Tax and Accounting Research: Tax Updates January 2025 - May 2024
January 2025
Accounting
Parker's 2024 Tax Planning Guide for Individuals: Client Letters Included. For an In-Depth Look at Tax Planning for INDIVIDUALS, Click Here.
Parker's 2024 Tax Planning Guide for Businesses: Client Letters Included. For an In-Depth Look at Tax Planning for BUSINESSES, Click Here.
IRS Releases January 2025 Applicable Federal Rates: In Rev. Rul. 2025-1, the IRS issued the applicable federal rates for January 2025 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), Code Sec. 382(f), and Code Sec. 642(c)(5). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1), the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520, and the average of the applicable federal mid-term rates (based on annual compounding) for the 60-month period ending December 31, 2024, for purposes of Code Sec. 7702(f)(11).
C Corporations
Final and Proposed Regs Revised Consolidated Return and Controlled Group Rules: In T.D. 10018 and REG-134420-10, the IRS issued final and proposed regulations that affect affiliated groups of corporations that file consolidated federal income tax returns. The final regulations reflect statutory changes made by the Inflation Reduction Act of 2022 (Pub. L. 117-169); the proposed regulations clarify that, in the case of certain transfers between members of a consolidated group, a transferee's assumption of certain liabilities will not reduce the transferor's basis in the transferee's stock received in the transfer.
Credits
IRS Issues Final Regs on Credit for Production of Clean Hydrogen and Energy Credit: In T.D. 10023, the IRS final regulations implementing the credit for production of clean hydrogen under Code Sec. 45V and certain provisions of the energy credit under Code Sec. 48 as enacted by the Inflation Reduction Act. The regulations provide rules for: determining lifecycle greenhouse gas emissions rates resulting from hydrogen production processes; petitioning for provisional emissions rates; verifying production and sale or use of clean hydrogen; modifying or retrofitting existing qualified clean hydrogen production facilities; using electricity from certain renewable or zero-emissions sources to produce qualified clean hydrogen; and electing to treat part of a specified clean hydrogen production facility instead as property eligible for the energy credit.
Digital Assets
IRS Allows Holders to Use Alternative Methods for Adequate Identification of Units: In Notice 2025-7, the IRS provides temporary relief allowing eligible taxpayers to rely on alternative methods for making an adequate identification, within the meaning of Reg. Sec. 1.1012-1(j)(3), with respect to units of a digital asset held in the custody of a broker. This relief applies only to digital assets that are sold, disposed of, or transferred during the period beginning on January 1, 2025, and ending on December 31, 2025.
Health Care
Proposed Regs on Coverage of Preventive Services Under Affordable Care Act Withdrawn: In REG-124930-21, the Departments of the Treasury, Labor, and Health and Human Services (the Departments) withdrew proposed regulations issued in 2023 (REG-124930-21) regarding coverage of certain preventive services under the Affordable Care Act. The Departments have determined it appropriate to withdraw the proposed rules to focus their time and resources on matters other than finalizing these rules as well as to further consider the proposals in light of the high volume of comments received in response to the proposed regulations.
Information Reporting
Fifth Circuit Panel Reimposes Injunction on Beneficial Ownership Reporting Rule: In Texas Top Cop Shop, Inc., et al. v. Garland, 2024 PTC 454 (5th Cir. 2024), a panel of the Fifth Circuit vacated the part of a Fifth Circuit motion panel's order granting the government's request for a stay of the preliminary injunction issued by a district court in Texas Top Cop Shop, Inc. et al. v. Garland, 2024 PTC 426 (E.D. Tex. 2024), enjoining enforcement of the Corporate Transparency Act (CTA). As a result, FinCEN announced on its website that, as of December 26, 2024, the injunction is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN pursuant to the CTA.
Procedure
IRS Issues Final Regs on Supervisory Approval of Penalties: In T.D. 10017, the IRS issued final regulations under Code Sec. 6751 regarding supervisory approval of certain penalties assessed by the IRS. The final regulations, which address uncertainty regarding various aspects of supervisory approval of penalties that have arisen due to recent judicial decisions, adopt the proposed regulations issued in 2023 (REG-121709-19) with minor modification.
