Lynn Nichols Federal Tax Update (Oct. 19, 2020): Estate Litigators Look to Cement Support for ‘Tax Affecting’
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.
The commentary is brief, and you should not take a position on the items discussed until you thoroughly examine it with authoritative sources. All 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.
Taxpayers looking for solid grounds to discount earnings from a passthrough entity for gift tax purposes in the right circumstances could soon have more reason for confidence, pending the conclusion of a Tax Court case. [Tax Notes Today, 10/13/2020, Article by Jonathan Curry]
Nichols’ note: This development is an anticipated Tax Court decision that is expected to consider the value of a gift AFTER the payment of federal income taxes on a stream of earnings expected from the gift. The term is “tax affected,” and Courts have been reluctant to apply the principle because the argument has been that it was not possible to determine the tax rate. After all, the rate could be different based on other income – or maybe the tax would not be paid due to a change in the law.
The IRS has published the official version of final regulations (T.D. 9913) that clarify the definition of a qualifying relative for purposes of various provisions of the tax code for tax years 2018 through 2025. [T.D. 9913; 85 F.R. 64383-64386]
The cleanup and restoration costs for two partnerships operating plants to process tomatoes into bulk-packaged products were deductible as part of the new season’s inventory, not the prior season, according to the Tax Court in The Morning Star Packing Company LP v. Commissioner. [Tax Notes Today, 10/15/2020, article by Nathan Richman] [The Morning Star Packing Company LP v. Commissioner, T.C. Memo. 2020-142]
Robert W. Wood examines NCA Argyle, in which a legal settlement using express tax language resulted in a capital gain victory for the taxpayer. [Tax Notes Today, 10/15/2020, Article by Robert W. Wood] [NCA Argyle LP et al.; T.C. Memo. 2020-56, 5/13/2020]
The Tax Court, supplementing a prior opinion that was vacated by the Eleventh Circuit, held that the Danielson rule applies so that a couple and a partnership cannot recharacterize a transaction disposing of partnership interests to reap favorable tax benefits, sustaining the IRS’s determinations regarding tax consequences based on the terms of the purchase agreement. [Thomas E. Watts et ux. et al.; T.C. Memo. 2020-144, 10/15/2020]
The number of filers with no federal income tax liability increased from 2017 to 2018, likely due to provisions of the Tax Cuts and Jobs Act such as the expanded standard deduction that made the tax code more progressive and decreased the income tax liability for low-income filers, the National Taxpayers Union Foundation said in an Oct. 15 report. [National Taxpayers Union Foundation, Issue Brief, 10/15/2020]
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. Check out his Tax Updates video playlist.