The crypto winter of 2022 has a number of those burned by the drop in price looking to see if there may be some sort of tax benefit they can claim based on their holdings dropping in some cases to virtually worthless.  But it turns out merely being virtually worthless virtual currency won’t deliver any sort of tax benefit, at least in the conclusions given in IRS Chief Counsel Advice 202302011.[1]

A government contractor could not exclude the value of employer provided housing from his income under IRC §119 per a Tax Court ruling in the case of Smith v. Commissioner, TC Memo 2023-6.[1]

The IRS announced that it plans to issue regulations defining specific terms for the revised and renamed clean vehicle credit under IRC §30D in Notice 2023-1.[1]  The notice even provides the expected content for these terms.  But, interestingly, nowhere in the Notice does it say taxpayers may rely on these definitions until the regulations are issued.

The qualified commercial clean vehicle credit at IRC §45W added by the Inflation Reduction Act of 2022 that takes effect beginning in 2023 requires taxpayers to reference the incremental cost of their qualified vehicle as one of the factors that can limit the credit.  However, in no case can the credit exceed $7,500 for a vehicle with a gross vehicle weight of less than 14,000 pounds, so if the incremental cost is more than $7,500 then it would not serve to limit the amount of the credit.

In Notice 2023-9,[1] the IRS has issued guidance for determining the incremental cost of vehicles for purposes of the credit under IRC §45W, providing for safe harbor values taxpayers may use based on the Department of Energy’s (DOE) 2022 Incremental Purchase Cost Methodology and Results for Clean Vehicles.[2]

The annual update for tax-related automobile mileage rates for 2023 was published by the IRS in Notice 2023-03.[1]

The IRS posted the final version of the 2022 partnership Schedule K-2 and K-3 instructions to their 2022 forms site on December 28, 2022.[1] No changes appear to have been made to the Domestic Filing Exception when compared to the second draft version of the instructions that were issued in early December.

The IRS announced in Announcement 2023-2[1] that the agency will not require reporting on digital assets by brokers as required by the Infrastructure Investment and Jobs Act until regulations are issued implementing Section 80603 of the Act modifying IRC §§6045 and 6045A.

The IRS has delayed the expanded Form 1099-K reporting requirement for third party settlement organizations (TPSO) enacted as part of the American Rescue Plan Act of 2021 by one year in Notice 2023-10.[1]

The IRS issued the final 2022 instructions for Schedules K-2 and K-3 for Form 1120-S on December 20, 2022.[1]  The document contains the final instructions for a corporation to meet the domestic filing exception to preparing Schedules K-2 and K-3 for 2022.  These rules are virtually the same as were found in the draft instructions released on December 5, 2022.

The IRS again succeeded in showing that a taxpayer had failed to timely obtain a contemporaneous written acknowledgement (CWA) required by IRC §170(f)(8) related to a charitable contribution in the case of Brooks v. Commissioner, TC Memo 2022-122.[1]

While there are two other issues the IRS and the Tax Court find fault with for the taxpayer, note that the Court yet again states a failure to comply with the CWA provisions of IRC §170(f)(8) results by itself in an entire denial of the charitable contribution deduction.

The IRS in News Release IR-2022-220[1] reminded taxpayers that the second payment of deferred employer Social Security and self-employment taxes is due no later than December 31, 2022.  The release reminds taxpayers of this COVID-19 relief provision that applied in 2020, allowing affected taxpayers to defer paying these taxes:

As part of the COVID relief provided during 2020, employers could choose to put off paying the employer's share of their Social Security tax liability, which is 6.2% of wages. Self-employed individuals could also choose to defer a similar amount of their self-employment tax. Generally, half of that deferral was due on December 31, 2021. The other half is due on December 31, 2022.[2]

While the IRS sent notices to impacted taxpayers earlier this fall per the release, the agency reminded taxpayers they must still make this payment even if they did not receive the notice.

The IRS has released guidance providing for automatic permission to change a taxpayers’ method of accounting for IRC §174 research and experimental expenditures in Revenue Procedure 2023-8.[1]  The guidance modifies Section 7 of Revenue Procedure 2022-14, which previously provided for an automatic change to the treatment of research and experimental expenditures under IRC §174.

The IRS addressed a structure the agency states is being marketed to law firms that claims to defer the taxation of legal fees in AM 2022-007.[1]  The IRS found that the transaction, which purported to defer taxation of a fee from 2021 to August of 2031, did not result in the deferral of the income, outling multiple theories that would cause immediate inclusion of the income.

The IRS in Announcement 2022-28[1] explained the reasons why it issued proposed regulations[2] involving certain syndicated conservation easement cases.

The IRS has now revised the draft Schedule K-2 and K-3 (Form 1065) instructions[1] issued on October 26, 2022, issuing a new draft Schedule K-2 and K-3 (Form 1065) instructions that make important changes to the domestic filing exception. While no revised S corporation instructions have been issued as of the time this is being written, it seems likely similar changes will be made to those instructions.

Key Changes

The following are the key changes made to the domestic filing exception in the new revised draft instructions.

• The notice to partners no longer must be issued by January 15, 2023. Rather, it can be issued as late as the date the Schedules K-1 are provided to the partners and even provided as an attachment to the Schedule K-1

• The 1-month date, for both the domestic filing exception and the Form 1116 exception, will now be one month before the Form 1065 is filed, so as late as August 15, 2023 for a calendar year partnership return placed on extension. one month before the due date for filing including extensions, which means it will move to August 15, 2023, if the partnership files for an automatic extension of time to file a calendar year return

• The list of US citizen/resident alien partners is now expanded to include S corporations with a single shareholder and single member LLCs owned whose owner is listed as an eligible US citizen/resident alien partner.

In the case of Dunn v. Commissioner, TC Memo 2022-112,[1] the taxpayers lost deductions for claimed depreciation on an automobile and losses from a partnership they wholly owned that held real estate.

The IRS has issued the first guidance related to provisions in the Inflation Reduction Act of 2022 in Notice 2022-61.[1] The Notice provides guidance on the prevailing wage and apprenticeship provisions that provide for increased tax benefits under IRC §§ 30C, 45, 45L, 45Q, 45U, 45V, 45Y, 45Z, 48, 48C, 48E, and 179D. The Notice also establishes the 60-day period applicable under the provisions and guidance on determining the beginning of construction or beginning of installation.

Some taxpayers may prefer to use a limited liability company (LLC) as the underlying legal entity in which to form what is intended to be, for tax purposes, an S corporation. It may be due to quirks in state law (as is true in my home state of Arizona) or some other reason. But what is too often overlooked is that the LLC’s operating agreement must not create a situation where there is deemed to be multiple classes of “stock” outstanding, or the LLC will not qualify as an S corporation.

This very issue forced taxpayers to pay for and seek an IRS ruling that the termination of their S corporation status was inadvertent in the ruling found at PLR 202247004.[1]

The taxation of legal settlements creates a lot of confusion, with taxpayers and their advisers not realizing that, most often, such settlements are going to be considered taxable income. One such recent case is that of Tillman-Kelly v. Commissioner, TC Memo. 2022-111.[1]

Since 2020 tax advisers and their clients have been a bit frustrated with how slowly the IRS processes returns, especially amended returns. But, in the case of Lofton v. United States,[1] the taxpayer grew impatient about the IRS delays and attempted to get the matter resolved in Court.

Unfortunately for the taxpayer, while the law allows taxpayers to pursue relief in the courts if the IRS fails to rule on their request for a refund, that law also mandates that the IRS be given six months to act on the request