IRS Acquiesces in Eleventh Circuit Decision Invalidating Notice 2017-10: In AOD 2024-1, the IRS acquiesces in the Eleventh Circuit's decision in Green Rock LLC v. IRS, 2024 PTC 185 (11th Cir. 2024), that Notice 2017-10, which identified syndicated conservation easement transactions as listed transactions, was invalid because it violated the notice and comment requirements of the Administrative Procedure Act. Acquiescence means that the IRS accepts the court's holding and will follow it in disposing of cases with the same controlling facts.
Tax Return Preparers
Court Orders Disgorgement of Ill-Gotten Profits to "Ghost Preparer": In U.S. v. Rodriguez, 2024 PTC 459 (M.D. Fla. 2024), a district court granted the government's request for disgorgement of the ill-gotten profits of a tax return preparer who engaged in "ghost preparing," i.e., preparing customers' tax returns using Turbo Tax, stylizing the returns as "self-prepared," and failing to identify herself as a preparer through an Electronic Filing Identification Number. The $136,875 disgorgement request was made after the tax preparer admitted in a civil suit brought by the government that she engaged in fraudulent tax preparation practices subject to penalty under Code Secs. 6694 and 6695.
December 2024
Accounting
IRS Releases December 2024 Applicable Federal Rates: In Rev. Rul. 2024-26, the IRS issued the applicable federal rates for December 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), Code Sec. 382(f), Code Sec. 642(c)(5). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Parker's 2024 Tax Planning Guide for Individuals: Client Letters Included. For an In-Depth Look at Tax Planning for INDIVIDUALS, Click Here.
Parker's 2024 Tax Planning Guide for Businesses: Client Letters Included. For an In-Depth Look at Tax Planning for BUSINESSES, Click Here.
Credits
IRS Announces Payments to Taxpayers Who Did Not Claim 2021 Recovery Rebate Credit: In a December 20 press release (IR-2024-314), the IRS announced plans to issue automatic payments later this month to eligible people who did not claim the recovery rebate credit on their 2021 tax returns. The recovery rebate credit is a refundable credit for individuals who did not receive one or more economic impact payments, also known as stimulus payments; the IRS states that no action is needed for eligible taxpayers to receive these payments, which will go out automatically in December and should arrive in most cases by late January 2025.
California Carbon Offset Credits Must Be Included in Gross Income: In AM-2024-004, the Office of Chief Counsel advised that when the California Air Resources Board (CARB) grants carbon offset credits to the operator of an offset project (ARB offset credits), the operator must include the value of the credits in its gross income upon grant. The Chief Counsel's Office reasoned that an offset project operator who receives ARB offset credits from CARB for voluntarily agreeing to an approved offset protocol has an undeniable accession to wealth, since the ARB offset credits are granted without restriction on the operator's ability to exercise complete control over them.
IRS Addresses Tax Treatment of Certain Payments Required Under CHIPS Act of 2022: In Announcement 2024-40, the IRS confirmed that amounts paid or incurred for the construction, expansion, or modernization of advanced manufacturing facilities pursuant to an agreement with the Commerce Department under 15 U.S.C. Sec. 4652 will not fail, solely by reason of such agreement, to constitute a "qualified investment" for purposes of determining the amount of any advanced manufacturing investment credit under Code Sec. 48D. The IRS states that, because agreements to effectuate the requirements of 15 U.S.C. Sec. 4652 are not long-term contracts subject to Code Sec. 460, amounts paid or incurred for the construction, expansion, or modernization of advanced manufacturing facilities pursuant to such agreements that are capital expenditures under Code Sec. 263(a) may constitute qualified investment for purposes of the Code Sec. 48D credit provided that the requirements of Code Sec. 48D and the regulations thereunder are otherwise satisfied.
Payroll Companies Have Until December 31 to Correct Employee Retention Credit Claims: In a press release (IR-2024-296), the IRS announced an extension to December 31, 2024, of the deadline for payroll companies and other third-party payers of employment taxes to use the consolidated claim process to resolve incorrect claims for the employee retention credit. The consolidated claim process, which was originally set to expire November 22, lets a third-party payer that filed a prior claim with multiple clients withdraw only some clients while maintaining the claims of the qualifying clients.
