In the Tax Cuts and Jobs Act, Congress added IRC §451(c) in order to put into the Code an accounting method the IRS had defined in Revenue Procedure 2004-34 to optionally account for advance payments. On September 5, 2019, the IRS released proposed regulations to implement this provision.[1]  Specifically, the IRS has proposed to add Proposed Reg. §1.451-8, Advance payments for goods, services and other items to the existing regulations under IRC §451.

The IRS makes clear in the preamble that, for the most part, the proposed regulations will follow the previously existing guidance:

Because new section 451(c)(1)(B) was intended to generally codify the Revenue Procedure deferral method, the Treasury Department and the IRS believe that rules similar to the Revenue Procedure deferral method are necessary and appropriate for the proper application of section 451(c). See H.R. Rep. No. 115-466, at 429 (2017) (Conf. Rep.).[2]

A Tennessee high school student got a lesson on tax law in the case of Conyers v. Commissioner, Designated Order, Case No. 13969-18.[1]  The former stand-out student discovered that the value of the Jeep Renegade she received as an award that given as a prize in a drawing was taxable income to her, despite being given to her in recognition of outstanding performance her senior year. 

To qualify to be part of that drawing, Alejandra had to have perfect attendance her senior year, good grades and be submitted for the drawing by her high school.  Alejandra was just such a model student.  The program was run by a local car dealership as a “Strive to Drive” competition.[2]

In what may initially seem like an odd argument for both parties to make, the IRS successfully argued that vacation homes were not rentals in the case of Eger v. United States, USDC Northern District California, Case No. 18-cv-00199-DMR.[1]

Greg Eger was a real estate professional, meeting the requirements under IRC §469(c)(7). The Eger owned three properties that were offered for rent at points during the year, located in Mexico, Colorado, and Hawaii. [2]  In each case they entered into contracts with management companies that would seek to offer these properties up for rent, although in each case the Egers had the right to remove days from the rental pool for their own personal use.[3]

In Chief Counsel Advice 201935011,[1] the IRS discusses when a contribution other than cash to a qualified retirement plan has been paid to determine if the contribution is deductible under IRC §404(a).

The term “payment” or “paid” is referenced multiple times in IRC §404(a) regarding what would constitute a deductible contribution to a qualified retirement plan.  The memo notes that the U.S. Supreme Court had addressed this matter in the 1977 case of Don E. Williams v. Commissioner, 429 US 569.[2]  In that case, the plan sponsor had delivered to the plan an interest-bearing promissory note before the due date for a contribution to be made but did not pay off that note until after that date.

Filing a Form 3115 to request an automatic change of accounting methods is something almost every CPA eventually has to do, but it’s also an rather unusual process that isn’t like a normal tax return filing.  Not surprisingly, this is just the sort of thing where steps get missed by accident—resulting in the taxpayer failing to obtain the required permission to change its accounting method, a failure that can be both costly to the client and embarrassing to the CPA firm.

PLR 201935002[1] reminds us that the problem can be corrected—but also that the way to do so requires the formal process of requesting a private letter ruling and the user fee related to the application (currently set at $11,800 per Appendix A(3)(ii) of Revenue Procedure 2019-01).

The IRS has released a draft of the instructions for the 2019 Form 8995, Qualified Business Income Deduction Simplified Computation.[1]  The instructions contain some additional information about items that are/are not considered part of QBI, at least in the of the IRS authors of the forms.

The taxpayers in the case of Chapman v. Commissioner, TC Memo 2019-110[1] argued that the IRS had failed to send the notice of deficiency to their last known address.  They stated they had failed to receive the document and, as such, were not aware of the deadline by which they had to file a Tax Court petition.

The case involved Duane Chapman and his recently deceased wife, Alice Smith.  The couple had been featured on a pair of TV series, eight seasons of Dog the Bounty Hunter on A&E and three seasons of Dog and Beth: On the Hunt on CMT.  The series chronicled their experiences as a bounty hunter in both Hawaii and Colorado.

Published Tax Court decisions look at new and novel issues that have not previously been decided by the Court—and, in the case of Lipnick v. Commissioner, 153 TC No. 1,[1] the Court was looking at just such case. 

The issue was fairly simple.  A partner received a debt-financed distribution from a partnership.  He used those funds to buy investment assets and, under Reg. §1.163-8T and Notice 89-35, he treated the debt-financed distribution interest expense reported to him by the partnership as investment interest.  However, later he gifted a portion of his interest in the partnership to his son who, of course, was now seeing such debt-financed distribution interest show up on his K-1. 

In 2016 we noted an unsuccessful attempt by a religious order to get a coffeehouse the organization planned to operate treated as a §501(c)(3) exempt organization.[1]  Now, in PLR 201934008,[2] we have another attempt, this time for a coffeehouse that “will act as both a fundraising organization for nonprofits that serve your community and act as a community launch point and gathering venue featuring local art and music.”[3]

In the case of McMillan v. Commissioner, TC Memo 2019-108,[1] the taxpayer was arguing that her loss from her horse business.  The IRS had challenged Ms. McMillan regarding this business in five prior Tax Court cases, but this time, she faced a unique challenge—her last horse had died two years previously.[2]  So she was arguing for the unique proposition that a horse breeding/showing business did not require a horse.

Unfortunately, the Tax Court did not accept this view.

Formalizing a change of view by the agency noted on its website in July,[1] the IRS has issued an LB&I, SB/SE directive on the ability of taxpayers who pay two French taxes to claim a foreign tax credit.[2]

The taxes imposed by France that the IRS now agrees are eligible for foreign tax credit treatment are:

• Contribution sociale généralisée (CSG) and

• Contribution pour le remboursement de la dette sociale (CRDS).

In the case of King Solarman, Inc. v. Commissioner, TC Memo 2019-103[1] the key issue was whether the taxpayer was reporting on the cash or accrual overall method of accounting and, even if the business was on the cash method of accounting, it was nevertheless required to use the overall accrual method of accounting for tax purposes.

Taxpayers are generally eligible to use the overall cash or accrual method of accounting or another method permitted under the Code or regulations.[2]  However, once a taxpayer has chosen an overall method of accounting, the taxpayer must obtain the IRS’s permission to change that method.[3]

A U.S. magistrate judge has recommended that the government be granted summary judgment in a suit to collect a willful failure to file FBAR reports penalty in the case of United States v. Said, USDC Middle District Florida, Case No. 8:17-cv-00826.[1]

The Court outlined the standard to be used to determine if there was willfulness in the context of failure to file the FBAR reports:

In the FBAR context, willfulness “may be proven ‘through inference from conduct meant to conceal or mislead sources of income or other financial information,’ and it ‘can be inferred from a conscious effort to avoid learning about reporting requirements.’” Williams, 489 Fed. App’x at 658 (quoting United States v. Sturman, 951 F.2d 1466, 1476 (6th Cir. 1991))...[2]