Proposed Regulations on SALT Workaround Do Not Impact Deductions Under Other Provisions of the Law

In Information Letter INFO 2018-0030 the IRS has given limited additional information on the clarification the agency issued on September 5 regarding the state tax deduction workaround proposed regulations on August 23 (REG-112176-18).

The proposed regulations would require taxpayers to reduce charitable contribution deductions by the amounts of any state tax credits received for contributing if the credit exceeds 15% of the amount of the contribution.  In the later clarification, the IRS and Treasury stated that this regulation did not change the treatment of amounts paid that might be deductible under IRC §162(a) as an ordinary and necessary business expense.

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IRS Revises EPCRS Guidance with Main Changes in VCP Program Application and Payment

A 120-page revision to the Employee Plans Compliance Resolution System (EPCRS) has been issued by the IRS in Revenue Procedure 2018-52.  This system involves three distinct programs that deal with compliance issues arising in qualified retirement programs.  These programs are:

  • Self Correction Program (SCP)

  • Voluntary Correction Program with IRS Approval (VCP)

  • Audit Closing Agreement Program (Audit CAP)

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IRS Publishes Revised Special Per Diem Rates for Period from October 1, 2018 to September 30, 2019

The IRS in Notice 2018-77 provided updated special per diem effective for the period from October 1, 2018 to September 30, 2019.  These special rates include the rate for the special transportation industry meals and incidental expenses (M&IE) rate, the rate for the incidentals-only deduction and the rates and list of high-cost localities for purposes of the high-low substantiation method.

The special transportation industry rates for 2018-2019 are $66 for any locality of travel in the continental United States and $71 for any locality of travel outside the continental United States.  These rates are the same as applied in the prior year.  The general rules for qualifying to use these rates and how to use them are found in Section 4.04 of Revenue Procedure 2011-47.

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IRS Issues Notice on Using Credit for Paid Leave Programs

Guidance has been issued by the IRS for employers looking to claim a credit under IRC §45S for paid family and medical leave in Notice 2018-71.  This provision was added to the law for two years as part of the Tax Cuts and Jobs Act (TCJA) enacted in late 2017.

Under the Family and Medical Leave Act of 1993 (FMLA) an employee is required to grant covered employees up to 12 weeks of leave for certain medical issues arises related to their health or that of certain related persons.  However, an employer is not required to pay employees while on such leave.  Rather, FMLA was meant to assure the employee had a job to return after coming back from such leave.

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Qualified Moving Expenses Incurred in 2017 Can Be Reimbursed by Employer Tax Free in 2018

Employer reimbursement of an employee’s moving expenses are no longer excludable from income under the Tax Cuts and Jobs Act.  But the law was not totally clear on whether the exclusion would apply for reimbursements paid in 2018 for moves conducted in 2017.  In Notice 2018-75 the IRS clarified that reimbursements made by an employer in 2018 for amounts paid in 2017 would continue to be excludable under the pre-TCJA rules.

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Taxpayer to Be Allowed to Attempt to Show Reasonable Cause for Failure to Supply Basis for Noncash Contribution

In the case of Belair Woods LLC v. Commissioner, TC Memo 2018-159, the Tax Court found that a taxpayer had neither fully nor constructively complied with the documentation requirements for a charitable contribution.  The Court held that this action constituted a failure in compliance despite the taxpayer having received advice from a consultant that an attorney had indicated that providing basis in the case of a contribution was not truly required.  

However, the Court determined that even though the taxpayer’s position was clearly wrong, there was still a possibility the taxpayer might be able to show it had reasonable cause for its failure that could preserve the deduction.  However, whether it had such cause or not must be determined in a later proceeding, since several material facts remained to be shown by the taxpayer to justify its reliance on the information relayed from the attorney.

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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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