When a US District Judge in Texas ruled in 2018 that the Affordable Care Act had been rendered retroactively unconstitutional in its entirety by the Tax Cuts and Jobs Act, a number of advisers rushed to file claims for refunds for years where clients had paid the net investment income tax under IRC §1411. The Supreme Court has now decided the fate of those refund claims, overturning the lower court decision in a 7-2 decision and keeping the entire Affordable Care Act in force.[1]

The case arose once Congress reduced the amount due under IRC §5000A for individuals who failed to maintain minimum essential coverage to zero in the Tax Cuts and Jobs Act. The plaintiffs argued that this change was fatal to the entire Affordable Care Act (which would include the net investment income tax under IRC §1411), as the Supreme Court, in an opinion authored by Justice Roberts, had found the mandate constitutional because it represented a tax on those who failed to obtain insurance rather than making a failure to maintain insurance illegal.

The IRS’s backlog in processing 2020 and 2021 returns has caused the service to issue a memorandum[1] with special procedures for handling offers in compromise where the taxpayer’s 2020 and/or 2021 return has not yet been processed by the IRS.

The IRS was facing a massive backlog of returns as of May 1, 2021 per information provided by Erin Collins, the National Taxpayer Advocate in a Senate Hearing.[2] This backlog of over 30 million unprocessed returns is creating problems for processing offers in compromise, as the officer attempting to process an offer may be unable to access the filings for the last two years—and not know if that is because the taxpayer has not filed those forms or they are just stuck somewhere in the backlog.

The memorandum provides temporary guidance through September 30, 2021 for employees of the Specialty Collection Offer in Compromise (SCOIC) section when an Individual Master File (IMF) or Business Master File (BMF) may not have been processed due to the IRS’s issues revolving around the COVID-19 pandemic. The memorandum temporarily changes procedures found in various sections of the Internal Revenue Manual.

While we’ve all heard the quip that the proper answer to any tax question is “it depends,” that is especially true when legal settlements and awards are involved. In the case of Holliday v. Commissioner[1] the question was whether the amount Ms. Holliday received from an action against the attorney that represented her during her divorce was a nontaxable recovery of capital or a taxable award to her.

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.