Qualified Retirement Plan Safe Harbor Explanations for Recipients Updated by the IRS

The IRS has revised the safe harbor notices for notices to qualified retirement plan participants who receive an eligible rollover distribution in Notice 2018-74, modifying and updating Notice 2014-74. The Notice was issued to update those documents for the following issues per the IRS explanation:

The safe harbor explanations as modified by this notice take into consideration certain legislative changes and recent guidance, including changes related to qualified plan loan offsets (as defined in section 13613 of the Tax Cuts and Jobs Act of 2017 (“TCJA”), P.L. 115-97) and guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover (described in Rev. Proc. 2016-47, 2016-37 I.R.B. 346), and include other clarifying changes.

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Opportunity Zone Proposed Regulations Sent to Office of Management and Budget for Review

The IRS has sent regulations related to capital gains invested in Opportunity Zones to the Office of Information and Regulatory Affairs of the Office of Management and Budget (RIN 1545-BP03).  The regulation is flagged as a Tax Cuts and Jobs Act regulatory action, meaning that OMB has 10 business days to complete its review of these regulations under the agency’s memorandum of agreement with the Department of Treasury.

The regulations were received by the agency on September 12, which would put the date by which OMB is supposed to finish its review prior to end of September.

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Despite Issues With Records, Taxpayer Found to Be a Real Estate Professional

The key factor to sustaining a taxpayer’s claim to be a real estate professional in cases before the Tax Court generally comes down to whether the taxpayer has sufficient and reliable records to back up their activity.  In the case of Birdsong v. Commissioner, TC Memo 2018-148 the taxpayer’s records were found to be sufficient to sustain her contention that she was a real estate professional.

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Math Error Procedures Can Be Used After Return Processed and Refund Issued

In a Project Manager Technical Advice addressed to the IRS Taxpayer Advocate and the Commissioner of the Wage and Investment Division, the Chief Counsel’s office concluded that the IRS can use the math authority to correct errors in the earned income tax credit, child tax credit, additional child tax credit and the American opportunity tax credit even if the return has already been processed and a refund issued (PMTA 2018-017).

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§1291(a) Gains Allocated to Prior Years Are Not Included in Determining Applicability of Six-Year Statute

In the case of Toso, et al v. Commissioner, 115 TC No. 4, the Tax Court considered issues related to passive foreign investment company (PFIC) gains.  Specifically, the Court looked at how gains taxed under the rules of IRC §1291(a) will be counted for purposes of determining if there is a substantial omission from gross income under IRC §6501(e)(1)(A)(i) that would allow for a six-year statute of limitations.

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South Dakota Governor Proposes Bills to Begin Requirement of Collection of Tax by Out of State Sellers and Marketplaces on November 1

As states scramble to begin collecting sales taxes after the Supreme Court’s decision in the case of South Dakota v. Wayfair, one state that has not yet been able to begin collecting the tax is, of all things, the state of South Dakota itself.  Those who have read the Supreme Court’s decision will remember that the decision did not actually formally approve South Dakota’s law and order the defendants to pay the taxes.  Rather, the case was sent back down to South Dakota state courts to consider other potential objections.

In order to get around this problem, the Governor of the State of South Dakota has called a special session of the state legislature for September 12 and issued two draft pieces of legislation to allow the state to begin collecting taxes from remote sellers beginning on November 1, 2018.

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Withdrawal Under Threat of Levy Is Subject to Early Distribution Tax

Close only counts in horseshoes and hand grenades as the saying goes--and tax relief provisions are in neither category as the taxpayer in the case of Thompson v. United States, Case No. 3:18-cv-01675, US DC ND CA discovered.  The problem arose over an exception to the 10% premature distribution tax of IRC §72(t) for distributions made on account of a levy under IRC §6331.[1]

The exception, found at IRC §72(t)(2)(A)(vii) provides the early distribution tax does not apply “made on account of a levy under section 6331 on the qualified retirement plan.”

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DOL and IRS Ordered to Consider Modifications to Retirement Plan Rules

On August 31, 2018 the President signed an executive order entitled “Executive Order on Strengthening Retirement Security in America” that was aimed at increasing the number of employees being offered retirement programs via their employer and to slow the required distributions from such plans.  The order contains instructions for the Department of Labor and Treasury Department to consider various revisions to requirements related to qualified retirement plans.

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Seismic Survey Costs Are Costs to Be Amortized, Not Intangible Drilling Costs, per IRS Memorandum

In CCA 201835004 the question was posed regarding whether seismic surveys information obtained to determine the placement of offshore gas and oil development wells should be treated as geological and geophysical costs, amortizable under §167(h), or as intangible drilling costs, deductible under IRC §263(c).

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Late Rollover Allowed For Taxpayer Who Had Previously Relied on Spouse for Financial and Tax Matters

In PLR 201835017 the IRS granted a taxpayer a waiver of the 60-day deadline to roll over a distribution she received from a qualified retirement plan.  She received this relief because she claimed she had previously relied on her spouse to handle all tax and financial matters, but the couple had separated during the 60-day period.

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IRS Warns Professionals About Requirement for Data Security Plan

In News Release IR-2018-175 warned tax professionals that a failure to prepare a written data security represents a violation of the FTC’s Safeguards Rules and the that the IRS may treat a violation of the FTC Safeguards Rule as a violation of the standards for authorized IRS e-file providers under Revenue Procedure 2007-40.

The IRS Electronic Tax Administration Advisory Committee (ETAAC) members noted in June that they believe fewer than half of all tax professionals are aware of the FTC rule and have written plans in compliance with the rule.

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Charitable Contributions Generally Must Be Reduced by Any Amount Received as Credit Against State or Local Taxes

The much anticipated proposed regulations to deal with the various credits that could be used to work around the newly imposed limitation found at IRC §164(b)(6) on deductions for state and local taxes have been released by the IRS (REG-112176-18).  The resulting rules are going to affect both the new workaround credits passed by New York, Connecticut, New Jersey and other states following the passage of the Tax Cuts and Jobs Act, as well as already existing credits in other states.

The credits in question give taxpayers a credit for all or a very significant portion of the contribution made as a direct reduction in state income taxes or property taxes.  Credits of this type had existed for years, being especially popular as credits for making contributions to organizations that provided scholarships or financial support to students attending private primary and secondary schools.

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Revised Automatic Change of Accounting Procedure Provided for Corporations Revoking S Status and Changing from Overall Cash to Overall Accrual Method

Congress anticipated that, due to the reduction of the corporate tax rate found in the Tax Cuts and Jobs Act (TCJA), certain S corporations would wish to terminate their election to become a C corporation.  Because of this, Congress added certain special rules that would apply to S corporations that revoked their status within two years of the date of enactment of TCJA.

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Shareholders Deemed to Receive Constructive Dividend Based on Payments to Partnership of S Corporations

The taxpayers in the case of Pacific Management Group et al. v. Commissioner, TC Memo 2018-131, were upset that they were being taxed twice on the income of their C corporation, once at the corporate level and a second time if the earnings were distributed to the shareholders.  But the IRS and, eventually, the Tax Court found the solution they were sold was too good to be true.

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