Articles

July 1st, 2024

June Federal Tax Updates

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

INDIVIDUALS

Final Regulations under Code Sections 170 and 786 follow prior Proposed Regulations limiting charitable contributions flowing from partnerships based on conservation easements to 2.5 times the sum of each partner’s “relevant basis” and determine how to compete relevant basis for such purpose.

Final Regulations under Code Section 6045 make few changes from prior Proposed Regulations despite 44,000 comments; centralized exchanges are due to start reporting 2025 sales in 2026 on a new form 1099-DA with rules for decentralized exchanges due out later in 2024.

In Stead v. Commissioner, the Tax Court in a Bench Opinion required a corporate owner to report signed but uncashed checks as income but not unsigned uncashed checks except to the extent withholdings had been paid over.

In Green Rock LLC v. the Internal Revenue Service, 134 AFTR 2d 2024 -1630, the Eleventh Circuit Court of Appeals agreed with an Alabama Federal District Court that IRS violated the Administrative Procedures Act for failure to have the required public hearings in forcing investors in conservation easements to disclose their participation as a “reportable transaction”.

In Notice 2024 – 46, IRS determined that payments made by Norfolk Southern to individuals affected by the 2023 train derailment in East Palestine, Ohio, are tax free disaster payments as the result of “an event of catastrophic nature”; payments for lost wages and payments to businesses were determined to be taxable.

In Announcement 2024 – 26, IRS announced that it was reciprocating actions by Russia to negate portions of the Tax Treaty between the countries designed to avoid double taxation.

In News Release 2024-174, IRS indicated that it will be sending offers in July to many taxpayers who participated in syndicated conservation easements but who have not settled their cases.

In Letter Ruling 202426011, IRS ruled that a pre-2019 postnuptial agreement is a “divorce or separation instrument” allowing an alimony deduction based on such agreement to be deductible to the payor and income to the recipient (the result should not be different if it were a prenuptial agreement).

RETIREMENT AND ESTATE PLANNING

In Connolly v. United States,134 AFTR2d 2024 – ____, the U.S. Supreme Court agreed with the Eight Circuit Court of appeals that insurance proceeds paid to a corporation upon the death of a stockholder are includable in determining the value of the corporation as of the date of death when the statutory criteria are not met in full for using a preset value or formula contained in the Stockholder Agreement.

In Notice 2024-55, IRS issued guidance in question and answer form on the exceptions to the 10 percent penalty for early withdrawl from qualified retirement plans (except defined benefit plans) and IRAs based on emergency needs up to $1,000 and to domestic abuse victims up to $10,000 indexed for inflation after 2024.

BUSINESS

In Moore v. United States, 133 AFTR2d 2024 –1805, the U.S. Supreme Court in a 7-2 decision affirmed a holding of the Ninth Circuit Court of Appeals finding the Mandatory Repatriation Tax on U.S. shareholders included in the Tax Cuts and Jobs Act of 2017 is constitutional and not in violation of the 16^th Amendment as being a tax on unrealized investment gains.

In XC Foundation v. Commissioner, 124 AFTR2d 2024-1678, the Ninth Circuit Court of Appeals agreed with the Tax Court that a corporation not in good standing could not use the Tax  Court to appeal its denial of tax-exempt status, extending a principle applied to profit making entities in numerous instances.

In Iowaska Church of Healing v. Werfel, 133AFTR 2d2024- __, the District of Columbia Circuit Court of Appeals agreed with a DC Federal District Court that IRS properly denied exempt status to an Iowa church whose members used a tea with a psychedelic drug as parts of its religious practices.

In Revenue Ruling 2024-14, IRS indicated that it will apply the “economic substance doctrine” to disallow tax benefits in transactions involving related party partnerships to which the parties generate a disparity between inside basis and outside basis causing increased depreciation deductions and/or reduced gain upon sale of the property.

In Information Release 2024-177, IRS reminded marijuana businesses that deductions other than cost of goods sold remain disallowed until Final Regulations declassifying marijuana as a controlled substance.

In a Press Call, IRS Commissioner Danny Werfel stated that and during suspension of processing new claims for the Employee Retention Credit and IRS has disallowed one-third of processed claims and has a backlog of 1.4 million claims and it suspects that 70 percent have questions as to accuracy.

