrawn.

The streamlined application process takes place entirely online, with the organization filling in Form 1023-EZ online at http://www.pay.gov.

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In the case of McGaugh v. Commissioner, Case No. 13665-14, CA7 the taxpayer had wired funds from his IRA account to purchase stock which we expected to be held in his IRA account.  However, the taxpayer’s IRA custodian refused to accept the share certificate that was received.  The IRS took the position that this resulted in a taxable distribution to the taxpayer from the IRA account.

The Tax Court decided that the taxpayer had not actually or constructively received a distribution from his IRA. (TC Memo 2016-28)  The IRS, not happy with this result, appealed the case to the Seventh Circuit Court of Appeals.

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The Tax Court refused to go along with the IRS’s view of strictly interpreting the provisions under IRC §274(n)(2)(B), allowing a full deduction for meals provided by the Boston Bruins NHL hockey team to players and employees traveling with the team at away games in the case of Jacobs v. Commissioner, 148 TC No. 24.

In order to get a 100% deduction for meals provided to employees, rather than only 50%, IRC §274(n)(2)(B) provides a full deduction is allowed “in the case of an expense for food or beverages, such expense is excludable from the gross income of the recipient under section 132 by reason of subsection (e) thereof (relating to de minimis fringes)…”

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The IRS has begun again issuing PTINs after suspending such issuance immediately losing the ability to charge fees for PTINs in the case of Steele, et al v. United States, (US DC District of Columbia).  The announcement, along with a series of Q&As on the issue, was posted to the IRS website (“IRS Reopening Preparer Tax Identification Number (PTIN) System”).

The IRS is not charging for a PTIN issuance at this time, but the Q&As reserve the possibility that those receiving a “free” PTIN at this time might be required to pay for it later.

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In the case of W. Zintl Construction, Inc. v. Commissioner, TC Memo 2017-119 the taxpayer in question was a corporation with a rather significant unpaid payroll tax liability ($6,563,263 to be exact).  The corporation was seeking an offer in compromise with regard to these taxes.  The IRS settlement officer (SO) determined that the offer was not to be accepted.  In doing so he considered the going concern value of the business as a whole and then added back the underlying payroll tax liability.

The taxpayer took its case to the Tax Court, arguing that a going concern value should not be used against the business itself, as opposed to that of the owner of the business.  The Tax Court disagreed with this view, but also determined the settlement officer had improperly computed the going concern value when he added back to that value the payroll tax liability.

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If a S corporation has any accumulated earnings and profits, its S status is at risk due to “excess passive income” if it incurs such income for three straight years under IRC §1362(d)(3).  While rentals can generate such passive income, a rental does not provide such passive income if it is deemed to be derived in the active trade or business of renting property (Reg. §1.1362-2(c)(5)(ii)(B)(2)).  In PLR 201725022, the taxpayer asked the IRS to find that the rental income being received by a C corporation would not be treated as “passive income” if the corporation elected S status.

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When an employer decides to use a third party from which to lease employees, the employer does not escape liability for the payroll taxes if they remain unpaid even if the employer makes the payment.  This was the issue the IRS was looking at in Chief Counsel Advice 201724025. 

In this case the taxpayer had hired an outside professional employer organization (PEO) to manage its payroll.  Although the company had paid the PEO for the payroll and the amount that was due on the payroll taxes, the PEO failed to pay the payroll taxes.  The corporation discovered this fact on exam.

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Earlier this year we analyzed the Tax Court's decision in Mescalero Apache Tribe v. Commissioner, 148 TC No. 11 (See Taxpayer Can Obtain Information on Payment of Tax By Contractors From the IRS in Employment Tax Dispute).  In that case, a taxpayer facing potential liability for failing to withhold taxes from individuals reclassified as employees was able to convince the Tax Court that the IRS needed to provide the taxpayer with information regarding whether individuals they had been unable to located had reported the income on their return.  If that was the case, the tribe was not liable for the income taxes it had failed to withhold from those individuals.

The IRS Chief Counsel’s office reacted shortly after the Mescalaro decision in an email (Chief Counsel Email 201723020), indicating that in its view this case does not grant taxpayers facing such liability may not require the IRS to provide worker tax information during the exam.  Rather the agency’s position is that the case only holds that such disclosure may be required by the Court during discovery, not that employers facing potential liability have the right to obtain that information directly from the service immediately upon the issue being raised in exam.

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The IRS, after pulling back a version in January in light of President Trump’s executive order limiting the issuance of new regulations, has finally released the important proposed guidance on the implementation of the revised partnership audit regime enacted as part of the Bipartisan Budget Act of 2015.  This version was published in the Federal Register on June 14, 2017. [REG-136118-15]. 

This second pass is little changed from the version the IRS was set to release in January of 2017.  Aside from fixing minor typographical errors in the original, this version removes a single example that dealt with the imputed underpayment and added some additional discussion in the preamble of the issues the IRS continues to consider regarding tiered partnerships and these regulations.

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In Revenue Procedure 2017-34 the IRS published a simplified method to obtain permission for an extension of time under Reg. §301.9100-3 to file a Form 706 and elect portability without the need to apply for a private letter ruling and pay the associated fee.

Under IRC §2010 a surviving spouse may make an election to claim any lifetime transfer tax exclusion that was not used to reduce the estate tax on the deceased spouse.  This amount, known as the deceased spouse unused exclusion amount (DSUE) can end up being equal to the entire maximum lifetime transfer amount ($5,490,000 for 2017), especially if the deceased spouse left his/her entire estate to his/her spouse.

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In News Release IR-2017-103 the IRS announced that it has finally approved the first batch of certified professional employer organizations (CPEOs)   The legislation authorizing CPEOs was passed in late 2015 and the legislation originally targeted January 1, 2016 as the date employers could begin using such organizations.

However, the IRS took time to publish the rules under which an application could be made and to process such an application, so the program got off to a late start.  Now the IRS has issued notices of certification to 84 organizations.

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The penalty for a substantial understatement of tax found at IRC §6662(b)(2) is triggered whenever a taxpayer faces a sufficiently large underpayment at the end of an examination.  A substantial understatement exists for an individual if the understatement is greater than the greater of:

• $5,000 or
• 10% of the tax required to be shown on the return for the taxable year.

Once the IRS establishes an underpayment that exceeds the thresholder, to escape the penalty, the taxpayer must meet one of the following criteria:

• If the underpayment did not arise from a tax shelter (as defined at IRC §6662(d)(2)(C)) either:
  • There was or is substantial authority for the treatment of the item or
  • There was adequate disclosure (generally on a Form 8275 or Form 8275-R) and there exists or existed a reasonable basis for the position that gave rise to the underpayment (IRC §6662(d)(2)) or
• There existed reasonable cause for the underpayment, the taxpayer acted in good faith (IRC  §6664(c)) and the underpayment did not arise from a tax shelter (again as defined at IRC §6662(d)(2)(C)).

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