IRS Extends Transition Process for Claiming an Exception to Elective Payment Phaseouts: In Notice 2024-84, the IRS extends the transition process for claiming an exception provided under Code Secs. 45(b)(10)(D), 48(a)(13), 45Y(g)(12)(D), or Code Sec. 48E(d)(5), to the elective payment phaseouts contained in Section 5 of Notice 2024-9. Thus, if an applicable entity provides an attestation described in Section 5.02 of Notice 2024-9 with respect to an applicable credit property the construction of which begins before the later of January 1, 2027, or the issuance of further guidance, the IRS will treat the attestation as establishing that a domestic content exception is met with respect to such applicable credit property.
Deductions
Tenth Circuit Upholds Tax Court's Disallowance of Deduction for Car Racing Expenses: In Avery v. Comm'r, 2024 PTC 435 (10th Cir. 2024), the Tenth Circuit affirmed the Tax Court and held that an attorney could not claim monies spent on car racing activities as ordinary and necessary business expenses to promote his law practice. The court rejected the taxpayer's argument that the Tax Court impermissibly considered his personal enjoyment of car racing when deciding whether the expenses were deductible and found that his enjoyment was relevant to the determination of the primary motive for incurring the expenses.
Employee Benefits
IRS Issues 2025 Covered Compensation Tables: In Rev. Rul. 2025-2, the IRS provides tables of covered compensation under Code Sec. 401(l)(5)(E) for the 2025 plan year. Under Code Sec. 401(l)(5)(E)(i), "covered compensation" with respect to an employee is defined as the average of the contribution and benefit bases in effect under Section 230 of the Social Security Act for each year in the 35-year period ending with the year in which the employee attains social security retirement age.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2025-1, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-81, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Announces It Will Begin Issuing Opinion Letters for Sec. 403(b) Pre-Approved Plans: In Announcement 2024-38, the IRS notifies the public that it intends to issue opinion letters on November 29, 2024, or as soon as possible thereafter, for Code Sec. 403(b) pre-approved plans that were updated for changes with respect to the requirements of Code Sec. 403(b), including the 2022 Cumulative List, and that were filed during the second remedial cycle for Code Sec. 403(b) pre-approved plans. Opinion letter applications were filed with the IRS for the second remedial amendment cycle (Cycle 2) under the remedial amendment cycle system for Code Sec. 403(b) pre-approved plans established under Rev. Proc. 2019-39.
Employment Taxes
IRS Issues 2025 Railroad Retirement Act Tax Rates: In 89 Fed. Reg. 93036 (Nov. 25, 2024), the IRS issued the tier 2 tax rates under the Railroad Retirement Tax Act that apply to compensation paid in calendar year 2025. The tier 2 tax rate for 2025 under Code Sec. 3201(b) is 4.9 percent of compensation; (2) the tier 2 tax rate for 2025 under Code Sec. 3221(b) is 13.1 percent of compensation; and the tier 2 tax rate for 2025 under Code Sec. 3211(b) is 13.1 percent of compensation.
Foreign
Final and Proposed Regs Address Gain or Loss With Respect to a Qualified Business Unit: In T.D. 10016 and REG-117213-24, the IRS issued final and proposed regulations under Code Sec. 987 relating to the determination of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit. The final regulations include an election to treat all items of a qualified business unit as marked items (subject to a loss suspension rule), an election to recognize all foreign currency gain or loss with respect to a qualified business unit on an annual basis, and a new transition rule; the proposed regulations include an election that is intended to reduce the compliance burden of accounting for certain disregarded transactions between a qualified business unit and its owner.
IRS Announces Forthcoming Proposed Regs on Pricing Certain Controlled Transactions: In Notice 2025-4, the IRS announced that it intends to issue proposed regulations that, for purposes of applying Code Sec. 482, provide a new method for pricing certain controlled transactions involving baseline marketing and distribution activities. The approach for pricing these activities, referred to in the notice as the simplified and streamlined approach, is described in a report of the Organization for Economic Cooperation and Development titled, "Pillar One - Amount B: Inclusive Framework on BEPS"1 and published on February 19, 2024.
