The AICPA Tax Executive Committee has sent Treasury a letter and memorandum outlining guidance that the organization is requesting regarding the Tax Cuts and Jobs Act.

While the memorandum provides a long list of guidance the AICPA deems necessary, the cover letter, signed by Tax Executive Committee Chair Annette Nellen, CPA, CGMA, Esq., points out three areas the AICPA believes require immediate guidance:

In particular, there are three areas of main concern. First, under section 199A, guidance is needed on the definition of specified service trade or business, the interaction of this section with other Code sections and the calculation of the section 199A deduction for complex business structures. Second, for section 481 accounting method changes, general procedural guidance is needed for making accounting method changes in order to comply with the new rules. Finally, penalty relief for underpayment of taxes is needed. Taxpayers and preparers need sufficient time to determine the appropriate withholding and estimated tax payments for businesses, individuals, trusts, estates, and other entities that may have a dramatically different tax liability in 2018 or that are affected by provisions effective for 2017.

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The Tax Cuts and Jobs Act modified IRC §1(f)(3) to use the chained consumer price index (C-CPI-U) rather than the standard consumer price index (CPI-U) for most inflation adjustments for tax years beginning after December 31, 2017.

Wikipedia offers the following summary explanation of the “chained CPI”:

The United States Chained Consumer Price Index (C-CPI-U), also known as chain-weighted CPI or chain-linked CPI is a time series measure of price levels of consumer goods and services created by the Bureau of Labor Statistics as an alternative Consumer Price Index. It is based on the idea that in an inflationary environment, consumers will choose less-expensive substitutes. This reduces the rate of cost of living increases through the reduction of the quality of consumed goods. The "fixed weight" CPI also takes such substitutions into account, but does so through a periodic adjustment of the "basket of goods" that it represents, rather than through a continuous estimation of the declining quality of goods consumed. [1]

The effective of this provision posed a problem that many observers recognized—the IRS had already released inflation adjusted numbers for 2018 computed under the standard CPI (CPI-U rather than C-CPI-U).  The numbers for most tax related figures were released in Revenue Procedure 2017-58 on October 19, 2017, with retirement plan numbers released in Notice 2017-64.

In an article published in the January 29, 2018 edition of Tax Notes, Harlan Weller, an actuary in the Treasury Office of Benefits Tax Counsel, is cited as confirming that the IRS will be recalculating the inflation adjusted numbers for all 46 separate IRC sections that are now required to be computed using the C-CPI-U rather than CPI-U index. [2]

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Couples often have trouble communicating when they are undergoing a divorce.  But in the case of Plato v. Commissioner, TC Memo 2018-7, the method Mr. Plato used to handle the necessary interaction with his soon to be ex-wife was particularly unique—and ineffective.

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Revised guidance for organizations applying for a determination letter to recognize qualification for §501(c)(4) status has been issued by the IRS in Rev. Proc. 2018-10..  The new guidance requires the request be made by filing Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4).  This new form is to be used instead of Form 1024 for such organizations to optionally file for such a determination letter. 

The organizations, while they must notify the IRS of their existence and their assertion that they qualify for §501(c)(4) status within 60 days of formation under other procedures, are not required to go through the determination letter process.  Nevertheless, such an organization may wish to obtain the certainty that comes with the letter and therefore will file this form, though the application will also require submission of a user fee for the IRS to process the request.

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The IRS has clarified how a provision in the Tax Cuts and Jobs Act that no longer will allow the recharacterization of rollovers from traditional IRAs to a Roth IRA as being made to a regular IRA.  TCJA repeals the ability to recharacterize a Roth IRA conversion as a transfer to a traditional IRA for taxable years after December 31, 2017.  [IRC §408A(d)(6)(B)(iii)]

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The IRS will begin sending information to the State Department on “seriously delinquent” taxpayers as required by the Fixing America’s Surface Transportation Act (2015).  Those taxpayers will face denial, revocation or limitation of their passport.  Details of how this will be handled is found in Notice 2018-1.

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One of the longstanding “rules of thumb” of tax research is to be careful not to rely upon a single court decision that seems to be an “outlier,” especially when it comes from a U.S. District Court which is a court that does not specialize in tax law cases.  This turned out to be true in the case of Green v. United States where a decision from an Oklahoma District Court was reversed on appeal by the Tenth Circuit Court of Appeals (Case No. 16-6371).

We had covered the District Court decision on the Current Federal Tax Developments website when the opinion was published in November of 2015.[1]  The IRS had several objections, including whether any deduction should be allowed.  But on appeal the IRS limited its objection to the amount of the contribution, not whether a contribution deduction should be allowed to the taxpayer.

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The United States Supreme Court has agreed to hear South Dakota's appeal in the case of State of South Dakota v. Wayfair, SD SC, Case No. 28160. (Order Granting Certiorari, January 12, 2018)

South Dakota enacted a law that required out of state sellers who sell over $100,000 in a year and have 200 or more distinct transactions to collect and remit sale tax for the state of South Dakota regardless of whether or not the seller has nexus with the state of South Dakota.

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The Financial Accounting Standards Board (FASB) has now posted a Staff Q&A that specifically outlines what private and not-for-profit entities who wish to apply the SEC guidance on deferred taxes found in Staff Accounting Bulletin 118 should do.

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The Joint Committee on Taxation has issued its annual report on expiring tax provisions (List of Expiring Federal Tax Provisions 2017-2027, JCX-1-18). 

This document provides a detailed list by year of expiring and expired provisions.  The list of most immediate interest contains the provisions that expired in 2016.  

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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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