PMTA Holds Payments to Farmers Under MFP Program to Compensate for Tariff Issues is Taxable Income and Part of Self-Employment Income

The IRS has addressed the taxation of payments made to farmers under a trade aid package (the Market Facilitation Program or MFP) in PMTA 2018-021.  The MFP program gives direct payment to producers of certain crops that have been adversely affected by tariffs.

The memo deals with both the issue of whether such payments are part of gross income under IRC §61 and as self-employment income under IRC §1402.

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Final and Additional Proposed Regulations Under §199A Sent to OIRA for Review

The IRS has now sent final regulations under IRC §199A (RIN 1545-BO71) and a new set of proposed regulations (RIN 1545-BP12) under that section related to REIT dividends and registered investment companies (mutual funds) to the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget for review.  The proposed regulations were sent to OIRA on December 13, 2018, while the final regulations followed on December 14, 2018.

Neither set of regulations are marked as economically significant, so OIRA has 45 days to complete the review of the regulations.  That review must be completed before the regulations can be released.

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2019 Automobile Mileage Rates Announced by IRS

The IRS has released the 2019 automobile mileage numbers in Notice 2019-02.

The standard rate for transportation or travel expense is 58 cents per mile for business use in 2019.  The standard rate for 14 cents per mile for use of an automobile for providing gratuitous services to a charitable organization and 20 cents per mile for medical expenses.  The 20 cent rate would also apply to moving expenses under §217, though for most taxpayers such a deduction is not available for 2019.

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Documentation of Expenses Not Adequate to Allow Deductions

The experience of tax advisers over the years suggests that most often the key disputes in tax exams arise not so much over the arcane issues in the tax law as over the state of the taxpayer’s records to support the facts in the case.  The case of Dasent v. Commissioner, TC Memo 2018-202 is just such a case.  While the question of hobby loss does arise for a portion of the deductions (and the activity clearly met that test), the Court pointed out that even had that not been an issue, none of the taxpayers’ deductions could be allowed due to lack of adequate records.

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Certain Exempt Organizations Granted Waiver from Estimated Tax Penalties Arising from Parking Lot Tax

Additional relief, in the form of a waiver of penalties on underpayment of estimated taxes due on Form 990-T, has been given to certain tax-exempt organizations for 2018 in Notice 2018-100.  The guidance was issued on the same day as Notice 2018-99 which provided guidance on computing the amount of employee parking benefit that is to be treated as UBTI by the exempt organization.

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IRS Provides Temporary Guidance on TCJA Changes to Employer Providing Parking

In Notice 2018-99 the IRS has provided guidance to employers and tax-exempt organizations attempting to deal with provisions in the Tax Cuts and Jobs Act dealing with employer-provided parking.

As the Notice explains:

As amended by the Act, § 274(a)(4) generally disallows a deduction for expenses with respect to QTFs provided by taxpayers to their employees, and § 512(a)(7) generally provides that a tax-exempt organization’s UBTI is increased by the amount of the QTF expense that is nondeductible under § 274.

The notice provides guidance on computing the amount of disallowed deduction (for taxable entities) and UBTI (for tax-exempt organizations) to be recognized under this provision.

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IRS Provides Guidance on Deferral for §83(i) Stock, Allows Employers to Effectively Opt-Out of the Program

Notice 2018-97 provides guidance to taxpayers about issues related to IRC §81(i), a provision added by the Tax Cuts and Jobs Act that allows employees in certain situations to defer recognition of income when receiving stock or having an interest in such stock vest.

The Notice as meant to provide some additional clarity in the application of this provision for three areas:

  • The application of the requirement in section 83(i)(2)(C)(i)(II) that grants be made to not less than 80% of all employees who provide services to the corporation in the United States,

  • The application of federal income tax withholding to the deferred income related to the qualified stock, and

  • The ability of an employer to opt out of permitting employees to elect the deferred tax treatment even if the requirements under section 83(i) are otherwise met.

Image copyrightł Olechowski

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IRS Releases Automatic Change Revenue Procedure for TCJA Revenue Conformity

The IRS has addressed how taxpayers will gain permission to change their methods of accounting to comply with changes made by Congress in the Tax Cuts and Jobs Act to IRC §451 (found at IRC §451(b)) that require a taxpayer with an “applicable financial statement” (AFS) who is recognizing revenue for tax purposes under the accrual basis using the all events test to treat the test as satisfied no later than when revenue is recognized in the AFS.  The guidance is found in Revenue Procedure 2018-60.