Proposed Regs Address PTEP of Foreign Corporations and Related Basis Adjustments: In REG-105479-18, the IRS issued proposed regulations regarding previously tax earnings and profits (PTEP) of foreign corporations and related basis adjustments. The proposed regulations affect foreign corporations with PTEP and their shareholders.
Japanese Taxpayer's Understanding of the Term "Resident" is Relevant in FBAR Case: In Kurotaki v. U.S., 2024 PTC 423 (D. Haw. 2024), a district court denied the government's request to exclude the testimony of a Japanese national and U.S. permanent legal resident, who failed to file Reports of Foreign Bank and Financial Accounts (FBARs), that he should not be subject to penalties because he relied on an erroneous Japanese translation of the word "resident" in a letter from his accountant that was written in Japanese. The court found that the taxpayer's subjective understanding of the meaning of "resident" is relevant to whether the taxpayer subjectively knew he had a filing obligation.
Gross Income
Teacher Hit With Frivolous Position Penalty for Claiming His Income Was Nontaxable: In Swanson v. Comm'r, T.C. Memo. 2024-105, the Tax Court held that a taxpayer who was employed as a high school teacher failed to report wage and rental income that he received during the year at issue. The court also imposed a maximum Code Sec. 6673 frivolous position penalty of $25,000 on the taxpayer for arguing that the Code does not impose tax on public school teachers, that he did not receive any amounts in excess of the fair market value of his services, and that taxation of the amounts he did receive would violate the Uniformity Clause of the U.S. Constitution.
Healthcare
IRS Issues Adjusted Applicable Dollar Amount for Determining PCORTF Fee: In Notice 2024-83, the IRS announced that the adjusted applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee imposed by Code Sec. 4375 on the issuer of a specified health insurance policy and Code Sec. 4376 on the plan sponsor of an applicable self-insured health plan for policy and plan years that end on or after October 1, 2024, and before October 1, 2025, is $3.47, an increase from the prior year amount of $3.22. The fee is used to fund the Patient-Centered Outcomes Research Trust Fund (PCORTF) and is calculated using the average number of lives covered under the policy or plan and the applicable dollar amount for that policy year or plan year.
Procedure
D.C. Circuit Upholds Revocation of Taxpayer's Passport: In Adams v. Comm'r, 2024 PTC 434 (D.C. Cir. 2024), the D.C. Circuit affirmed the Tax Court and held that an individual whose tax debt of more than $1.2 million was certified under Code Sec. 7345 as a seriously delinquent tax debt to the State Department for revocation of his passport forfeited his opportunities to contest his underlying tax liability and therefore was foreclosed from arguing in the Tax Court that the IRS made procedural errors in assessing his underlying debt. The court found that the Treasury Department may only transmit a delinquency certification to the State Department after an individual has had an opportunity to challenge an IRS lien or levy and that the individual in this case did not dispute the IRS's collection and enforcement actions until his passport was in jeopardy.
Court of Federal Claims Has No Jurisdiction Over Whistleblower Claims: In McCrory v. U.S., 2024 PTC 424 (Fed. Cl. 2024), the Court of Federal Claims dismissed for lack of subject-matter jurisdiction a complaint brought by a whistleblower under Code Sec. 7623(a) challenging the amount of an award determined by the IRS Whistleblower Office. The court found that the Tax Court's exclusive jurisdiction under Code Sec. 7623(b) is well established and that if it were to find that the Court of Federal Claims has jurisdiction over claims brought under Code Sec. 7623(a), it would create an intra-statute split of exclusive jurisdiction between the Court of Federal Claims and the Tax Court, contrary to Congress's intent.
IRS Issues Final Regs on Disclosures of Tax Info to Census Bureau: In T.D. 10013, the IRS issued final regulations that amend existing regulations under Code Sec. 6103 relating to the disclosure of specified return information to the Bureau of the Census. The final regulations ensure the efficient and appropriate transfer of return information to the Census Bureau and permit the disclosure of additional return information pursuant to a request from the Secretary of Commerce.
