The Oversight Subcommittee of the House Ways & Means Committee convened a hearing on July 27, 2023, to discuss “The Employee Retention Tax Credit Experience: Confusion, Delays, and Fraud.”[1] Although the agenda covered three topics, the focus and highlights of the hearing centered around the issue of fraud. Notably, Representative Beth Van Duyne (R-TX) played a key role during the session by sharing a voice mail she received that very morning from an individual claiming to be “Beth” and working for an Employee Retention Credit (ERC) mill. In the voice mail, the representative was informed that she was eligible to receive a payment of $26,000 for every W-2 employee she employs.

In the Generic Legal Advice Memorandum (AM 2023-05),[1] the IRS scrutinized some of the questionable supply chain-based justifications for claiming the employee retention credit. The memorandum emphasizes the necessity of documenting the specific government orders that the employer relied upon, demonstrating how these orders created challenges for the supplier. Moreover, it highlights the employer's inability to procure critical and necessary supplies due to these issues and how such circumstances resulted in a qualifying suspension of the employer's own business. By clarifying these requirements, the IRS aims to ensure more accurate and substantiated claims for the employee retention credit.

In November of 2022, the Tax Court rendered a decision in Hallmark Research Collective v. Commissioner, 159 TC No. 6, stating that the Supreme Court's ruling in Boechler PC v. Commissioner, 142 S. Ct. 1493 (2022), which established that the 90-day limit for filing a Tax Court petition for collection actions under IRC §6330 is not jurisdictional, did not alter the Tax Court's longstanding stance that the 90-day filing deadline specified in IRC §6213(a) for filing a deficiency petition remains jurisdictional. Consequently, no equitable relief for late filing of the petition is accessible in this context.

The Tax Court, at present, has declined to grant the plaintiff's motion for summary judgment regarding the IRS's suspense account method for handling S corporation basis claimed by a shareholder that exceeds his basis in the Kanwal v. Commissioner[1] case. However, the judge conveyed concerns about the method in the order, requiring the IRS to submit a supplemental memorandum further justifying its position.

In this specific case (Gomas v. United States)[1], the judge proposed that the IRS should have considered overlooking the tax issue at hand and granting leniency. Surprisingly, the judge himself refrained from exercising such discretion and instead ruled against the taxpayer, most likely due to the same constraints the IRS faced. This is because the applicable law mandated that the taxpayers were obligated to pay taxes in this particular scenario, despite the unfortunate circumstances wherein they were deceived into withdrawing substantial sums from their retirement account and delivering them to a fraudster. Notably, the fraudster happened to be the daughter of one taxpayer and the stepdaughter of the other.

It’s not often you see a private letter ruling asking for permission to make a late election to not deduct bonus depreciation under IRC §168(k), but even less often do we see eleven virtually identical requests for that ruling issued in the same week.  But, beginning with PLR 202328007[1] that’s what we saw this week.

The IRS has granted relief on specific tax deadlines to individuals in Vermont who have been impacted by the recent flooding. This relief was announced in IRS News Release IR-2023-125.[1]  Generally, the relief will provide individuals impacted by the recent flooding in Vermont with an extended deadline until November 15, 2023, to file any tax return that was originally due after July 9, 2023, and before November 15, 2023.

In Notice 2022-53, the IRS stipulated that the minimum distribution rules for defined contribution plan balances (including IRAs) inherited from a beneficiary who had passed away after their required beginning date— as outlined in the proposed regulations under the SECURE Act—would not take effect until 2023 at the earliest. However, with the release of Notice 2023-54,[1] the IRS has further delayed the implementation of these rules by at least one year, meaning they will not be applicable until 2024 at the earliest.

The Notice also provides relief to individuals born in 1951 who, under the law prior to the enactment of the SECURE 2.0 Act, were informed they would need to take required minimum distribution (RMD) payments by April 1, 2024, as they would turn 72 in 2023. Payments to cover these initial RMDs could have been initiated as early as January 2023, and some taxpayers may have scheduled such payments accordingly.

The tax treatment of legal settlements can be confusing for individuals who receive them, especially when they involve employment-related claims. One such issue was the subject of the Tax Court case Montes v. Commissioner,[1] which examined whether payments from an employment suit could be excluded from income.

Please note that this is a transcription of the oral findings, so there may be some grammatical errors or awkward expressions in the opinion. However, you should be able to understand the intended meaning without much difficulty.

As we transition into the second half of 2023, the Internal Revenue Service (IRS) has commenced the release of draft tax forms for the current year. We will be focusing on the draft versions of the 2023 partnership tax forms that have been recently disseminated by the IRS. The pertinent forms under consideration are:

• Form 1065[1]

• Schedule K-1 (Form 1065)[2] and

• Schedule K-3 (Form 1065).[3]

While the practical application of these draft forms may be somewhat restricted due to the absence of corresponding draft instructions for 2023, they nonetheless provide valuable insights. Even in their draft state, these forms can offer preliminary indications regarding potential modifications to the reporting requirements set by the IRS for partnerships in 2023.

