The Tax Court ruled that when an entity has its tax-exempt status retroactively revoked, interest is due on any underpaid tax for the years that the entity now has a tax liability from the date a return would have been originally due for an entity that did not have exempt status.  In CreditGuard of America, Inc. v. Commissioner, 149 TC No. 17 the Tax Court rejected the taxpayer’s view that interest should not begin to run until the date it was finally determined the entity was not tax exempt.

The issue of the retroactive loss of the organization’s exempt status back to 2002 had previously been decided in a stipulated Tax Court decision entered on November 30, 2012, based on an examination the IRS had begun in 2003 but not concluded until February of 2012.  The total tax determined to be due from the taxpayer was $216,547.

Image copyright iqoncept / 123RF Stock Photo

The Tax Court, in the case of Palmolive Building Investors LLC et al. v. Commissioner, 149 TC No. 18, refused to follow the holding of the First Circuit Court of Appeals in the case of Kaufman v. Commissioner.  The Court continued to very strictly apply the subordination requirement in Reg. §1.170A-14(g), finding that the taxpayer in this case had not managed to satisfy the perpetuity requirement of IRC §170(h)(5).

The First Circuit and the Tax Court had disagreed on the extent to which a mortgage must be subordinated to meet the requirements of Reg. §1.170A-14(g)(2).  That regulation provides:

(2) Protection of a conservation purpose in case of donation of property subject to a mortgage.

In the case of conservation contributions made after February 13, 1986, no deduction will be permitted under this section for an interest in property which is subject to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity.

Images copyright kharlamova / 123RF Stock Photo

Back in 2014 the Seventh Circuit Court of Appeals sidestepped the question of whether the allowance of an exclusion for a housing allowance for a minister of the gospel under IRC §107(2) was barred by the U.S. Constitution.  But the method the panel used to sidestep left an obvious route for the issue to come back—and now it has returned to the Courts.

Originally in the case of Freedom from Religion Foundation, Inc. v. Lew, 114 AFTR 2d, ¶2014-5425 issued in November of 2014 the panel found that the organization suing to bar ministers from receiving an exclusion from income for housing allowances did not show any harm to the organization.  The panel noted that the organization had not attempted to receive a similar exclusion for its employees from the IRS.  So, it was the organization that voluntarily treated the payments as taxable to its employees rather than the IRS denying that treatment.

At the time I had noted that the obvious next step was for the organization to ask for such treatment and then come back to Court if the IRS did not allow the claim.  The case of Gaylor, et al v. Mnuchin, et al, W.D. Wisconsin, Case No. 3:16-cv-00215 brings the matter back to the courts.  And, in fact, the case is back before the very trial judge that, in the original case, had found that IRC §107(2) violated the U.S. Constitution.  Not surprisingly, since the Seventh Circuit never actually dealt with that question (disposing of the case on a standing issue), the judge came to the same conclusion this time.

Image copyright aquir / 123RF Stock Photo

Under proposed regulations on which taxpayers may rely upon immediately, elections made by partnerships under IRC §754 will no longer have to be signed by a partnership representative (REG-116256-17; 82 F.R. 47408-47409, October 12, 2017).  The current regulations require that the election be signed, which has created issues with electronically filed partnership income tax returns.

In certain situations, a partnership may elect to adjust the basis of partnership property upon the occurrence of certain actions, such as a transfer of a partnership interest (as provided for in IRC §743) or upon distributions of property (as provided for in IRC §734).

Image copyright belchonock / 123RF Stock Photo

The IRS has issued guidance (LB&I Memorandum  LB&I-04-0917-005) that allows certain large taxpayers to adopt a simplified method of determining qualified research expenditures (QREs) to be used in computing the credit for increasing research activities under IRC §41.  The method makes use of the entity’s audited financial statement’s amount of research and development expenditures reported as an expense under the provisions found in Financial Accounting Standards Codification ASC 730, Research and Development.

Image copyright alexmillos / 123RF Stock Photo

The IRS announced a pilot program where it would accept private letter ruling requests on general federal tax consequences of transactions that aimed to be tax free distributions of corporate stock.  The transactions would be ones intended to qualify under IRC §§368(a)(1)(D) (“D” reorganizations) and 355.

The program, described in Rev. Proc. 2017-52, will run for 18 months after which the IRS will evaluate the program and whether it makes sense to terminate it, extend it or expand it.

Image copyright icetray / 123RF Stock Photo

Clients who receive legal settlements often believe that because they have been awarded damages for a wrong that occurred the payment is not subject to income taxes.  But the tax law is not so simple.  The default under federal tax law, found at IRC §61(a), is that all items of income are taxable, with the burden falling on the taxpayer to point out an exception that applies in his/her case.

The case of Ritter v. Commissioner, TC Memo 2017-185, looks at an award received by a homeowner whose house was taken in a foreclosure proceeding.  The taxpayer received a payment related to a settlement between the lender and the government to deal with, as the Office of the Comptroller of the Currency labeled it, “deficiencies and unsafe or unsound practices in [Chase Bank’s] residential mortgage servicing and in the Bank’s initiation and handling of foreclosure proceedings.”

Image copyright olivierl / 123RF Stock Photo

The IRS has issued proposed regulations that would allow employers to truncate social security numbers (SSNs) on the employee copies of Forms W-2 in REG-105004-16.  However, the IRS has announced that the option won’t be available for W-2s issued before December 31, 2018.

Prior to a change in the law found in the PATH Act, IRC §6051(a)(2) required the employee’s social security to be printed in full on the employee’s copy of Form W-2.  Due to concerns regarding identity theft, Congress changed the law to remove that requirement.  However, the law did not mandate the use of truncated numbers and the regulations continue to require use of the employee’s entire social security number.

Image copyright zimmytws / 123RF Stock Photo

The IRS has yet again extended the relief it provided for Hurricane Harvey to cover Hurricane Irma.  In Notice 2017-52 the IRS has provided the same relief for employees and employers when a leave donation program to benefit victims of Hurricane Irma as Notice 2017-48, the details of which were covered in an earlier blog post.

Generally, an employer can allow employees to donate leave time of any sort to a program where the employer then pays an amount equal to the value of that time to a §170(c) charity to be used for relief for victims of either hurricane.  The IRS will not treat the payment as taxable income for the employee, but will treat the amount as compensation expense, rather than a charitable contribution, for the employer.

The payment to the charitable organization must be made before January 1, 2019.

Image copyright Image copyright bobaa22 / 123RF Stock Photo