Nichols’ Tax Update, Issue 21-50

  1. Fact Sheet Updates FAQs on Recovery Rebate Credit
    • The IRS has issued a fact sheet (FS-2021-17) updating its list of frequently asked questions on the 2020 recovery rebate credit. (Seven topics, 36 pages, [FS-2021-17, 12/10/2021]
  1. Fourteen Organizations Were Denied Exempt Status or Had Exempt Status Revoked Last Week ! ! !
    • Week ended December 10th. Most often because the organization “failed to show it is operated exclusively for exempt purposes and that no part of its net earnings benefits its shareholders or individuals.” [Tax Notes Today, 12/13/2021]
  1. Special Provision Lets More Taxpayers Deduct 2021 Donations
    • The IRS has reminded (IR-2021-247) taxpayers that under a temporary provision in the Taxpayer Certainty and Disaster Tax Relief Act of 2020, individuals who choose to take the standard deduction rather than itemizing can deduct donations to qualifying charities on their 2021 federal income tax returns. [IR-2021-247, 12/13/2021]  
  1. Tax Court Denies Deductions for Property Development Venture
    • The Tax Court sustained the IRS’s disallowance of a couple’s deductions for the husband’s property development venture, finding that he wasn’t entitled to vehicle and travel expense deductions or startup costs and amortization deductions because he was not actively engaged in a trade or business in the year at issue. [ Vardan Antonyan et al.; No. 13741-18; T.C. Memo. 2021-138, 12/13/2021]
  1. IRS Revokes Document on EO Compensation Reporting
    • The IRS has withdrawn a 20-year-old document on compensation reporting by tax-exempt organizations and has instructed EOs to follow information return instructions instead. [Announcement 2021-18, 2021-52 IRB 1, 12/14/2021]
  1. Taxpayer Must Return Pre-Bankruptcy Tax Attributes to Estate
    • A post-petition tax refund might not be property of a taxpayer’s bankruptcy estate, but the net operating loss used to generate the refund was, a bankruptcy court held in In re Lee. [Tax Notes Today, 12/15/2021, article by Nathan Richman]
    • Joint Tax Refund With Nondebtor Spouse Not Subject to Turnover
      • A U.S. bankruptcy court held that a debtor’s 2018 joint tax refund with his non-debtor spouse is not property of the bankruptcy estate and not subject to turnover because the non-debtor spouse was the only one who worked during that year and the refund is attributable to her wages, but they could not use pre-bankruptcy loss carryforwards on their 2018 return. [Michelle Chow v. Jung S. Lee et al.; No. 20-04036, 12/13/2021]
    • Practice Unit Covers Treaty-Based Exemptions
      • The IRS has issued a practice unit on determining if a nonresident alien student, trainee, teacher, or researcher is eligible to claim a treaty-based exemption for income received in connection with a U.S. trade or business.
    • Practice Unit Covers Tax Shelter Promoter Investigations
      • The IRS has issued a practice unit on the procedures for properly conducting investigations of tax shelter promoters, emphasizing that the goals of the investigations are to identify and quickly terminate the abusive promotion or activity, assert promoter penalties where applicable, and identify participants in the abusive transaction.
    • IRS Issues Practice Unit Providing BEAT Overview
      • The IRS has issued a practice unit providing an overview of the base erosion anti-abuse tax under section 59A, which applies to base erosion payments paid or accrued in tax years beginning after December 31, 2017.
    • IRS Updates Process Unit on Effects of Flow-Through Entities on FTC
      • The IRS has updated a prior practice unit on the effects of flow-through entities on the foreign tax credit, noting that the update reflects the finalization of reg. section 1.861-9. [Tax Notes Today; 12/15/2021]
  1. Poor Recordkeeping Dooms Debtors’ Tax Basis and Insolvency Claims
    • Former defense contractors in chapter 11 bankruptcy failed to substantiate their claimed tax basis in the company and the extent of their insolvency, resulting in a bankruptcy court’s allowance of nearly $4.4 million in IRS claims in In re Kelly.
    • Bankruptcy Court Allows IRS’s $4 Million Tax Claim
      • A U.S. bankruptcy court overruled a debtor couple’s objection and allowed the IRS’s proof of claim for $4 million in taxes, finding that the debtors failed to meet their burden of overcoming the presumption of correctness regarding the IRS’s claim and they failed to provide sufficient evidence of their insolvency regarding cancelled debt income. [In re: Mark A. Kelly et al.; No. 18-60514; 12/14/2021]
  1. Evolving Remote Workforce Brings Uncertainty, Practitioners Say
    • Remote work continues to be the new norm as the COVID-19 pandemic evolves, and the tax consequences of that remain unclear, according to state tax practitioners. [Tax Notes Today; 12/17/2021, article  by Amy Hodges]
  1. IRS Issues Accounting Method Procedures to Reflect TCJA Changes
    • The IRS has provided (Rev. Proc. 2022-9; 50 pages ! ! !) procedures under section 446 to obtain automatic consent to change methods of accounting to comply with final small business regulations (T.D. 9942) issued in January.
    • IRS Updates Accuracy-Related Penalty Guidance
      • The IRS has updated guidance (Rev. Proc. 2021-52, 2021-51 IRB 883) on whether the disclosure on a taxpayer’s income tax return regarding an item or position is adequate for the purpose of reducing the understatement of income tax under section 6662(d) and avoiding the tax return preparer penalty under section 6694(a).  [12/17/2021]

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(*** identifies item with useful analysis of current issue but not covered in Lynn’s recorded commentary due to complexity and time required for fair comment.)