In September of 2016 we wrote about the case of CRI-Leslie LLC et al. v. Commissioner, 147 T.C. No. 8 where the Tax Court found that, since a §1231 asset is effectively, per §1221(a)(a), not a capital asset, a $9.7 million gain was not a capital gain, but rather was ordinary income.  You can read about the details of this case in the original post.

The taxpayer, not happy with the Tax Court's decision, appealed the case to the Eleventh Circuit. And many advisers, seeing this result as odd and not something Congress could have meant to result, may agree.  But it turns out the law allows for odd results.

Image copyright dtiberio / 123RF Stock Photo

A taxpayer’s appeal of a Tax Court decision upholding an IRS assessment regarding a method that had survived two prior IRS audit failed to win relief from the First Circuit Court of Appeals in the case of Transupport, Inc. v. Commissioner, CA1, No 17-1265.

The taxpayer in this case is a wholesaler of engine and engine parts used in military vehicles.  The issue in this case involved a portion of the business where the taxpayer bought parts in bulk from the U.S. Government and resold them.

Image copyright waldemarus / 123RF Stock Photo

The Bipartisan Budget Act of 2018, H.R. 1892, signed into law by President Trump on February 9, 2018, is best known for ending the very short government shutdown that took place for a few hours on February 9, 2018.  But that bill also contained many tax related provisions in its 652 pages.

One key item to note is that the bill gave a one-year reprieve to 34 provisions that expired at the end of 2016.  They still have expired (past tense), but the expiration date is now at the end of 2017.  That means these benefits can be claimed on 2017 income tax returns. 

Image copyright olegdudko / 123RF Stock Photo

The IRS has released the second quarter update to the agency’s 2017-2018 Priority Guidance Report which shows 18 projects added related to guidance implementing the Tax Cuts and Jobs Act.

Per the statement accompanying the report, it contains “guidance projects that we hope to complete during the twelve-month period from July 1, 2017, through June 30, 2018 (the plan year).”

Image copyright olivier26 / 123RF Stock Photo

In a Chief Counsel Memorandum (CCA 201805001), the IRS found that a “tax-consultant engineer” could be held liable for a penalty under IRC §6701 for aiding and abetting another person in the understatement of that person’s tax liability.  In the matter at hand, the engineer had advised the taxpayer to, at least in the IRS’s view, overly aggressively attempt to reclassify portions of a building to have their costs recovered under much shorter lives.

Image copyright dsotirov / 123RF Stock Photo

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.

Image copyright anatolymas / 123RF Stock Photo

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]

Image copyright altinosmanaj / 123RF Stock Photo

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.

Image copyright osorioartist / 123RF Stock Photo

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.

Image copyright poulcarlsen / 123RF Stock Photo

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)]

Image copyright zimmytws / 123RF Stock Photo

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.

Image copyright pixelfritter / 123RF Stock Photo