Interest Rates Decrease for First Quarter of 2025: In Rev. Rul. 2024-25, the IRS issued the rates for interest on tax underpayments and overpayments for the quarter beginning January 1, 2025. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning January 1, 2025, will be 7 percent (down from 8 percent for the quarter beginning October 1, 2024) for overpayments (6 percent in the case of a corporation, down from 7 percent), 7 percent (down from 8 percent) for underpayments, and 9 percent (down from 10 percent) for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent (down from 5.5 percent).
Taxpayer Not Entitled to Legal Fees Because IRS's Position Was Substantially Justified: In Ankner v. U.S, 2024 PTC 415 (M.D. Fla. 2024), a district court held that taxpayers who were prevailing parties under Code Sec. 7430(a) in their lawsuit against the IRS for assessing penalties for promoting a tax shelter involving a captive insurance program were not entitled to litigation fees and costs because the government's position was substantially justified. The court found that the government's position that the captive program did not qualify as insurance for tax purpose because there was no risk distribution was substantially justified by the evidence in the case and that the government's inability to convince the jury of the merits of its case did not change the substantial justification of its positions.
Retirement Plans
Final Regs on Required Minimum Distributions Won't Apply Before 2026: In Announcement 2025-2, the IRS announced that the provisions of future final regulations amending Reg. Sec. 1.401(a)(9)-4, Reg. Sec. 1.401(a)(9)-5, and Reg. Sec. 1.401(a)(9)-6 relating to required minimum distributions (RMDs) under Code Sec. 401(a)(9) will apply no earlier than the 2026 distribution year. The proposed regulations published in July 2024 (REG-103529-23) were generally proposed to apply for purposes of determining RMDs for calendar years beginning on or after January 1, 2025.
2024 Required Amendments List Issued: In Notice 2024-82, the IRS issued the 2024 Required Amendments List (2024 RA List), which is an annual list of changes in retirement plan qualification requirements. The 2024 RA List applies to both individually designed plans qualified under Code Sec. 401(a) and individually designed plans that satisfy the requirements of Code Sec. 403(b); the 2024 RA List also applies to pre-approved plans with respect to interim amendments.
Tax Return Preparers
Separation Agreement Did Not Preclude Tax Preparer's Negligence: In Macartney v. Seiler LLP, 2024 PTC 406 (D. Conn. 2024), a district court denied a motion for summary judgment filed by a tax accounting firm that was sued by a taxpayer for alleged negligence in filing her and her ex-husband's joint tax return that claimed a refund of over $400,000, the receipt of which was delayed because the firm mistakenly listed the wrong mailing address for the IRS to send the refund. The firm argued that any negligence on its behalf did not cause injury to the taxpayer because she signed a separation agreement that allowed her husband to keep the entire refund, but the court found that the separation agreement did not preclude the taxpayer's claim of right to benefit from any tax refunds that should have arrived before the agreement was signed.
November 2024
Accounting
Parker's 2024 Tax Planning Guide for Individuals: Client Letters Included. For an In-Depth Look at Tax Planning for INDIVIDUALS, Click Here.
Parker's 2024 Tax Planning Guide for Businesses: Client Letters Included. For an In-Depth Look at Tax Planning for BUSINESSES, Click Here.
IRS Releases November 2024 Applicable Federal Rates: In Rev. Rul. 2024-24, the IRS issued the applicable federal rates for November 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Retirement Accounts Were Beyond Chapter 7 Creditors' Reach, Third Circuit Affirms: In In re Gilbert, 2024 PTC 380 (3d Cir. 2024), the Third Circuit affirmed a district court and held that the creditors in a Chapter 7 bankruptcy could not collect from the debtor's retirement accounts set up under two defined benefit plans. The court found that the plans were exempt under 11 U.S.C. Sec. 541(c)(2) even if their operation did not comply with the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code.
