Articles

September 1st, 2024

August Federal Tax Updates

Posted in: Tax Law    Tagged: David S. De Jong

INDIVIDUALS

In Information Release 2024-216, IRS indicated that the cost of summer day camp, even one with a particular focus, may qualify the parents for the Dependent Care Credit, although the cost of a “sleepaway” camp will not qualify.

In Field Service Advice, 2024-28, IRS reiterated that “crowdfunding” collections are includable in the gross income of the recipient unless they arise from disinterested generosity of the contributors who do not expect to receive anything in return.

RETIREMENT AND ESTATE PLANNING

In In Re Litten, 134 AFTR2d 2024-5350, an Illinois Bankruptcy Court determined that IRS was entitled to relief from an automatic stay in order to levy retirement funds that would otherwise be protected in bankruptcy.

In United States v. Dill, 134AFTR2d 2024 -____ a Florida Federal District Court concluded that IRS miscalculated the 10-year period for suing the same person in dual capacities as Personal Representative and beneficiary of an estate; the error related to suspension of the statute of limitations under section 6166 based on an extension of time for payment of estate taxes.

BUSINESS

In Eason v. Commissioner, TC Summary Opinion 2024-17, the Tax Court disallowed $42,000  in deductions for courses on business opportunities available through real estate ownership and investment which were offered by a company that closed before all services were received; a proposed business was abandoned before receipt of any income although additional expenses such as business cards and stationery were incurred.

In Maggard v. Commissioner, TC Memo 2024-77, the Tax Court ruled that shareholders of an S corporation must report income in a pro rata manner despite actual distributions in favor of certain shareholders; the Court also determining that S corporation status is not revoked by the disproportionate distributions alone as they do not create a second class of stock.

In Information Release 2024- 203, IRS announced that it will begin processing Employee Retention Credit Claims filed between September 14, 2023 and January 31, 2024.

In Information Releases 2024-212 & 2024-213, IRS announced a second Employee Retention Credit Voluntary Disclosure Program through November 22, 2024 for businesses claiming the credit in error and wishing to repay; this amnesty relates only to 2021 tax periods with repayments required of 85 percent of the claim received and without penalty or interest for those not requiring an installment arrangement for the payback.

PROCEDURE

In Henry v. Commissioner, TC Memo 2024- 79, the Tax Court concluded that IRS did not prove fraud by a taxpayer who failed to file tax returns for four years, also finding that relief from indebtedness was nontaxable due to insolvency but concluding that business expenses from multiple enterprises were overstated; the couple provided tax and financial services to clients, kept few records and comingled personal and business expenses.

In United States v. Schwarzbaum, 134 AFTR2d 2024 – ___, the Eleventh Circuit Court of Appeals reversed a Florida Federal District Court and, in opposition to a 2022 First Circuit case, held that an FBAR penalty must withstand an Eighth Amendment test as to excessiveness, finding in this case that the penalties were generally not excessive but were disproportionate in regard to a small account which never had a balance greater than $13,000 in any year under scrutiny.

In United States v. Rund, 134 AFTR2d 2024 -5268____, a Virginia Federal District Court agreed with IRS that a failure to file FBARs was willful due to the individual’s prior filings and his failure to do full disclosure while participating in the Offshore Voluntary Disclosure Program (OVDP) and that the penalty served a remedial purpose and thus was not an “excessive fine” in violation of the Eighth Amendment.

In United States v. Hughes, 134 AFTR2d 2024 – ___, the Ninth Circuit Court of Appeals agreed with a California Federal District Court that the owner of two overseas businesses willfully failed to file the FBAR report, holding that recklessness under the facts constitutes willfulness; in United States v Niksich, 134 AFTR2d 2024 – ___, a Georgia Federal District Court agreed with that legal holding under facts showing that the individual placed at least one foreign account in his dog’s name.

In United States v. Boler, 134 AFTR2d 2024 – ___, a divided Fourth Circuit Court of Appeals affirmed sentencing by a South Carolina Federal District Court based on the intended loss through false statements on a Paycheck Protection Program (PPP) loan application rather than based on the actual loss where two of six fraudulent tax returns were caught by the IRS before refunds were issued.

In Cable v. Commissioner, TC Summary Opinion 2024-16, the Tax Court threw out an IRS Notice of Deficiency when it could not establish that the notice was properly mailed.

In Libitzky v. United States, 134 AFTR2d 2024-5235, the Ninth Circuit Court of Appeals agreed with a California Federal District Court that a couple who normally overpaid their taxes was too late in seeking a refund of almost $700,000 in over payment when their tax return was filed more than three years late due to an error by the accountant and communications with IRS that might have constituted an informal refund claim were filed outside that two-year period, each alternative being too late by about six months.

In Ryckman v. Commissioner, 163 TC No. 3,adivided Tax Court with six dissents determined that Collection Due Process (CDP) procedures do not apply when IRS files a notice of federal tax lien pursuant to the US-Canada tax treaty.

In Keith v. Commissioner, TC Memo 2024-81, the Tax Court in a CDP appeal remanded the  case to IRS Appeals to determine the appropriate amount for an installment agreement, IRS not adequately establishing a record for its calculations

In Brown v. Commissioner, 134 AFTR2d 2024 – ___, the Ninth Circuit Court of Appeals, agreeing with the sustaining of an IRS lien by the Tax Court, clarified that there are two separate routes for submitting an Offer in Compromise, one standalone with no judicial review but with a deemed acceptance in the absence of a decision within 24 months or a submission as part of a CDP proceeding with possible judicial review but with no 24-month deadline.

---