The IRS has issued the 2017 required amendment (RA) list for individually designed qualified retirement plans (Notice 2017-72).  Despite the name of the document, the required amendments listed in this document are not required to be made by the end of 2017, but rather must be made generally by December 31, 2019 (the end of the remedial amendment period), although some governmental plans may qualify for a later date (see Rev. Proc. 2016-37).

The IRS changed the required amendment period, effective January 1, 2017, with the issuance of Rev. Proc. 2016-37.  As the current notice describes the new system contained in Rev. Proc. 2016-37:

Sections 5.05(3) and 5.06(3) of Rev. Proc. 2016-37 extend the remedial amendment period for individually designed plans to correct disqualifying provisions that arise as a result of a change in qualification requirements. Under section 5.05(3), the remedial amendment period for a plan that is not a governmental plan (as defined in § 414(d)) is extended to the end of the second calendar year that begins after the issuance of the RA List on which the change in qualification requirements appears. Section 5.06(3) provides a special rule for governmental plans that could further extend the remedial amendment period in some cases.

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In the case of Planty v. Commissioner, TC Memo 2017-240, the Tax Court found the IRS did not conduct an impermissible second examination barred by IRC §7605(b) when the taxpayers filed an amended tax return after accepting the original examination report. 

In effect, the taxpayer took a slightly bad situation (owing tax on an exam) and made it far worse (IRS determined they owed far more tax for the year in question) by attempting to amend the return for the year in question.

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In Notice 2017-71 the IRS has granted additional relief to taxpayers impacted by the change in the due date for partnership and related returns changed by the Surface Transportation and Veterans Health Care Act.  Calendar year partnership returns for 2016 were due on March 15, 2017, while in prior years that return would have been due by April 15. 

In Notice 2017-47 the IRS granted relief from late filing penalties for partnerships that filed their return or extension by the original due date.  This notice extends that relief to other items, except interest on tax due, affected by the change in the due date made by Congress.  That would include, for instance, the funding of a contribution to an employee benefit plan by the due date of the return for which a deduction is claimed on the prior year return.

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The Tax Court, having been reversed on appeal by the Seventh Circuit Court of Appeals in a case with virtually identical facts, officially changed its position on how to determine if a document mailed with a Stamps.com mailing label meets the timely filing rules of IRC §7502.  In Pearson v. Commissioner, 149 TC No. 20, the Court rejected its prior position that entries in the U.S. Postal Service database amounted to the equivalent of U.S Postal Service applied postmark which took precedence over the Stamps.com mailing date.  Instead, a document mailed with a Stamps.com label (or any other sort of postage meter equivalent label) is tested under the regulations for a document with a postmark applied by other than the U.S. Postal Service.

While, as noted, this position had been adopted on appeal, reversing the prior Tax Court decision, the reversal only would have had effect for taxpayers in the Seventh Circuit had the Tax Court not reversed its prior position.

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The IRS has released additional proposed regulations (REG-119337-17) on the Centralized Partnership Audit Regime (CPAR) that was created by the Bipartisan Budget Act of 2015.  These regulations, which add to the proposed regulations issued in June, address the impact of various international tax provisions on CPAR exams.

Specifically, these regulations look at the relationship of CPAR to the existing withholding obligations for certain foreign partners.  The proposed regulations make it clear that, generally, such withholding obligations are not covered by CPAR, but remind the reader that the IRS has taken the position in the June proposed regulations that he agency retains the right to separately examine the partnership and/or partners for any tax not covered by CPAR.

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Taxpayers often come to advisers seeking a way to claim a deduction for legal fees.  As we are aware, the IRC doesn’t provide a provision that broadly allows a deduction for legal fees.  Rather, taxpayers must find a provision in the IRC that allows a deduction for expenses of a type in which the current legal fees can be categorized.

The search for a provision under which to claim a deduction for legal fees was undertaken recently by the taxpayer in the case of Barry v. Commissioner, TC Memo 2017-237.  In this case the taxpayer had incurred over $25,000 of legal fees in an unsuccessful attempt to recover what he claimed was alimony which he had paid to his wife in excess of what was allowed under their agreement.

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The IRS issued a memorandum (CCA 201747006) that takes the position that the Court of Claim’s 2011 opinion in the case of Morton v. United States, 98 Fed. Cl. 596 (2011), is in error when it takes the position that, for an S corporation, an entity doesn’t have to be strictly recognized as unique form its owners. Rather, the memorandum argues that the opinion should not have distinguished the treatment of S corporations from that given by the U.S. Supreme Court in the case of Moline Properties v. Commissioner, 319 U.S. 436 (1943).

Moline generally holds that a taxpayer is not able to ignore the existence of separate entities that he/she has set up when analyzing a tax issue.  Rather, each entity is treated as a unique entity from the taxpayer’s perspective and the taxpayer must live with the consequences of that fact.  Unlike the IRS, the taxpayer was involved in creating the structure in question.

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In Revenue Procedure 2017-60 the IRS has provided a safe harbor for use by individuals who have suffered damage to their personal residences due to deteriorating concrete foundations caused by the presence of pyrrhotite. Under the safe harbor, amounts paid to repair such damage will count as a casualty loss in the year of payment.

The issue affects residents of the Northeastern United States due to the presence of pyrrhotite in the concrete mixture used to pour the affected foundations.  The IRS notes that this is a mineral that naturally occurs in stone aggregate which is used to produce concrete.  The mineral oxidizes in the presence of water and oxygen, leading to the formation of expansive mineral products and causing the concrete to deteriorate prematurely.

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An attempt to combine the concepts of valuation discounts for family limited partnership often used in estate planning with a short-lived S corporation to create an income tax benefit was not looked upon positively by the Tax Court in the case of Smith v. Commissioner, TC Memo 2017-218.

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Late in 2016, as part of the 21st Century Cures Act, Congress had created a program under which certain qualifying small employers could pay directly for medical costs of certain employees (generally private health care insurance) without running afoul of the provisions of the Affordable Care Act that could subject the employer to a $100 per employee per day penalty for offering a health plan that did not comply with the standards imposed under that law.

These programs are referred to as “Qualified Small Employer Health Reimbursement Arrangements” (QSEHRAs) authorized by IRC §9831(d).  In Notice 2017-67 the IRS issued a 59-page set of frequently asked questions (FAQs) regarding the operation of such plans to maintain compliance with the requirements of the law.

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