Employee Benefits
Mutual Fund Administrator Was Not Required to Pass Through Foreign Tax Credits: In Romano v. John Hancock Life Insurance Company (USA), 2024 PTC 391 (11th Cir. 2024), the Eleventh Circuit held that John Hancock, an insurance company that administers 401(k) plans, did not have a fiduciary duty under ERISA to pass through the value of foreign tax credits it received as the owner of shares in mutual funds that invested in foreign securities to an employer whose 401(k) plan it managed. The court found that the source of the foreign tax credits was the employer's choice of the foreign investments, not John Hancock's management of the separate accounts containing the mutual funds, and therefore John Hancock was not an ERISA fiduciary with regard to its application of the foreign tax credits.
Foreign
Temporary Relief Extended for FFIs to Report U.S. Taxpayer ID Numbers: In Notice 2024-78, the IRS extends the temporary relief provided in Notice 2023-11 for certain foreign financial institutions (FFIs) required to report U.S. taxpayer identification numbers (U.S. TINs) for certain preexisting accounts (as defined in an applicable Model 1 intergovernmental agreement). The extension of the temporary relief granted by Notice 2023-11 is intended to enable the IRS to continue to collect and analyze additional information for accounts without U.S. TINs.
Procedure
IRS Issues Final Regs on Sales of Seized Property: In T.D. 10011, the IRS issued final regulations regarding the sale of property that the IRS seizes by levy. The final regulations, which are intended to better allow the IRS to maximize proceeds from sales of seized property, adopt the text of the proposed regulations issued in October 2023 (REG-127391-16) with only minor, non-substantive changes.
Challenge to Validity of Notice 2007-83 Dismissed As Moot; Taxpayer Wins Legal Fees: In Mann Construction, Inc., et al. v. U.S., 2024 PTC 394 (E.D. Mich. 2024), a district court dismissed a taxpayer's lawsuit challenging Notice 2007-83, which deemed certain employee-benefit plans listed transactions, under the Administrative Procedure Act after the Sixth Circuit declared the case was moot because the government had refunded the imposed penalties and agreed not to enforce the notice in the Sixth Circuit. The district court also awarded attorneys' fees to the taxpayer after finding that the qualified offer rule in Code Sec. 7430(c)(4)(E)(i) applied because (1) the taxpayer made a qualified offer of $1 to settle the case and (2) the judgment in the proceeding ($0) was equal to or less than the taxpayer's liability had the government accepted the offer.
IRS Summons Did Not Violate Taxpayer's Right Against Self-Incrimination: In U.S. v. Adams, 2024 PTC 398 (11th Cir. 2024), the Eleventh Circuit held that a district court's order enforcing an IRS summons did not violate a taxpayer's Fifth Amendment rights by requiring him to produce incriminating documents and information. The court found that, although the Fifth Amendment privilege may apply to the act of producing documents when doing so involves testimonial self-incrimination, the implicit admission of the existence and possession of certain records does not constitute protected testimony when it is a "foregone conclusion" that only marginally contributes to the information the government already possesses.
Partner Info Obtained In Partnership Proceeding Can Be Disclosed to Partnership: In FAA 20244101F, the Office of Chief Counsel advised that the confidentiality requirement in Code Sec. 6103(a) does not apply to a partner's personal information that is included in an Appeals Referral Investigation prepared in a collection due process partnership case that would be disclosed to the partnership if the information was received from outside of the IRS as part of a partnership proceeding, because it is the partnership's return information. However, the Chief Counsel's Office advised that if the partner's personal information was not received from outside of the IRS as part of the partnership proceeding, then the information may be disclosed only if an exception to the confidentiality requirement in Code Sec. 6103 applies.
Tax Accounting
Tax Court Case Involving Writeoffs of Damaged Inventory Proceeds to Trial: In IQ Holdings, Inc. v. Comm'r, T.C. Memo. 2024-104, the Tax Court denied summary judgment for the IRS in a case involving the disallowance of a taxpayer's writeoffs for damaged inventory consisting of products and packaging materials that were found to be rusted, leaking, broken, or otherwise damaged. The IRS argued that the taxpayer did not comply with the requirement in Reg. Sec. 1.471-2(c) that it offer for sale the damaged products, but the court found that an issue of fact existed as to whether the products were saleable at any price as well as the taxpayer's knowledge of (and efforts to determine) whether they could be feasibly rehabilitated.
