Document

Federal Tax Update – February 2020

By David S. De Jong, Esq., CPA, Stein Sperling Bennett De Jong PC

INDIVIDUALS

In Keels v. Commissioner, TC Memo 2020-25, the Tax Court determined that amounts paid into a PayPal account in the taxpayer’s name and social security number were not income to him as the account was used to receive money from persons buying tickets to a fundraiser; the Court also held that amounts backed out of income over two years as deferred compensation met the criteria for deferral under Section 409A and were not income to the taxpayer.

In Carter v. Commissioner, TC Memo 2020-21, the Tax Court denied a deduction for a conservation easement where the exact locations of permissible building lots were not identified in the easement; in Railroad Holdings, LLC v. Commissioner, TC Memo 2020-22, the Tax Court found that a conservation easement that provided a return on extinguishment violated the protection in perpetuity rule which caused the deduction to be disallowed. 

RETIREMENT AND ESTATE PLANNING

In Merrell v. Commissioner, TC Summary Opinion 2020-5, the Tax Court ruled that the ten percent penalty on early withdrawal from an IRA applies when the withdrawal was on account of the disability of the spouse rather than the account holder himself.

BUSINESS

Proposed Regulations under Section 274 clarify that the 50 percent limitation on meals applies to all food and beverage purchases (including tax, tip and delivery fees), whether meals or snacks, including de minimis and convenience of the employer (except restaurants/caterers) with the following exceptions:

●          Purchases for resale

●          Where taxable to the recipient

●          When primarily for customers (> 50 percent)

●          In connection with a nondiscriminatory employee social or recreational activity

In Bordelon v. Commissioner, TC Memo 2020-26, the Tax Court determined that an individual was “at risk” when he used a 100 percent owned limited liability company to obtain a Government loan which he personally guaranteed as he had no right of contribution with respect to his guarantee.

In Dunlap v. Commissioner, TC Summary Opinion 2020-10, the Tax Court ruled for the second time that post-retirement payments from Mary Kay are subject to self employment tax as they were tied to prior labor.

In Chief Counsel Advice 202009024, IRS opined that only losses permitted to be taken due to sufficient basis and amounts “at risk” can offset the self-employment tax that would be generated by a guaranteed payment in the case of an entity taxed as a partnership.

PROCEDURE

In Willett v. United States, 125 AFTR2d 2020-________, a California Federal District Court agreed with IRS that a taxpayer did not have reasonable cause for late filing and late payment when the CPA who was engaged failed to file the returns and subsequently died, the Court noting that reliance on an agent does not constitute reasonable cause; in Hunter Maintenance & Leasing Corporation v. United States, 125 AFTR2d 2020-________, an Illinois Federal District Court declined to find reasonable cause for abatement of a late filing penalty when both the outside CPA and the internal CFO died of cancer and the completed returns were found on the CFO’s desk.

In United States v. Ott, 125 AFTR2d 2020-________, a Michigan Federal District Court determined that willful failure to file an FBAR could be proven by objective recklessness including concealment – in this case using a sister’s Canadian address on a $1 million plus bank account.

In Waltner v. Commissioner, the US Supreme Court denied certiorari and let stand a decision of the Ninth Circuit Court of Appeals at 123 AFTR2d 2019-1720 which affirmed the Tax Court’s refusal to apply the “mailbox” rule to prove timely mailing accepting the regulatory mandate of registered or certified mail or designated delivery service.

In Melasky v. Commissioner, 125 AFTR2d 2020-746, the Fifth Circuit Court of Appeals agreed with the Tax Court that IRS could apply funds from a seized bank account as it wished notwithstanding that the taxpayer had delivered a check on the account four days before the seizure; the check was not immediately presented for payment by IRS and was dishonored due to the lack of funds resulting from seizure.

In United States v. Dase, 125 AFTR2d 2020-________, an Alabama Federal District Court balanced the equities and allowed sale of the principal residence of a tax delinquent despite its sentimental value to his sister who owned 50 percent as a tenant in common (and had the right to 50 percent of the proceeds) but did not live in the residence.

In Jacobsen v. Commissioner, 125 AFTR2d 2020-911, the Seventh Circuit Court of Appeals affirmed a decision of the Tax Court which gave innocent spouse relief for years in which the taxpayer did not know and had no reason to know of his wife’s embezzlement but not for the other years, indicating that the Tax Court was within its discretion in granting greater weight to knowledge than to other factors.

In United States v. Chesteen, 125 AFTR2d 2020-________, the Fifth Circuit Court of Appeals reversed a Louisiana Federal District Court and determined that the shared responsibility payment is a penalty dischargeable in bankruptcy. 

In In Re:  Harold, 125 AFTR2d 2020-900, a Michigan Bankruptcy Court stated that nondischargeability of a tax debt does not require a showing of fraud, only a willful attempt to avoid a tax.

In Information Release 2020-34 and Fact Sheet 2020-2, IRS announced that it will increase the use of data analytics and research to identify nonfilers and will make face-to-face visits generally after written notices; IRS also announced that it will hold up refunds to those showing at least one unfiled tax return within the previous five years. 

In Chief Counsel Memorandum 20200801F, IRS concluded that the Employer Shared Responsibility Payment is not subject to any statute of limitations on assessment.

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