PROCEDURE

In Loper Bright Enterprises v. Raimondo, 133 AFTR2d2024 –  ____, and in Relentless v. Department of Commerce, 133AFTR2d 2024 -_____, the U.S. Supreme Court by a 6-3 margin overrode a 40-year decision allowing a regulation to stand if it offered any reasonable interpretation of an unclear statute, paving the way for courts to give less deference to IRS regulations and others.

In Hall v. Commissioner, in a Bench Opinion the Tax Court concurred in imposing the accuracy penalty where the taxpayers blamed the errors on their preparer; the couple failed to demonstrate the requirement of showing that the preparer was competent in that he did not sign the return, claimed expenses for a business that no longer operated and reported other expenses on the incorrect schedule.

In RSBCO v.  the United States, 133AFTR2d 2024 – ___, the Fifth Circuit Court of Appeals threw out a pro-taxpayer jury decision of a Louisiana Federal District Court which had found that the incapacity of a single manager was a sufficient basis for late filing.

In Smiley v. Commissioner, TC Memo 2024-66, an attorney who focused his practice on ESOPs and who personally acquired stock in businesses with overfunded qualified pension plans was found liable for civil fraud for failing to report income from transferring these funds to personal accounts.

In United States v. Vettel, 133AFTR2d 2024- ____, a Nebraska Federal District Court found that an international businessman’s failure to report an interest in a Swiss bank account was willful as he made no effort to determine if the earnings were taxable, did not discuss the account with his wife and indicated in Schedule B that he had no authority over a foreign bank account.

In United States v. Page, 133AFTR2d2024 -____, the Ninth Circuit Court of Appeals reversed an Arizona Federal District Court and concluded that IRS sued timely to recover almost $500,000 erroneously paid when the suit was filed within two years of negotiating the check (rather than measure from the date that the check was received or was dated).

In Wright v. Commissioner, TC Summary Opinion 2024-9, the Tax Court disallowed a large number of expenses of a couple in a construction business who produced almost 2,000 pages of evidence with a spreadsheet as they contained fabricated data.

In Kolomiyets v. Commissioner, TC Summary Opinion 2024-8, the Tax Court denied a claimed loss in excess of $112,000 on a schedule C from a purported consulting business when the individual worked full time and earned in excess of $156,000 in wages, the Court finding him to lack most substantiation and an inability to tie other expenses to the deduction claimed on the return.

In Commissioner v. Culp, the US Supreme Court declined to hear an appeal from a Third Circuit Court of Appeals decision at 132 AFTR2d 2023-5198 allowing taxpayers to argue equitable tolling (exceptions” to the 90-day rule) in deficiency cases before the Tax Court.

In Belagio Fine Jewelry v. Commissioner, 166 TC No. 11, the Tax Court concluded that it had jurisdiction in payroll tax matters to consider if the late filing of a Tax Court petition was due to good cause; the decision does not extend to income tax matters which come before the Court under a different section of the Code.

In Leeds v. United States, 134 AFTR2d 2024 – ___, an Idaho Federal District Court determined that IRS could lien the principal residence of an 88 year old to collect tax penalties arising from foreign interests held by her deceased husband, declining to interfere by injunction or declaratory judgement as assessed taxes can be challenged only after payment.

In Cotroneo v. Commissioner, TC Memo 2024-70, the Tax Court denied innocent spouse status to the wife of an insurance broker who plead guilty to bribery and tax evasion and did not report all distributions from an IRA to pay restitution, the Court believing that she had reason to know of the understatement of tax based on family living expenses.

In United States v. Miller, the US Supreme Court agreed to an appeal by the Government challenging a decision of the Tenth Circuit Court of Appeals at 131 AFTR2d 2023-2196 which ruled that a trustee in bankruptcy can recover a payment to the Internal Revenue Service if it is part of a “fraudulent transfer”; the IRS agreement was based on the concept of sovereign immunity such that the Government is not subject to “claw back”.

In Re: Tampa Hyde Park Café Properties LLC, 134AFTR2d 2024 -____, a Florida Bankruptcy Court concluded that the filing of bankruptcy by a business does not preclude the IRS from bringing an action outside of bankruptcy against another entity on an “alter ego” theory.

In Information Release 2024 – 164, IRS warned about the rising threat of impersonation scams usually directed at older people, reminding the public that IRS will never demand immediate payment by debit cards, gift cards or wire transfers and will never request credit card and like numbers over the phone.

In Tax Tips from the Taxpayer Advocate, IRS warned that an artificial intelligence chat bot may not provide accurate or complete answers to tax questions and, as a result, taxpayers should not solely rely on AI-generated tax advice.

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