Welcome to the Federal Tax Update Podcast, hosted by Lynn Nichols. This is presented as a member benefit by the South Carolina Association of CPAs. It is produced to provide current information about developments in U.S. tax law, such as cases, ruling, IRS pronouncements and expert comments on hot topics.

Trending in this edition:

  1. New Schedules K-2 and K-3 May Challenge Partnerships (3:36​ mark)

New draft schedules K-2 and K-3 for partners and shareholders to calculate liability, credits, and deductions for international tax items have some practitioners wondering whether the redesign will complicate compliance for partnerships. [Tax Notes Today; 5/3/2021, article by  Kelley Taylor]

  1. Tax Court Judge Applies Confusing Innocent Spouse Provision (5:15​ mark)

Tax Court Judge Mark V. Holmes assumed for purposes of deciding Fatty v. Commissioner that testimony from the taxpayers in an innocent spouse case fit the record rule exception for newly available evidence. [Tax Notes Today; 5/3/2021, article by Nathan Richman]

Individual Denied Innocent Spouse Relief From Joint Tax Liability

The Tax Court, in a bench opinion, considered the parties’ testimony as newly available evidence in an innocent spouse relief case in which review was limited to the administrative record and denied an individual relief from a joint tax liability with his former wife stemming from a retirement account withdrawal she made for the purchase of their home during the marriage. [Momoudou Lamin Fatty et al., Tax Court No. 3787-20S]

  1. IRS Allows Primary Purpose Test for Deducting Aircraft Expenses (7:33​ mark)

In a legal memorandum, the IRS determined that a sole proprietor may use the primary purpose test in reg. section 1.162-2(b)(1) rather than the allocation methods in reg. section 1.274-10(e) to determine the deductibility of expenses for use of an aircraft owned by the sole proprietor. [ILM 202117012; 4/2/2021, rel. 5/3/2021]

  1. Organization Is Denied Exemption (9:42​ mark)

The IRS denied an organization’s application for tax-exempt status after finding the organization serves private interests by raising money to help a specific individual and the individual’s family. [LTR 202117014, 2/2/2021, rel. 5/3/2021]

  1. Professor Denied Fee Award Despite Winning Case (10:54​ mark)

A college professor-turned-author who prevailed against the IRS on business deductions isn’t entitled to an award of litigation fees because the agency was justifiably skeptical that the expenses weren’t personal, the Tax Court held in Jacobs v. Commissioner. [Tax Notes Today; 5/6/2021, article by Kristen Parillo]

Former DOJ Attorney Denied Litigation Costs in Deficiency Case

The Tax Court denied a former Justice Department attorney and college professor an award of litigation costs under section 7430 after the IRS conceded its position in his deficiency case, finding that he was not the prevailing party because the IRS’s position regarding the disallowance of his expense deductions was substantially justified. [Dennis S. Jacobs; T.C. Memo. 2021-51, 5/5/2021]

  1. Construction Company Owners Beat Again on Car Racing Expenses (12:57​ mark)

The Tax Court has held in Berry v. Commissioner that owners of a construction company failed to substantiate deductions for race car expenses, an excavator, and a utility trailer, and are liable for tax deficiencies and penalties. [Tax Notes Today; 5/6/2021, article by Kelley Taylor]

Couple Had Income From Racing; IRS Properly Disallowed Deductions

The Tax Court, upholding an addition to tax and accuracy-related penalty, held that a couple had other income from the husband’s car racing, finding that it constituted gross receipts of his S corporation and the race expenses were not deductible. The court sustained the IRS’s disallowance of section 179 deductions for a trailer and excavator, duplicate cost of goods sold, and a depreciation deduction. [Andrew Mitchell Berry et ux.; T.C. Memo. 2021-52, 5/5/2021]

  1. Eighth Batch of Economic Impact Payments Are Out the Door (15:01​ mark)

The IRS has announced (IR-2021-103) that more than 1.1 million payments are being distributed in the eighth batch of economic impact payments from the American Rescue Plan, bringing the total disbursed so far to about 164 million payments. [IR-2021-103; 5/5/2021]

  1. Revocation of African Art Exhibitor’s Tax-Exempt Status Is Upheld (15:40​ mark)

The Tax Court upheld an IRS determination to revoke the tax-exempt status of a corporation that was organized to exhibit African artifacts owned by the corporation and to facilitate sales of the artifacts, finding that the organization was not operated exclusively for one or more exempt purposes under section 501(c)(3). [Tikar Inc.; T.C. Memo. 2021-53, 5/6/2021]

Missed last week’s Tax topics? Catch up with Lynn at his Tax Updates video playlist.

All commentary is brief, and you should not take a position on the items discussed until you thoroughly examine it with authoritative sources. The topics can be found discussed in further length at Tax Notes Today.

“I have relied on Tax Analysts® to provide reliable and timely analysis of Federal tax developments for over 30 years. The ‘headnotes’ you see here are from ‘Tax Notes Today,’ the preeminent source of accurate information and analysis of important developments and trends in Federal taxation,” Nichols says.

You can contact Lynn Nichols at lynnnicholscpa@outlook.com or 714.321.3387 and connect on LinkedIn.

A federal tax specialist for 50 years, Lynn Nichols provides tax consulting services to CPA firms on complex federal income tax issues, professional standards in tax practice and effective tax practice management.

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