In Revenue Procedure 2018-30 the IRS provided updated numbers for 2019 for health savings accounts and the related high deductible health plans.

Image copyright vichie81 / 123RF Stock Photo

The same week as the IRS released the annual revised general purpose automatic method change list revenue procedure the agency decided to release the revenue procedure outlining how taxpayers may request a change of accounting method related to the GAAP changes taking place under ASC 606, Revenue from Contracts with Customers.  The change procedures are contained in Revenue Procedure 2018-29.

While this procedure is generally good news, it most clearly does not mean that the IRS is going allow the use of methods provided under ASC 606 without regard to whether the method is otherwise allowable under the IRC.  The taxpayer will have to make its own determination regarding whether or not conforming tax and book methods in their situation is actually allowed under the IRC.

In the second paragraph of the procedure the IRS notes that this procedure does not deal with the other major GAAP/tax accounting method issue for 2018 found in the new revenue conformity provision at IRC §451(b) and (c) added by the Tax Cuts and Jobs Act, noting the agency is working on additional guidance to deal with that issue.

Image copyright iqoncept / 123RF Stock Photo

In the case of Pexa v. United States, Case No. 2:16-cv-00994, U.S. District Court, Eastern District of California the taxpayer was attempting to defend his treatment of termination payments for his termination payments received from Farmers Insurance as long term capital gain income.  The District Court had this matter before it on appeal from the Bankruptcy Court, which had ruled against the taxpayer.

Mr. Pexa had been involved first as an insurance agent and, eventually, a district manager for Farmers Insurance.  When he was promoted to district manager he was no longer allowed to sell insurance, rather now being in charge of recruiting, training, and supervising agents.  As such, he sold his agency to his sister in 1998, with a note payable over 20 years. 

Image copyright tashatuvango / 123RF Stock Photo

The IRS has updated the long (now 333 pages) document listing all of the automatic accounting method changes in Revenue Procedure 2018-31. This is the document that outlines the changes that can be made by attaching a Form 3115, Application for Change in Accounting Method, to the taxpayer’s tax return for the year of change (along with a copy to the IRS processing center in Covington, KY) rather than going through the process of applying for approval of the change and awaiting the IRS’s decision.

If you were hoping to see automatic change procedures outlined for changes added by the Tax Cuts and Jobs Act (TCJA), those are not in this document.  There were a few changes made to prior automatic changes (such as those impacting IRC §263A) to get ready for the new small business changes, but none of the small business changes, nor the revenue conformity change required for some businesses by IRC §451(b) as revised by TCJA are found in this document.

Image copyright kritchanut / 123RF Stock Photo

In Notice 2018-30 the IRS has modified certain safe harbor calculations for recognized built in gain (RBIG) and recognized built in loss (RBIL) as it relates to limitations under IRC §382.  The IRS has revised guidance found in Notice 2003-65 to modify the safe harbor rules found in the IRC §§338 and 1374 approaches described in that ruling.

IRC §382 serves to limit the ability to “buy losses” in an existing corporation, limiting the corporation’s ability to claim pre-ownership change losses against post-change taxable income.  That ability is limited by the §382(b) limitation for each taxable year.

Image copyright convisum / 123RF Stock Photo

The IRS, state taxing agencies and members of the nation’s tax industry in IRS News Release IR-2018-111 described a rising problem with identity theft aimed at small businesses and steps that are being taken to combat it.

The release begins by noting that the problem has been increasing recently:

In the past two years, the Internal Revenue Service has noted a sharp increase in the number of fraudulent filings of Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.

Image copyright pixelbliss / 123RF Stock Photo

In the case of Keenan v. Commissioner, TC Memo 2018-60, the taxpayers argued that they should not face penalties under IRC §6662.  They argued they had reasonably relied on the advice of their CPA and attorney/insurance agent in claiming a deduction of over $3,000,000 related to a Benistar 419 plan.

The taxpayers were back in court after the Ninth Circuit Court of Appeals had sent the case back down to the Tax Court to consider the taxpayer’s claims that their situation was different enough from that of the taxpayers in the Curcio case to justify a different result.  The taxpayers, who were one of many taxpayers facing proposed disallowance of deductions for Benistar 419 plans, had agreed to be bound by the result of a set of test cases involving similarly situated taxpayers that were all part of the Curcio decision.

Image copyright racorn / 123RF Stock Photo

Oklahoma Governor Mary Fallin has vetoed the expansion of Oklahoma’s out of state tattletale provision to require reporting to the state and creating penalties that had been found in SB 337 discussed here previously.  Note that she had previously signed legislation imposing more stringent tattletale responsibilities on marketplace and certain other remote sellers (HB 1019 passed as part of the Second Special Session and signed into law on April 10, 2018).

The Oklahoma legislature remains in session and, at least in theory, could override this veto.  We will keep an eye on this legislation to see if there is any further activity in this area.

Image copyright happystock / 123RF Stock Photo

The IRS has issued Notice 2018-41 which delays the requirement to file reports on certain sales of life insurance policies mandated by TCJA until the IRS issues final regulations on the provision.

An information return will need to be filed by each person who acquires a life insurance policy in a reportable policy sale under IRC §6050Y for sales completed after December 31, 2017.  A “reportable policy sale” is defined at IRC §101(a)(3)(B) as:

…[T]he acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term “indirectly” applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract.

Image copyright rawpixel / 123RF Stock Photo

The state of Colorado’s number of reports received from out of state sellers under its tattletale use tax law were “disappointing” in the words of Phil Horwitz, director of tax policy analysis for the Colorado Department of Revenue. Mr. Horwitz’s comments to the Multistate Tax Commission’s Uniformity Committee on April 25 were reported on by Tax Notes Today in an April 26 story.

The law took effect on July 1, 2017, with the first reports due by March 1, 2018.

Image copyright studiograndouest / 123RF Stock Photo

The Oklahoma legislature, fresh from passing a bill that requires marketplace vendors (such as Amazon, eBay, etc.) to either collect and remit sales taxes or send notices, has sent a new bill (Oklahoma SB 337) to the Governor’s desk that expands a “tattletale” disclosure rule that would apply to all out of state sellers who do not collect Oklahoma use tax.

“Tattletale” laws have sprung up in a number of states following Colorado’s victory in federal court for its statute (see Colorado Law Requiring Out of State Sellers to Report on Colorado Customers Who May Owe Use Tax Upheld by Tenth Circuit describing a Tenth Circuit ruling which the US Supreme Court refused to review).  In the oral arguments presented to the Supreme Court in South Dakota v. Wayfair (see Supreme Court Hears Oral Argument in Sales Tax Collection Case for more details) it was clear that the Colorado statute was the “alternative” if the Court decides to continue to require physical presence for a state to be able to force a vendor to collect sales tax.

Image copyright sabphoto / 123RF Stock Photo

The AICPA in a letter issued on April 19, 2018 has asked the IRS to reconsider its view, expressed in a change added to the questions and answers on the §965 transition tax, that any overpayments for taxpayers who elect to pay the tax in installments will not be refunded unless the entire balance of the tax is paid.

Image copyright abluecup / 123RF Stock Photo