The Ninth Circuit Court of Appeals affirmed the Tax Court’s 2017 decision in the case of Messina et ux. et al. v. Commissioner.[1] The appellate decision explains why the IRS is allowed to argue substance over form for a transaction, but that argument will not generally be helpful for the taxpayer—as it failed to be in this case.

With the changes made to the Form W-4 for 2020, the IRS has issued Notice 2020-03[1] to give instructions on how to deal with withholding on periodic payments for pensions, annuities and certain other deferred income under IRC §3405(a).

The IRS has released a new set of proposed regulations on charitable contributions, quid pro quo issues and state tax deductions.[1]  But, most interestingly, these regulations omit any discussion of IRS actions to deal with state passthrough tax workarounds to the $10,000 limit on the deduction of most state and local taxes by individuals.

The IRS has decided to push back by one year the requirement that all partnerships report partners’ capital on Schedules K-1 on the tax basis of accounting in Notice 2019-66.[1]  The IRS had originally only provided the option to report capital on the tax basis of accounting on the draft Form 1065 for 2019.

The IRS received a number of comments on that requirement that indicated both that there was not a clear definition of the tax basis of accounting for these purposes and that many taxpayers would be unable to prepare such returns either at all for 2019 or at least not until much later than their partners expected to receive the K-1s.

In Revenue Ruling 2014-32, the IRS provided guidance on the use of smartcard, debit or credit cards, or other electronic media to provide transportation fringe benefits to employees.  Such programs qualify under IRC §132 to be excluded from the income of the employee.

But what happens if, when the employee goes to use the card or device, it malfunctions, not allowing them to board the train or bus?  Quite often an employee, not wanting to be late, will simply pay for the ticket him/herself rather than attempting to resolve the matter with customer service for the transit authority, assuming that is even a possibility.  If the employee asks the employer to reimburse him/her for the fare, can that be excluded from the employee’s income?

In Notice 2019-63[1] the IRS has granted an extension of time until March 2, 2020 for employers and insurers to furnish 2019 Forms 1095-B and 1095-C to employees and insured individuals.

The IRS Large Business and International Division and Small Business/Self-Employed Division issued an Internal Guidance Memorandum to IRS personnel regarding interim field examination procedures under the partnership audit rules that were enacted as part of the Bipartisan Budget Act of 2015 (the BBA rules).[1]

With Revenue Procedure 2019-48[1] the IRS has updated the rules regarding the use of per diem rates to substantiate, under IRC §274(d) and Reg. §1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.  The update incorporates the revisions made as part of the Tax Cuts and Jobs Act (TCJA), including the temporary suspension of the deduction for miscellaneous itemized deductions under IRC §67(g).

IRS Commissioner Charles Rettig, in a letter to members of Connecticut’s Congressional delegation, indicated that the Connecticut Foundation Solutions Indemnity Company, Inc. (CFSIC) is not required to issue Forms 1099 to homeowners who receive reimbursement from the state-chartered insurer, for pyrrhotite related foundation damage.[1]

The Journal Inquirer’s website reported that the CFSIC had previously issued such Forms 1099 to recipients of such payments, which led to inquiries asking why such payments would be deemed to be taxable income.  Officials of the CFSIC then wrote to the Congressional delegation seeking clarification, who then forwarded the question on to the IRS.[2]

A taxpayer, representing himself in Tax Court, was able to convince the Tax Court that, despite years of losses, he operated his cutting horse business with a proper profit motive, escaping the hobby loss rules of IRC §183.[1]

The first item of the guidance promised by Assistant Treasury Secretary David Kautter to be released by the end of January 2020 has been published.  In TD 9884[1] the IRS finalized regulations on the anti-clawback rules that IRC §2001(g)(2) required the IRS to develop to prevent issues when the exclusions are scheduled to be reduced in 2026.

The problem is simple—generally a taxpayer’s estate tax is computed by combining his/her taxable estate at death with his/her lifetime taxable gifts.  A gross tax is computed using that figure.  It is then reduced by a credit based on the appropriate exclusion amount plus any gift tax actually paid on taxable gifts.  If the exclusion amount at death is lower than it was when gifts were made, it’s possible that tax would be due at death with no assets available to pay the tax.

In the case of Wilson, et. al. v. United States, Case No. 2:19-cv-05037, US District Court, Eastern District of New York,[1] the Court found that the sole owner/beneficiary of a trust could only be assessed the 5% penalty under §6677 as the owner.  The Court denied the IRS’s attempt to impose the 35% penalty under that section on distributions received.

The issue involves the requirement under IRC §6048 for information reporting by certain foreign trusts.  If a party fails to file the required reports, penalties are imposed under IRC §6677.