Sometimes the tax law seems to say something clearly—only we find elsewhere in the Internal Revenue Code that clarity is overridden.  In News Release IR-2018-99 the IRS explains how a rate that, per the Tax Cuts and Jobs Act, took effect for tax years beginning in 2018 actually affects most years beginning any time after January 1, 2017.

The New Release outlines the rate that will be paid by fiscal year corporations for the corporation’s year that includes January 1, 2018.  Act Section 13001(a) of Pub. L 115-97 (the law generally referred to as the Tax Cuts and Jobs Act) provides that the 21% flat rate version of IRC §11 takes effect “for tax years beginning after December 31, 2017.”

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In Program Manager Technical Advice PMTA 2018-008 the IRS discusses what are acceptable signatures for the business versions of Form 8453 (such as Form 8453C, 8453S, etc.).

In Notice 2007-79 the IRS allowed electronic return originators (EROs) to sign Form 8453, Form 8878, U.S. Individual Income Tax Declaration for an IRS e-file Return, Form 8878, IRS e-file Signature Authorization for Form 4868 or Form 2350; and Form 8879, IRS e-file Signature Authorization by specified alternative means.  These means were:

• Rubber stamp,
• Mechanical device (such as signature pen), or
• Computer software program.

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The question of whether real estate was or was not a capital asset in the hands of the taxpayer became an issue in the case of Keefe v. Commissioner, TC Memo 2018-28.  While the issue can arise with other assets, real estate investments are generally large enough that the question of whether a gain or loss on sale is capital, §1231 or ordinary is often a very significant issue, with high stakes involved.

In this case, the taxpayer was looking at a seven-figure loss on the sale of a historic waterfront mansion they had acquired to restore and attempt to rent in Newport, Rhode Island.  The restoration ended up taking much longer than anticipated and was far costlier.  Although they talked with a real estate agent about renting out the property to wealthy individuals who were expected to pay $75,000 a month for the property during peak season, it was never actually rented out.

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In the case of Simonsen v. Commissioner, 150 TC No. 8, the Tax Court reaffirmed its previously stated position regarding a short sale when a nonrecourse debt is involved.  As well, for the first time the Court also addressed the reportable gain/loss on a property converted to rental use that was sold for less than its original cost but more than its date of conversion fair market value.

The couple in question had purchased a townhouse in San Jose in 2005 for $695,000.  They lived in that home for five years, during which the real estate crisis hit.  In 2010 they relocated to Southern California and began renting the townhouse.  At the time it was converted to a rental the fair value had declined to $495,000.

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The IRS announced the publication of a set of questions and answers related to the tax imposed under IRC §965 under changes made by the Tax Cuts and Jobs Act in News Release IR-2018-53.  The questions and answers are published in the form of a frequently asked question document (FAQ) on the IRS website at:

https://www.irs.gov/newsroom/questions-and-answers-about-reporting-related-to-section-965-on-2017-tax-returns

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How much should an employee recognize as income when his/her employer provides the employee with tax preparation services?  That was the question addressed by Chief Counsel Advice 201810007.

The employer in this case had U.S. citizens that were given work assignments in various other countries, with employees also being relocated from time to time.  As is often the case in such situations, the employer decided to provide a “tax equalization” program.  Under such a program, the employer agrees to compensation employees in such a fashion that their after-tax income will not fluctuate as they move from taxing regime to taxing regime.

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When taxpayers attempt to reconstruct their hours in activities from memory when they receive an exam notice to sustain their burden of proving qualification as a real estate professional, the result is rarely a successful defense of that assertion.  Many of the problems are illustrated in the case of Pourmirzaie v. Commissioner, TC Memo 2018-26.

The taxpayers did have several rental properties.  The Court listed them as follows:

• A four-unit residential property in San Jose, California (San Jose property);
• A single-family condominium in San Diego, California, in which petitioners owned a partial interest (San Diego property);
• A single-family residence in Tucson, Arizona (Tucson property);
• A single-family condominium in Bremerton, Washington (Bremerton property); and
• A single-family residence in Discovery Bay, California (Discovery Bay property).

The taxpayers did not maintain any sort of log or calendar of the work performed on these properties during the years in question.  Nevertheless, on their tax returns for the year in question they took the position that Mrs. Pourmirzaie was a real estate professional. 

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His tenants’ inability to deal with taking out the trash appears to have been a key factor in allowing the taxpayer in Franco v. Commissioner, TC Summary Opinion 2018-9 to qualify as a real estate professional.

Jose Franco is a licensed architect and he ran a small architectural business for the year in question.  Normally this would create a significant issue for Mr. Franco to be classified as a real estate professional, since Mr. Franco was not contending that his architectural work was a real property trade or business. 

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