In News Release IR-2021-255[1] the IRS gave information on the letters that will be sent to taxpayers documenting the amounts of the Advance Child Tax Credit and third round of Economic Impact Payments that will provide information necessary to complete the taxpayers’ 2021 individual income tax returns.

The letters that taxpayers will receive are:

• Letter 6419, 2021 Advance CTC

• Letter 6475, Your Third Economic Impact Payment[2]

The release states “[t]he IRS urged people receiving these letters to make sure they hold onto them to assist them in preparing their 2021 federal tax returns in 2022.”[3]

The United States and Malta have entered into a Competent Authority Agreement (CAA)[1] on the meaning of a “pension fund” under the Malta-US income tax treaty. While that might seem like a matter of little consequence, the agreement is meant to quash what the IRS had identified in July as a 2021 “Dirty Dozen” scam that was being used to escape tax on the sale of appreciated property.[2]

The July 2021 IRS news release summarized the promoted program as follows:

Potentially abusive use of the US-Malta tax treaty

Some U.S. citizens and residents are relying on an interpretation of the U.S.-Malta Income Tax Treaty (Treaty) to take the position that they may contribute appreciated property tax free to certain Maltese pension plans and that there are also no tax consequences when the plan sells the assets and distributes proceeds to the U.S. taxpayer. Ordinarily gain would be recognized upon disposition of the plan's assets and distributions of the proceeds. The IRS is evaluating the issue to determine the validity of these arrangements and whether Treaty benefits should be available in such instances and may challenge the associated tax treatment.[3]

In August of 2021, the Wall Street Journal published an article describing the structure in more detail.[4]

American Rescue Plan Act Section 9675 revised IRC §108(f)(5) to provide a temporary rule for the exclusion from income of certain discharges of student loan debt. In Notice 2021-01[1] the IRS provides that lenders are not to issue Forms 1099-C, Cancellation of Debt, for discharges that qualify for this relief.

The Notice describes the income exclusion as follows:

Under this special rule, gross income does not include any amount which would otherwise be includible in gross income by reason of the discharge (in whole or in part) after December 31, 2020, and before January 1, 2026, of loans provided for postsecondary educational expenses, whether the loan was provided through the educational institution or directly to the borrower. Such loans must have been made, insured, or guaranteed by the United States, or an instrumentality or agency thereof, a State, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof, or an eligible educational institution. Additionally, certain private education loans and loans made by certain educational organizations qualify for this special rule.[2]

The IRS has released the mileage rates for 2022 in Notice 2022-3.[1] A taxpayer using the standard mileage rates must comply with the requirements of Revenue Procedure 2019-46.[2]

The standard mileage rate for 2022 will be 58.5 cents per mile for business use.[3] The portion of this business mileage that is treated as depreciation is:

• 25 cents per mile for 2018,

• 26 cents per mile for 2019,

• 27 cents per mile for 2020,

• 26 cents per mile for 2021, and

• 26 cents per mile for 2022.[4]

The IRS is requiring partnerships that have international tax information to prepare and attach Schedules K-2 and K-3 to partnerships whose tax year begins in 2021. However, the final versions of these forms are not available currently, which could present a problem for a fiscal year partnership that began operations in 2021, but whose year-end for its first income tax return is before the end of 2021. As well, partnerships that are not in existence at year end may face a similar problem complying with the reporting requirements.

In the case of Wheeler v. Commissioner,[1] the Tax Court did not find persuasive a taxpayer’s argument that she should be granted innocent spouse relief for taxes related to income from an S corporation she held an interest in during the year before the Court, which also was the year her divorce was finalized late in the year.

Notice 2021-65[1] has been released by the IRS, providing guidance on the repeal of the employee retention credit (ERC), effective as of September 30, 2021, for all employers except those that are recovery startup businesses. This retroactive change was part of the Infrastructure Investment and Jobs Act (IIJA)that was signed into law on November 15. Prior to the enactment of the IIJA, employers who faced certain reductions in gross receipts or were subject to certain full or partial suspensions of their business due to COVID-19 governmental orders could qualify for the credit.

In the case of Soni v. Commissioner,[1] the Tax Court found that Anjali Soni, despite never signing the joint income tax return with her husband for the year in question, had tacitly consented to the filings and thus faced joint liability for any tax due on that return.

In emailed chief counsel advice,[1] counsel explained how and when “money numbers” impact the calculation of the imputed adjustment (IU) for a partnership being examined under the BBA centralized partnership audit regime. The issue involved adjustments of items that would not directly impact the amounts reported on that year’s Form 1065, but do involve a partnership item stated in terms of dollars.

The email begins by noting “[i]f we adjust any partnership-related item (PRI) that is a ‘money number’ on the Form 1065 or in the partnership’s books and records, it goes into the calculation of the IU.”[2] The advice continues on to note that “[a]n adjustment to an item that is not an item of income, gain, loss, deduction, or credit (i.e. ‘non-income item’) is always a positive adjustment. See 301.6225-1(d)(2) (definition of positive and negative adjustments).”[3]

The IRS clarified, in emailed counsel advice,[1] that it does not matter if a partner is a for profit or exempt organization to determine if that partner will bar the partnership from electing out of the regime under IRC §6221(b).

