Previously we had discussed action by the Securities and Exchange Commission to deal with the changes to deferred taxes required by the law known as the Tax Cuts and Jobs Act (see SEC Issues Interpretative Bulletin on Applying ASC 740 in Light of TCJA).  The SEC issued Staff Accounting Bulletin No. 118 that provided guidance to public companies on how to deal with issues arising from the difficulties in computing the proper deferred tax adjustments in time to report for December 31, 2017 financial statements.

The Financial Accounting Standards Board met on January 10, 2018 to discuss other implications of TCJA on reporting and measurement for deferred taxes under ASC 740.  Ken Tysiac of the Journal of Accountancy posted a report of that meeting on the Journal’s website (“FASB Addresses Financial Reporting Impacts of New Tax Law”, January 10, 2018 [1]).

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He who hesitates is lost the saying goes, and in taxes that is often very true when facing statute of limitations to fix a problem.  But in Information Letter INFO 2017-0028 the IRS “solved” the taxpayer’s problem from 2006, largely by pointing it there really wasn’t the problem the taxpayer thought existed.

While we don’t know for sure why the taxpayer decided to look back at his actions in 2006 at this late date, he did so and contacted his Congressman who contacted the IRS.  The taxpayer in 2006 had rolled 401(k) funds from his employer’s plan to a traditional IRA.  However, the 401(k) included after-tax contributions and the taxpayer indicated he had “inadvertently” rolled those funds into a traditional IRA rather than a Roth IRA.  The taxpayer was asking how he could get credit for the taxes he had paid on those funds.

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Some partnerships will be authorized under the Centralized Partnership Audit Regime (CPAR) to elect to opt out of the centralized exams if they meet certain requirements.  Reg. 301.6221(b)-1 (TD 9829) provides the details for which partnerships can opt out and how they will go about doing so.

CPAR, which takes effect for returns filed for years beginning on or after January 1, 2018, represents a major change in how partnership returns will be examined.  By default, a tax will be determined and assessed at the partnership level (IRC §6221(a)).  In the alternative, a partnership subject to CPAR can elect to push out the adjustments to the partners in the year under review (IRC §6226).

Congress provided an option for some partnerships to elect out of CPAR and instead be taxed under traditional partnership exam rules (what were the small partnership examinations under the now repealed TEFRA rules).  Note that the election is an annual election, so electing to opt out of CPAR for 2018 does not require the partnership to opt out for 2019, nor will the partnership be opted out for 2019 unless the partnership both qualifies to make the election and files a timely election.

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With the upcoming limitation to $10,000 annually for any deduction for state and local taxes on Schedule A, questions arose about being able to prepay taxes before the end of 2017 to obtain the unlimited deduction rather than face the $10,000 cap beginning in 2018.  Congress shut down any thought of prepaying 2018 income taxes, treating any payment of 2018 taxes made in 2017 as being paid in 2018 (IRC §164(b)(6) after revision by the Tax Cuts and Jobs Act).

With prepaying income tax shut down, taxpayers began to think about prepaying property taxes, with a number of localities providing methods to advance pay taxes for 2018.  But if a tax has not yet been assessed or billed, can that tax be deemed “paid” under IRC §164(a)?

In response to these developments, the IRS issued News Release IR-2017-210, IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017.  The news release provides information on the types of payments made before the end of 2017 that can be deducted on the 2017 return.

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A package of films licensed by a taxpayer in the normal course of business can qualify as an item under Reg. §1.199-3(d)(1)(i) for purposes of the domestic production activity deduction under §199 per Revenue Ruling 2018-3.

The ruling looks at the following facts:

X Corporation (X) licenses a package of films (for example, a television channel) to customers for a fee in the normal course of its business. X's package contains films licensed to X by unrelated third parties and films produced by X. X pays license fees for distribution rights of the licensed films.

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The IRS has provided two general purpose safe harbors for claiming a casualty loss related to a personal residence and its contents (in Revenue Procedure 2018-8), as well as one tailored for the hurricanes that took place in 2017(Revenue Procedure 2018-9).

The general purpose ruling provided for safe harbor methods for claiming an amount of casualty loss using a simpler method than getting “before event” and “after event” appraisals.  One set of the general purpose relief provisions apply to any losses, while the second set only apply if the loss arises from a federally declared disaster.

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The IRS announced in Notice 2018-6 an extension of the due date for furnishing Form 1095-B, Health Coverage, and Form 1095-C, Employer Provided Health Insurance Offer and Coverage to individuals for 2017 from January 31, 2018 to March 2, 2018.

However, the date for filing copies of the forms with the IRS has not been extended this year, thus they will continue to be due on February 28, 2018 if not electronically with the IRS, and April 2, 2018 for those filing electronically.

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In Field Attorney Advice FAA 20174901F, the IRS signaled that, in addition to taking the position that the Third Circuit erred in its decision in Giant Eagle, Inc. v. Commissioner, CA3, 117 AFTR 2d 2016-1476 (822 F.3d 666) (see Action on Decision 2016 for the formal nonacquiesence announcement), it would also seek to limit any potential applicability to the exact circumstances as were found in Giant Eagle if the agency could not persuade the court that the Third Circuit’s analysis was in error.

The issue involves a taxpayer’s ability to take a deduction for accrued expenses under the all events test found in IRC §461.  The all events test, found at IRC §461(h)(4) provides:

(4) All events test

For purposes of this subsection, the all events test is met with respect to any item if all events have occurred which determine the fact of liability and the amount of such liability can be determined with reasonable accuracy.

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The Joint Committee on Taxation has released a report (JCX-64-17) that details the differences between the versions of the Tax Cuts and Jobs Act that passed the House and Senate. 

The document breaks the bills down by broad topics, and within each broad topic lists those provisions that are identical in both bills, those that exists in both bills but have some differences in the details and then provisions that exist only in one or the other bill.

While this document will likely be relevant for only a short period of time, right now it’s a very useful document to help practitioners understand what items are in both bills in identical form (and thus seem most likely to adopted without change), those that exist with differences (where it’s likely the provision will be in the final bill, though details remain in doubt), and those that exist only in one bill (and are most at risk to not appear in the final bill at all).

That said, there is no guarantee that only these provisions will be in the final bill, or that a provision will end up with terms that are unlike those in either the current House or Senate bills.

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The IRS in the case of Stapleton v. Commissioner¸ TC Summary Opinion 2017-87, was challenging the taxpayer’s claimed capital loss carryover from 2012 to 2013 and 2014.  The IRS specifically was taking the position that a sale of property by the taxpayer to his ex-spouse in 2012 related to the cessation of the prior marriage and thus a loss deduction was barred by IRC §1041(a)(2).

IRC §1041(a)(2) provides:

(a) General rule

No gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)— …

 (2) a former spouse, but only if the transfer is incident to the divorce.

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