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Taxpayer Still Must Provide Some Evidence Related to Business Use of Cell Phone

Beginning in 2010 cellular telephones were no longer considered “listed property” subject to the strict substantiation rules of IRC §274(d).  But, as was noted, in the case of Archuleta v. Commissioner, TC Summary Opinion 2018-55, that doesn’t mean that a taxpayer should not have documentation of the expense and what portion related to business use.

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Taxpayer Warned About Filing Tax Court Petitions Primarily for Delay

While taxpayers have a right to take disputes to the U.S. Tax Court and payment of the amount due is delayed until the proceeding is complete, under IRC §6673 the Court is authorized to impose up to a $25,000 penalty if it appears the Court was being used primarily to delay payment.  In the case of The Community Law Firm Inc. v. Commissioner, TC Memo 2018-198 the taxpayer was warned that their history suggested they were filing in the Tax Court principally to delay action and that continuing this practice could lead to the imposition of the penalty.

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IRS Fails to Show Taxpayer's Action Was a Change of Accounting Method

In the case of Thrasys, Inc. v. Commissioner, TC Memo 2018-199, the Tax Court found that the IRS was not entitled to summary judgment on the agency’s argument that the taxpayer had engaged in a prohibited change of accounting method.

A taxpayer is prohibited from changing an accounting method without IRS permission.  As the Tax Court explained:

A taxpayer generally “may adopt any permissible method of accounting” when filing his first return. Id. para. (e)(1); see Pac. Nat'l Co. v. Welch, 304 U.S. 191, 194 (1938). But a taxpayer who “changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary.” Sec. 446(e); see Silver Queen Motel v. Commissioner, 55 T.C. 1101, 1105 (1971) (“[T]he notion of changes in accounting method necessarily implies that a new accounting method is being substituted for a previously regularly used accounting method.”).

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IRS Extends Most 2018 Withholding Interim Rules to Cover 2019

After deciding in September 2018 to give up on the revisions to Form W-4 found in the draft 2018 Forms W-4 released in June, the IRS in Notice 2018-92 has decided to continue for the most part with interim rules that were found in Notice 2018-14 for the 2018 tax year and, in the case of one such rule, until April 30, 2019.

The IRS, facing criticism regarding the more complex draft Form W-4 initially proposed, had indicated on September 20, 2018, that implementation of the revised Form W-4 fully incorporating changes made in the Tax Cuts and Jobs Act (TCJA) would be delayed until 2020.  The IRS will be releasing a 2019 Form W-4 before the end of this year that will make “minimal changes to the 2018 Form W-4.”

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Anti-Clawback Proposed Regulations Released by IRS

After having faced criticism for not addressing the clawback issue in previous tax laws, Congress granted the IRS explicit authority[1] to issue regulations to prevent “clawback” of prior gifts if the increased basic exclusion amount (BEA) provided for in the Tax Cuts and Jobs Act (TCJA) reverts to a lower amount after 2025 as also provided for in TCJA.  The IRS has issued proposed regulations (REG-106706-18) to provide information on the anti-clawback protect to be provided for the estates of those “unlucky” enough to live to see 2026.

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S Shareholder Likely Cannot Be Penalized Under IRC §6695(g), but Corporation Itself May Be Liable

In Chief Counsel Email 201846005 the IRS discusses the potential issues with imposing the due diligence penalty under IRC §6695(g) against the 25% owner of an S corporation.  The issue related to the risk of hazards of litigation in such a pursuit.  But the email gives information on the application of this penalty.

Under IRC §6695(g), a tax preparer may be penalized for failing to exercise due diligence in his/her preparation of returns if certain information is not obtained for taxpayers claiming certain benefits.  Originally the penalty was limited to claims for the earned income tax credit, but Congress has expanded the penalty to cover claims for the child tax credit, additional child tax credit and American opportunity tax credit.  In the Tax Cuts and Jobs Act Congress branched out beyond credits to impose the requirements on preparers of a return where the taxpayer claims head of household filing status.

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Taxpayer, Never Having Filed a Joint Return, Could Not Obtain Innocent Spouse Relief

A taxpayer who filed her petition in Tax Court asking for innocent spouse relief under IRC §6015 discovered that the Tax Court could not offer her relief because there, in fact, had not been a joint return filed.  In the case of Abdelhadi v. Commissioner, TC Memo 2018-183, the Tax Court ruled that because she had filed a petition for redetermination of the deficiency, the Court could only rule whether she was entitled to §6015 style relief—and, not having actually filed a joint return, there was no such relief available.

Image copyright Yael Weiss/

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