The email is written in response to a question that is not disclosed in the document. However, it’s fairly certain the question that was asked was whether a partnership that had a tax exempt partner could opt out of the BBA partnership audit regime when filing its return using the procedures found at IRC §6221(b)(1).

The 2021 draft instructions for Form 1065 have added additional information related to a determination of whether a taxpayer has self-employment income from the partnership.[1]

The new revision to the instructions provides:

However, whether a partner (including a member of an LLC treated as a partnership for federal income tax purposes) qualifies as a limited partner for purposes of self-employment tax depends upon whether the partner meets the definition of a limited partner under section 1402(a)(13); whether a partner is a limited partner under state limited partnership law is not determinative. Relevant to this determination is whether the partner merely invested in the partnership and is not actively participating in the partnership’s business operations; a partner who is performing services for a partnership in their capacity as a partner and that is, based on the facts and circumstances, acting in the manner of a self-employed person is not a limited partner for self-employment tax purposes. See Renkemeyer, Campbell & Weaver, LLP v. Commissioner, 136 T.C. 137, 150 (2011).[2]

The IRS has issued guidance on a web page on the agency’s site related to the early termination of the employee retention credit for employers other than a recovery startup business.[1] The IRS posting explains:

The Infrastructure Investment and Jobs Act amends section 3134 of the Internal Revenue Code to limit the availability of the employee retention credit in the fourth quarter of 2021 to taxpayers that are recovery startup businesses, as defined in section 3134(c)(5). Therefore, taxpayers that are not recovery startup businesses are not eligible for the employee retention credit for wages paid after September 30, 2021.[2]

In September of 2020 we discussed issues that arose in the case of Fowler v. Commissioner, 155 TC No. 7, when the IRS rejected an electronically filed return due to the lack of inclusion of an identity protection PIN on the return and its effect on the date a return was treated as filed for statute of limitations purposes.[1] In that case the Court ruled that the IRS had attempted to assess tax more than 3 years after the date the taxpayer initially attempted to file the return, and thus the IRS had failed to act in time.

In this case,[2] the IRS is now asserting the taxpayer had failed to file a return within the three-year period that began on the original filing date including extensions for filing, thus the taxpayers could not obtain the refund shown on the return that they filed within that time period, but which the IRS had rejected due to a suspicion that the return may have been the result of identity theft.

In a published decision, the IRS ruled that a taxpayer who took physical possession of and stored in a safe in her home coins that she argued were owned by an LLC whose interests were held by her self-directed IRA had a taxable distribution from the IRA.[1]

The coins in question were acquired by an LLC whose sole member, per the taxpayers, was an IRA for the benefit of Donna McNulty. Donna was appointed as the sole manager of this LLC owned by her IRA.

The IRS finally addressed the options for the timing of PPP forgiveness for tax purposes in Revenue Procedure 2021-48[1] as well as issuing two related procedures at the same time dealing with related issues. This includes a very limited time period when an affected BBB partnership can file an amended income tax return in lieu of filing the otherwise required Administrative Adjustment Request.

In Notice 2021-63[1] the IRS provides guidance on the interaction of the per diem rules found in Revenue Procedure 2019-48[2] and the temporary allowance of a 100% deduction for business meals provided by a restaurant found at IRC §274(n)(2)(D) for amounts paid or incurred in 2021 and 2022.

Having already released the annual inflation adjusted retirement numbers in Notice 2021-61, discussed in an earlier article,[1] the IRS has now released Revenue Procedure 2021-45[2] that contains most of the other inflation adjusted numbers for 2022 taxes.

As the numbers relate to the law as it existed at the date of publication of the procedure, something that could change based on pending Congressional action, the procedure contains the following warning:

This revenue procedure sets forth inflation-adjusted items for 2022 for various provisions of the Internal Revenue Code of 1986 (Code), as amended, as of November 10, 2021. To the extent amendments to the Code are enacted for 2022 after November 10, 2021, taxpayers should consult additional guidance to determine whether these adjustments remain applicable for 2022.

A trader generally executes an extremely large number of trades during the year attempting to take advantage of very short-term variations in the prices of securities. While some find this pursuit profitable, many find that their ability to harvest those short-term gains doesn’t exist, and while discovering this fact they encounter significant losses. Unfortunately, by default these losses are capital losses, resulting in only being able to deduct $3,000 per year of such losses against other income—and all too often such traders have losses that are well in excess of such limits, running to five or six figure losses.

The IRS Taxpayer Advocate Service (TAS) has announced that, for now, TAS will no longer assist taxpayers who are experiencing processing delays for amended income tax returns.[1]

The TAS blog explains:

Under our current procedures, TAS does not accept cases in which we cannot meaningfully expedite or improve case resolution for taxpayers. Amended returns fall into this category. Due to the broad impact of COVID-19, the IRS has faced significant challenges in all its return processing operations. Unfortunately, until the IRS processes a tax return, TAS cannot assist the taxpayer. For that reason, TAS will not accept new cases solely involving the processing of an individual or business amended return. TAS will continue to monitor IRS developments in amended return processing and will reevaluate this determination as the situation changes.