The US Supreme Court has granted an appeal to review the Ninth Circuit's ruling in the case of Moore v. United States.[1] Previously, the Ninth Circuit had declined a motion to reconsider the case en banc, despite four judges expressing dissent from the decision. The original panel had upheld the constitutionality of the IRC §965 transition tax, which was introduced as part of the Tax Cuts and Jobs Act.

Most likely, everyone has encountered a situation where a phone, computer, website, or app did not function as expected or required. A similar circumstance arose for the taxpayer in the case of Sanders v. Commissioner, 160 TC No. 16.[1]  However, Mr. Sanders discovered that the Tax Court did not recognize his technological difficulties as a valid reason to accept his Tax Court petition, which was ultimately filed electronically just eleven seconds past midnight.

In my experience, day traders generally fall into one of two categories: a small minority achieving considerable success, or the majority, rapidly diminishing their previously amassed fortunes once they venture into day trading.

Day trading entails executing a vast number of security sales on a daily basis. An unsuccessful day trader quickly learns that, by default, they are restricted to a net deduction of only $3,000 in losses per year due to the annual limitation on individual capital loss deductions stipulated in Internal Revenue Code (IRC) §1211(b)(1). When the trader’s net losses extend into the six-figure realm, this $3,000 annual limitation can be significantly distressing.

The Internal Revenue Service (IRS) has issued Notice 2023-37, [1] declaring the cessation of unique provisions enabling high deductible health plans (HDHP) to extend certain benefits specifically for COVID-19 diagnosis and treatment before the participant had met his/her deductible for the plan year. These provisions were introduced during the COVID-19 public health emergency (PHE). The notice modifies the guidance found in Notice 2020-15 and provides clarification of Notice 2004-23.

The Chair of the House Ways and Means Committee has recently introduced three tax bills. These bills are slated for consideration by the Committee during the week commencing June 12.  These bills are anticipated to serve as the initial framework for negotiations in crafting a tax bill or bills that could potentially be enacted in 2023.

The bills introduced on Friday, June 9, 2023 are:

• H.R. 3936, “Tax Cuts for Working Families Act”[1]

• H.R. 3937, “Small Business Jobs Act”[2] and

• H.R. 3938, “Build It In America Act”[3]

What are the tax implications of an employer-funded fixed-indemnity insurance policy that pays employees $1,000 per month through a wellness indemnification program? This payment is made for each month the employee participates in specific wellness activities, with the costs covered by a comprehensive medical plan offered by the employer.

In Chief Counsel Advice 202323006,[1] the IRS provided guidance on this matter, determining that the payments described above should be treated as taxable income, subject to payroll taxes, and cannot be excluded under Internal Revenue Code (IRC) §106.

Sometimes, as tax advisers, we and our clients tend to concentrate so intensely on federal income tax matters that we inadvertently overlook the potential impact of state income tax issues. However, it is crucial to recognize that these state-level considerations can be significant enough to warrant a reevaluation of the optimal choice for a federal return election.

In the case of PLR 202323001,[1] it came to light that the taxpayer, a partnership, was unaware of the substantial adverse consequences on the partners’ state income tax returns resulting from the utilization of bonus depreciation on their federal income tax return. Neither the partnership nor its tax adviser identified this matter until after the tax return had already been prepared and filed.

In this ruling, the taxpayer approached the IRS seeking permission to retroactively make a late election to forego the deduction of additional first-year depreciation. The objective was to rectify the unintended consequences arising from the utilization of such depreciation on their federal income tax return, which had a detrimental impact on the partners’ state income tax returns.

Tracy v. Commissioner, T.C. Summ. Op. 2023-20[1], presented the Tax Court with the question of whether a disabled and elderly attorney should be eligible for relief from penalties due to late payment and late filing concerning payroll taxes associated with the winding down of his law practice.

The Eleventh Circuit, in the case of Gregory v. Commissioner, Case No. 22-10707[1], held that expenses associated with an activity not pursued with the intent of generating a profit, as defined under IRC §183, fall into the category of miscellaneous itemized deductions under IRC §67. Consequently, these deductions are subject to the limitations imposed on claiming such deductions.

Tax advisers who specialize in assisting small businesses might initially assume that a case involving “reasonable compensation” pertains to the IRS alleging that an S corporation owner did not declare a sufficient portion of their earnings as salary. In such instances, the agency typically aims to reclassify distributions as disguised salary.

However, those of us who have been in the tax profession for a longer period, predating the Tax Reform Act of 1986, recall a distinct other kind of unreasonable compensation case that is seen far less often today. This particular case arises with closely held C corporations, where the IRS contends that a portion of the owner’s reported compensation should instead be treated as a dividend. It is precisely this type of case that the Fourth Circuit Court of Appeals addressed in Clay Hood, Inc. v. Commissioner, Case No. 22-1573, CA4.[1]