In Private Letter Ruling 201730002 we find a situation where a taxpayer’s death instantly terminated the S corporation in which he owned a 100% interest.  The structure he created to hold the S corporation stock set up a situation in which the S election’s validity continued only so long as the shareholder remained alive.

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There was no question that the taxpayer in the case of Gowen v. Commissioner, TC Summ. Op. 2017-57 had defaulted on the loan he received from his former employer’s 401(k) plan and, as well, that he did not correct the default prior to the cure period allowed under the plan.  But the taxpayer argued that the actual deemed distribution did not take place in 2012, the year the deemed distribution was reported by the plan custodian on a Form 1099R, but rather at some point in 2013.

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Even though it may appear to taxpayers that mileage and meals are clearly related to their job, only in limited circumstances may deductions be claimed for such items.  In the case of Wooten v. Commissioner, TC Summ. Op. 2017-58, the taxpayers discovered that none of the expenses they had claimed met the requirements to be deductible.

In this case the taxpayer was employed as a plumber/pipefitter for a contractor.  In his job he had to work at various locations, some in Gulfport or Biloxi, Mississippi, which were 20-25 miles from his home and two in Hattiesburg, Mississippi which was about 56 miles from his home.  Mr. Wooten kept logs of his travel to/from his home to these locations.  He claimed a deduction for this mileage, along with a deduction for meals he consumed at these locations.

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The concept of a “claim-of-right” can be confusing for both taxpayers and tax professionals.  In the case of Yoklic v. Commissioner, TC Memo. 2017-143, a taxpayer did not include unemployment benefits received in 2012 in income because the state agency administering the benefits (Arizona’s Department of Economic Security (DES)) had determined he was not entitled to the benefits, and Mr. Yoklic repaid those benefits in 2013.

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The IRS in Notice 2017-40 again extended the time period, this time through 2021, that taxpayers may use the safe harbor method of reporting HFA mortgage relief originally granted in Notice 2011-14.  Notice 2015-77 had extended until the 2017 tax year the safe harbor method originally provided for in Notice 2013-7 of reporting payments made on a home mortgage that had received relief from a state housing agency from the Hardest Hit Fund (HFA Hardest Hit Fund). 

The new notice also extends relief from penalties related to information returns for mortgage services and state housing agencies due to payments made under the program.

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In emailed advice (Chief Counsel Email 201727008), the IRS Chief Counsel’s office discussed the limitation on the use of Form 941-X, specifically looking at what qualifies as “administrative error” for which the Form 941-X can be used to address issues on prior year’s payroll tax reports related to federal income tax withheld.

People do make mistakes, and at time those errors involve payroll tax issues, including tax withholding.  Form 941-X was created to allow employers to deal with some errors—but the form has very specific limitations on its use.  As a practical matter, once a year has ended and the employee has been given a W-2, the consequences of, say, overwithholding or underwitholding federal income taxes gets “passed on” to the employee since that number is claimed as a credit on the employee’s own income tax return.

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Whether a taxpayer can claim a deduction for legal expenses generally depends on the origin of the claim giving rise to the legal expense.  This means that even if the legal expense might arguably have an impact on one activity (say, a new trade or business the taxpayer is establishing) it will not be deductible as part of that activity if the claim originated elsewhere.  The case of Dulik v. Commissioner, TC Summ. Op. 2017-51 deals with this issue.

In this case the taxpayer was negotiating a separation agreement from his former employer.  In doing so he paid $26,781 in legal fees related to various issues in negotiating that agreement, specifically looking to get removed from the agreement a reference to a secrecy agreement he had signed with a predecessor of his current employer which contained a non-compete agreement.

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A participant in a qualified employer retirement plan may, if the plan allows it, borrow funds from the plan.  However, such borrowing is subject to a number of specific provisions in federal law and regulations.  Violation of the provisions regarding repaying the loan results in its treatment as a distribution from the plan, taxable to the participant.  That’s true even though the participant remains liable to repay and does actually repay the loan to the plan.

In the case of Frias v. Commissioner, TC Memo 2017-139 there was little question the written terms of the loan had not been followed—but the failure had been due to a failure by the employer to fulfill its obligation to withhold the payment from Ms. Frias’s checks she received while was on maternity leave.

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IRC §468 allows electing taxpayers who, among other things, operate landfills to claim a current deduction for costs that will be incurred once the landfill is closed to clean up the site.  But the IRS argued in the case of Gregory v. Commissioner, 149 TC No. 2 that this election was restricted to taxpayers who used the overall accrual method of accounting for tax purposes.

IRC §448’s language allows a deduction to a taxpayer who elects the application of the provision. The taxpayers argued that nowhere in the statute did Congress restrict the taxpayers who could make this election to those using the overall accrual basis of accounting and that, based on the plain language of the statute, they should be allowed to take a deduction for such future clean-up costs regardless of the fact they reported their income and deductions generally on the cash basis of accounting.

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In the case of Tsehay v. Commissioner, TC Memo 2016-200, the Tax Court held that a taxpayer with a filing status of married filing separately nevertheless was eligible to claim an earned income tax credit under IRC §32.  However, the IRS in Action on Decision 2017-05 (AOD 2017-05) announced that the agency will not acquiesce in this decision.

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Details matter when claiming a charitable deduction under IRC §170—and failing to follow all of the requirements will most often trigger a complete disallowance of the deduction.  That’s true even of a claimed $33 million deduction in the case of RERI Holdings I LLC v. Commissioner, 149 TC No. 1.

In this case the LLC, being taxed as a partnership, purchased a remainder interest in property for $2.95 million in March 2002.  In August 2003, the LLC assigned its interest to a university, a §501(c)(3) organization.  The Form 1065 reported a noncash charitable contribution of $33,019,000 from this donation.

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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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