October 2024
Accounting
IRS Releases October 2024 Applicable Federal Rates: In Rev. Rul. 2024-21, the IRS issued the applicable federal rates for October 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Debtors Did Intent to Hinder Trustee by Applying Tax Overpayments to Future Liabilities: In In re Wylie, 2024 PTC 378 (6th Cir. 2024), the Sixth Circuit affirmed a district court and held that taxpayers who applied their tax overpayments to future tax liabilities before filing for Chapter 7 bankruptcy did not transfer or conceal property with intent to hinder, delay or defraud a creditor under 11 U.S.C. Sec. 727(a)(2)(A). The Sixth Circuit found that evidence of specific intent to make it more difficult for the trustee to facilitate creditors' collection of debts from the estate is required under Section 727(a)(2)(A) and found that by the bankruptcy court's own reasoning and findings such evidence was lacking; the Sixth Circuit therefore remanded for an entry of discharge.
Credits
IRS Provides Additional Guidance Regarding Sustainable Aviation Fuel Credits: In Notice 2024-74, the IRS provides additional guidance regarding the sustainable aviation fuel (SAF) credits under Code Secs. 40B and 6426(k) (collectively, SAF credit or SAF credits). Specifically, the IRS instructs taxpayers using the 40BSAF-GREET 2024 model with respect to claims that relate to the sale or use of a SAF qualified mixture on or after October 18, 2024 to use the October 2024 version of the 40BSAF-GREET 2024 model and accompanying user manual for purposes of Notice 2024-37.
Guidance on Income Requirements for Qualified Residential Rental Projects Issued: In Rev. Proc. 2024-38, the IRS provides guidance regarding the income requirements for qualified residential rental projects financed with exempt facility bonds under Code Sec. 142(d) and for qualified low-income housing projects under Code Sec. 42, certain income requirement provisions of which cross-reference to Code Sec. 142(d). Specifically, the procedure provides guidance on the effect on the income requirements under Code Secs. 142(d) and 42 of the alternative income eligibility requirements for the Department of Housing and Urban Development-Veterans Affairs Supportive Housing (HUD-VASH) program, set forth in the notice published by HUD in the Federal Register on August 13, 2024.
IRS Opens New Process for TPPS to Resolve Incorrect Employee Retention Credit Claims: In IR-2024-246, the IRS announced that it is opening a supplemental claim process to help third-party payers (TPPs) and their clients resolve incorrect claims for the employee retention credit. The supplemental claim process lets a TPP that filed a prior claim with multiple clients withdraw only some clients while maintaining the claims of the qualifying clients; supplemental claims must be submitted using a computer or mobile device to fax the required documents by 11:59 p.m., Nov. 22, 2024.
Deductions
Tax Court Allows Conservation Easement Deduction, but Drastically Reduces Its Value: In J L Minerals, LLC v. Comm'r, T.C. Memo. 2024-93, the Tax Court held that a partnership made a qualified conservation contribution under Code Sec. 170(h) when it donated a conservation easement over land it held in rural Georgia that contained deposits of kaolin, a type of mineral which was abundant in the area. However, the court determined that the amount of the charitable contribution deduction was $93,690 and not $16,745,000, the amount claimed by the taxpayer, after finding that the market for kaolin was limited and thus mining was not the highest and best use of the easement property.
Taxpayer's Rental Real Estate Losses Disallowed: In Warren v. Comm'r, T.C. Summary 2024-20, the Tax Court held that a taxpayer who purchased and renovated a single family home to open an assisted living facility (i.e., group home) while also employed full-time by Lockheed Martin as an engineer, was not entitled to deduct rental real estate losses because he did not qualify as a real estate professional under Code Sec. 469(c)(2). The court found that the taxpayer did not qualify under Code Sec. 469(c)(7)(B) because he worked fewer hours at the group home than did at Lockheed; the court also found that the taxpayer did not qualify for the deduction of up to $25,000 of passive activity losses under Code Sec. 469(i) because his adjusted gross income exceeded $150,000.
