The IRS has issued a set of questions and answers related to the enhanced and refundable child and dependent care credit for 2021 that was included in the American Rescue Plan Act of 2021.[1]

The 2021 Credit

The 2021 version of the credit operates much like the credit in prior years, except that the credit is refundable, applies to an increased amount of such expenses, and the maximum credit is 50% of such expenses.

In Chief Counsel Advice 202123007[1] the IRS determined the impact of an IRC §481(a) adjustment related to depreciation on the calculation of adjusted taxable income (ATI) for purposes of the interest deduction limitation under IRC §163(j).

Back in November of 2016 we wrote about the Fifth Circuit reversing the holding of the Tax Court in a dispute that revolved over whether MoneyGram is a bank for tax purposes.[1] The Fifth Circuit found that the Tax Court had not applied the proper test to determine if MoneyGram was a bank—so the appellate court sent the case back to the Tax Court for a determination of whether MoneyGram was a bank using a different standard.

Nearly five years later, the case is back before the Fifth Circuit Court of Appeals, as the Tax Court determined yet again that MoneyGram was not a bank under IRC §581, so was not able to write off losses from mortgage backed securities as an ordinary rather than capital loss. As a C corporation, capital losses can only be deducted against capital gains. This time, the Fifth Circuit sustained the decision of the Tax Court, finding that MoneyGram was not a bank.[2]

Photo by Houcine Ncib on Unsplash

A CPA with 60 years of experience in preparing tax returns found that the Court wasn’t very sympathetic regarding his failure to file FBAR reports, even though income had been (kind of) reported in the case of United States v. Kronowitz.[1]

A belief that many taxpayers have that most preparers have heard is that income below the level required to be reported to the IRS on Form 1099 or some other information report does not represent income that must be reported on a taxpayer’s return. In the case of Legoski v. Commissioner, T.C. Summ. Op. 2021-15[1] the Tax Court corrects a taxpayer who attempted to argue that point.

In a Technical Advice Memorandum[1] the IRS ruled that an overall accrual basis corporation’s promise to pay minimum incentives to dealers in the following year did not meet the requirements of the all events test under IRC §461, and thus could only be deducted in the year when the dealers sold the products in question.

The IRS has continued to clarify how the unemployment benefits exclusion from income for 2020 under the American Rescue Plan Act works in community property states, now explaining the impact when the spouses file a joint return, as well as the impact of returns when filing married filing separate.[1]

In Notice 2021-31[1] the IRS provided a series of questions and answers related to the COBRA Premium Assistance program enacted as part of the American Rescue Plan Act (ARPA).

The IRS has published the annual inflation adjusted amounts that apply to high deductible health plans (HDHPs) and health saving accounts (HSAs) for 2022.[1]

The IRS announced this week that the agency is beginning to issue refund checks to taxpayers who filed tax returns treating unemployment compensation as taxable in cases that Congress later made nontaxable in the American Rescue Plan of 2021 (ARPA).[1]

In Announcement 2021-10 the IRS provided that qualified opportunity zone (QOZ) boundaries will not be changed due to the recently completed census.[1]

Since QOZs are based on census tracts, there were some concerns expressed about how the new census would impact QOZs. The IRS has now stated there will be no changes to QOZ boundaries due to the results of the 2020 Census.

Tax Notes Today reported that Sharyn Fisk, director of the IRS Office of Professional Responsibility, told participants in the American Bar Association Section of Taxation virtual meeting that the IRS expects to open up a fully electronic system for filing Powers of Attorney with the agency by July.[1]

Advisers have found a number of IRS processes to have slowed dramatically due to operational issues at the IRS during the pandemic. This slowdown has impacted how quickly the IRS is able to process and record power of attorneys authorizing CPAs, EAs and attorneys to deal with the IRS on behalf of taxpayers

In Chief Counsel Advice 202117012[1] the IRS looks at issues surrounding the deduction of expenses related to the use of aircraft by a sole proprietor. Specifically, the ruling looks at whether the taxpayer uses:

• The primary purpose test found at Reg. §1.62-2(b) or

• The allocation methods found at Reg. §1.274-10(e)

The IRS won a victory in its attempt to obtain information related to virtual currency transactions from exchanges in the case of In re Tax Liabilities of John Does.[1]

The IRS has sought to serve a “John Doe” summons to Payward Ventures Inc. d/b/a/ Kraken and its subsidiaries for information related to customers of the exchange. The Court initially balked at the request, asking the IRS to show cause why the petition to serve the summons should not be denied for being overly broad.[2]

The IRS responded by narrowing the scope of the request and providing additional information to justify the items remaining as requested information. The Court allowed the IRS to move forward at this point to serve the summons, though the exchange or customers are still allowed to file additional arguments regarding the validity of the request.[3]

In Chief Counsel Advice 202118009[1] the IRS addresses the question of whether tax dividends received by a shareholder who is also employed by the C corporation is subject to the net investment income tax, as well as if the answer changes if the corporation is closely held.

President Biden released a fact sheet on his just proposed changes to the tax system early on April 28.[1] We’ve seen quite a bit of discussion in the popular, financial and tax press about items in this proposal since its release, so we’ll summarize some of the key items here.

The 15-page document details more than just tax proposals, with the major tax proposals that have gotten a lot of notice found on the last two pages of the fact sheet. Some other tax-related items are found elsewhere in the document.

In the case of Plentywood Drug Inc. et al. v. Commissioner, TC Memo 2021-45,[1] the IRS and the taxpayer were disputing whether rents paid by a C corporation to its shareholders were excessive. While the Tax Court did not agree with the IRS’s determination of what amount was reasonable, the Court did find a portion of the rent paid was above a reasonable amount and denied that amount of the deduction.

The IRS has updated its online FAQ[1] on the unemployment compensation exclusion for 2020 and its application in community property states.

State law generally determines ownership of property and income, thus defining what is each spouse’s income when filing separate returns. In a community property state, community income (which is the default income in a community property state) is considered to be equally the income of each spouse, even if the income arises from the services of one spouse to the exclusion of the other.

The IRS has once again extended its special relief for the temporary use of e-signatures on specified tax documents in Memorandum NHQ-10-0421-0002[1], now providing that digital signatures may be used beyond the June 30, 2021 expiration of the prior memorandum.

Sometimes the IRS decides to make an announcement about what might appear to be a “new” development that really is just reminding taxpayers of items that were already part of the law. Such is the case with IRS News Release IR-2021-90[1] that discussed a tax credit available to subsidize employers who provide paid leave to employees receiving a COVID-19 vaccine or who take time off due to a reaction to the vaccine.

In this case the President decided to emphasize these credits in a speech on Wednesday[2] and many headlines implied that the program had just been created by the President. In reality, the President was simply emphasizing the changes made to the credit for paid sick leave (now found at IRC §3131) and qualified family leave wages (now found at IRC §3132) by the American Rescue Plan Act of 2021.