This week a number of questions arose in different online tax discussion forums regarding the potential taxability of a state income tax refund for taxpayers where the taxpayers had their state tax deductions limited by the $10,000 limit on such deductions under IRC §164(b)(6).  The question was whether a portion of the refund equal to the refund amounts times the ratio of income taxes to total state and local taxes subject to the $10,000 limit will be considered taxable in 2019.

Some tax software have been providing reports of potentially taxable refunds based on the ratio calculation. The rumors suggest that at least some sources at the IRS have indicated that this prorated refund calculation is what should be reported in 2019. But is such a calculation correct?

Individual farmers and fishermen are subject to special rules under IRC §6654(i)(1)(A) & (B) that exempt them from an underpayment penalty under §6654 if they make a single estimated tax payment in the amount due by January 15 of the year following the year the taxes are due.  However, under IRC §6654(i)(1)(D) these individuals get a second chance if they miss that January 15 date for their one estimate.  They are still not subject to an underpayment penalty if they file their return by March 1 of the year following the year in question and pay the resulting tax.

In Politico’s Morning Tax on February 21, 2019 a potential loophole regarding property taxes paid by owners of units in housing cooperatives is discussed.  As the article notes:

So why might living in a co-op give taxpayers a way around the SALT cap? In short, co-op owners don’t pay a property tax, or actually buy a property as it’s usually understood, as Pro Tax’s Brian Faler reported. That matters because lawmakers bypassed the section of the tax code that does allow co-op owners to deduct their version of property taxes — essentially a fee paid to the corporation that owns the property, which then pays the taxes — when drafting the TCJA.

The article does caution it’s “not apparent whether co-op owners can assume they’re in the clear, at least for now, on property taxes.”  But what exactly is the issue?

The IRS indicated that the existence of expanded delivery options for meals in an area may eliminate the ability of an employer to claim that meals are provided to employees for the convenience of the employer in TAM 201903017.  While the TAM deals with a number of issues in its 50 pages, the consideration of the impact of delivery services such as UberEats is something new in this area.

Glen Birnbaum, CPA pointed out on Twitter on February 15, 2019 an item referenced in RIA’s Federal Tax Update the same day regarding a new check box has appeared on Schedule E of Form 1040 that applies to S corporation shareholders.  The IRS posted information about this change on its website in an article titled “Clarification on line 28, column (e), of Schedule E (Form 1040)” on February 6, 2019.

The page provides:

As stated in Part II of the Schedule E (Form 1040), a taxpayer who owns an interest in an S corporation and reports a loss, receives a distribution, disposes of stock, or receives a loan repayment from the S corporation must check a corresponding box under line 28, column (e), and attach a computation detailing their S corporation basis. The discussion about basis rules for S corporations in the Instructions for Schedule E (Form 1040) for Parts II and III does not limit or modify this requirement.

Note: On March 7 , 2019 the IRS provided temporary relief for partnerships unable to timely provide this information. See our article at this link.

An article published in Tax Notes Today on February 15[1] highlighted a change in the 2018 Form 1065 instructions that will impact partnerships reporting partners’ capital accounts on Schedule K-1 using other than tax basis capital account reporting.

The new instructions, found in the instructions for Schedule K-1, Item L in the Form 1065 instructions at page 30 reads as follows:

If a partnership reports other than tax basis capital accounts to its partners on Schedule K-1 in Item L (that is, GAAP, 704(b) book, or other), and tax basis capital, if reported on any partner's Schedule K-1 at the beginning or end of the tax year would be negative, the partnership must report on line 20 of Schedule K-1, using code AH, such partner's beginning and ending shares of tax basis capital. This is in addition to the required reporting in Item L of Schedule K-1.

For these purposes, the term “tax basis capital” means (i) the amount of cash plus the tax basis of property contributed to a partnership by a partner minus the amount of cash plus the tax basis of property distributed to a partner by the partnership net of any liabilities assumed or taken subject to in connection with such contribution or distribution, plus (ii) the partner's cumulative share of partnership taxable income and tax-exempt income, minus (iii) the partner's cumulative share of taxable loss and nondeductible, noncapital expenditures.

The AICPA has written a letter to the IRS requesting that the agency protect certain small businesses that are deemed to be syndicates from the loss of various small business benefits provided in the Tax Cuts and Jobs Act.

Trusts can be used to hold an inherited IRA and still obtain the benefit of the life expectancy of the trust’s beneficiary if certain requirements are met.  In PLR 201902023 the IRS ruled that such a result was obtained via the use of a subtrust.

The case of Doyle v. Commissioner, TC 2019-8 is remarkable not so much for the decision that Mr. Doyle owed additional tax, but for the Court’s analysis of why he should not face penalties.  The taxpayer in this case was able to prove had reasonably relied upon the advice of a tax professional.

Rev. Proc. 2018-60 was released by the IRS to allow taxpayers to obtain consent to change from their current method of accounting to take into account the requirements of IRC §451(b)(1)(A), added by the Tax Cuts and Jobs Act, effective for tax years beginning in 2018.  But is that automatic change still available if the method the taxpayer had previously been using was one not allowed for tax purposes?

In CCA 201852019 the IRS Chief Counsel’s office decided the answer was yes.

The Eleventh Circuit Court of Appeals, in the case of Bea v. Commissioner, Case No. 18-10511, held that a married couple could not obtain relief from making an irrevocable election with their tax returns merely because they were not aware of the election.  Rather, the Court found that the taxpayer had signed and submitted a return that had the election on it, and the fact they failed to review the return before filing did not allow them to obtain relief.