September 1st, 2023
August Federal Tax Updates
Proposed Regulations under Code Section 6011 would cause Monetized Installment Sale Transactions to be considered as Listed Transactions which must be disclosed; monetized transactions are installment sales involving an intermediary where the seller receives substantially all of the purchase price up front through a combination of downpayment and a loan.
RETIREMENT AND ESTATE PLANNING
In Notice 2023-62, IRS announced that it will give retirement plans two additional years to comply with a new law requiring over-50 “catch-up” contributions to be treated as after-tax for those whose prior year Social Security wages were over $145,000; the Notice confirmed that the law will not apply to self-employed individuals not receiving a Form W-2.
In Chief Counsel Memorandum 2023-6, IRS debunked promotional materials of tax shelters claiming that undistributed income of a complex trust allocated to corpus avoids federal taxation all together.
In Parker v. Commissioner, TC Memo 2023-104, the Tax Court determined, when cancellation of nonrecourse indebtedness of an S corporation is made in connection with an asset sale such that documents are executed on the same date, the debt relief is part of the purchase price and not eligible for exclusion based on insolvency.
In Hoops LP v. Commissioner, 132 AFTR2d 2023-5454, the Seventh Circuit Court of Appeals affirmed a Tax Court decision that the Seller’s payment of deferred compensation could not be imputed based on a reduced purchase price where the prior obligation to the employees was assumed by the buyer, the Court noting that the law specifically requires actual payment in order to claim a deduction.
In Goumas v. Commissioner, in a Bench Opinion the Tax Court denied transportation deductions of a staffing recruiter based on a reconstructed mileage log which was inconsistent with the taxpayer’s business records and tax returns.
In Conrad v. Commissioner, TC Memo 2023-100, an S corporation was permitted to deduct expenses for both a yacht and an airplane as the majority owner was able to prove that both were extensively used or intended to be used in marketing; however, depreciation deductions on the airplane were disallowed when the owner could not get a pilot license and the plane was sent to storage.
In Sinopoli v. Commissioner, TC Memo 2023-105, the Tax Court disallowed most of the huge rental expenses paid to physician owners for use of their home as meeting space where the owners attempted to exclude the underlying income based on renting their homes for no more than fourteen days per year.
In Bucci v. Commissioner, in a Bench Opinion the Tax Court concluded that farming, real estate and horse racing activities were not conducted for profit where losses were cumulatively far in excess of revenues and the taxpayer was past his 80th birthday.
In York v. United States, 132 AFTR2d 2023-5462, the Ninth Circuit Court of Appeals agreed with a California Federal District Court which had concluded that a company’s former Chief Financial Officer was a responsible individual for collecting payroll taxes and that, with the checkbook in his possession, he willfully failed to pay over the taxes; the CFO argued unsuccessfully that another individual was in charge of keeping track of bills and making sure that they were paid and that his function in the process was only ministerial.
Proposed Regulations under Code Section 6045, if finalized, would require crypto brokers to report gross proceeds on the sale of digital assets effective for 2025 transactions with basis information required one year later.
In Optimal Wireless LLC v. Internal Revenue Service, 132 AFTR2d 2023-5441, the District of Columbia Circuit Court of Appeals agreed with the DC Federal District Court that the mandate on large employers to provide fulltime employees with health insurance coverage creates a tax for failure to provide complying coverage and, as such, no injunctive relief to bar assessment and collection is available to a plaintiff.
In Internal Revenue Service v. Juntoff, 132 AFTR2d 2023-5384, the Sixth Circuit Court of Appeals affirmed a decision of the Circuit’s Bankruptcy Appellate Panel that the since abolished Shared Responsibility Payment for individuals who did not purchase qualifying health insurance was a tax and not a penalty in that it was dependent in part on income and notwithstanding that it was called a penalty by Congress; the courts are deeply divided.
In Lakepoint Land II LLC v. Commissioner, the Tax Court sanctioned IRS for not timely disclosing to taxpayer’s counsel the backdating of supervisory approval of penalties.
In United States v. Xiao, 132 AFTR2d, 2023-5446, the Seventh Circuit Court of Appeals agreed with an Illinois Federal District Court that the question on Schedule B regarding foreign bank accounts was not vague and accordingly a criminal tax conviction could stand.
In Palermo v. United States, 132 AFTR2d 2023-5435, a Florida Federal District Court threw out a claim for refund made on Form 843 when it should have been made on a Form 1040-X, stating that a correction even after expiration of the statute of limitations on an amended return would have sufficed.
In Severance v. Commissioner, TC Memo 2023-101, the Tax Court denied innocent spouse status to a military veteran, the request limited to equitable relief as it was filed more than two years after the earliest collection effort, as she handled the family’s finances and should have been aware that her husband did not qualify for the income earned abroad exclusion.