Tax Court Allows Deduction for Estimated Amount of Gambling Losses: In Tolstov v. Comm'r, T.C. Summary 2024-19, the Tax Court held that a taxpayer who gambled compulsively and could not substantiate the exact amount of her gambling losses for the year at issue was entitled to deduct her gambling losses to the extent of her gambling gains. The court found, based on the taxpayer's frequent visits to the casino and the amount of "coin-in" in relation to her income from her jobs during the year at issue, that it was a virtual certainty that she placed many losing bets playing slot machines and the court was satisfied that the taxpayer undoubtedly incurred a loss at least equal to her winnings.
Employee Benefits
Final Regs Address Withholding on Retirement Plan Distributions to Non-U.S. Payees: In T.D. 10008, the IRS issued a final regulation regarding income tax withholding on certain periodic payments and nonperiodic distributions from employer deferred compensation plans, individual retirement plans, and commercial annuities that are not eligible rollover distributions. The regulation addresses a payor's obligation to withhold income taxes in the circumstances in which those payments or distributions are made to payees outside of the United States and affects payors and payees of those periodic payments and nonperiodic distributions.
Interim Guidance Provided on Correcting Inadvertent Benefit Overpayments: In Notice 2024-77, the IRS provides guidance in the form of questions and answers on Code Secs. 414(aa) and 402(c)(12), as added by the SECURE 2.0 Act of 2022 (Pub. L. 117-328). The notice provides guidance on the impact of Code Secs. 414(aa) and 402(c)(12) on the Employee Plans Compliance Resolution System (EPCRS), set forth in Rev. Proc. 2021-30, including the impact on correction of inadvertent benefit overpayments.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-76, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Provides Guidance to Long-Term, Part-Time Employees Under Sec. 403(b) Plans: In Notice 2024-73, the IRS provides guidance on discrete issues related to the application of the nondiscrimination rules of Code Sec. 403(b)(12), as amended by Section 125 of the SECURE 2.0 Act of 2022, with respect to long-term, part-time employees under a plan Code Sec. 403(b) retirement plan. The notice also (1) provides that the IRS anticipates issuing proposed regulations with respect to Code Sec. 403(b)(12)(D); (2) announces that the final regulations the IRS intends to issue relating to long-term, part-time employees under Code Sec. 401(k) plans will apply no earlier than 2026; and (3) requests comments on the content of Notice 2024-73.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-67, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Issues SIFL Rates for Second Half of 2024: In Rev. Rul. 2024-20, the IRS issued the standard industry fare level (SIFL) cents-per-mile rates and terminal charge in effect for the second half of 2024 for purposes of Reg. Sec. 1.61-21(g). The SIFL rates may be used in valuing noncommercial flights provided as an employee fringe benefit on employer-provided aircraft.
Estate Tax
Transfer Shortly Before Death Fails to Remove Assets from Gross Estate: In Estate of Fields v. Comm'r, T.C. Memo. 2024-90, the Tax Court held that the transfer of a decedent's assets to an LLC formed and managed by the decedent's grandnephew was not a bona fide sale and the decedent retained rights and interests in the assets up until her death; therefore, the date-of-death fair market value of the assets were included in the gross estate under Code Sec. 2036(a) and penalties applied for the underpayment of tax.
Exempt Organizations
IRS Grants Filing Exception for Reporting Corporate Alternative Minimum Tax for 2023: In IR-2024-277, the IRS granted a filing exception for tax-exempt organizations; they do not have to file Form 4626, Alternative Minimum Tax - Corporations, for tax year 2023. The IRS noted that comments on the proposed regulations issued in September (REG-112129-23) are due December 12, 2024, and to give taxpayers and the IRS time to consider the comments, including comments relating to reporting for tax-exempt entities, tax-exempt organizations are exempted from the obligation to file Form 4626 for tax year 2023.
IRS Provides Six-Month Extension to Make Elective Payment Elections on Form 990-T: In Rev. Proc. 2024-39, the IRS grants certain applicable entities under Code Sec. 6417(d)(1)(A) an automatic six-month extension to file a Form 990-T, Exempt Organization Business Income Tax Return, with any other relevant schedules (such as Form 3800, General Business Credit, and any relevant source credit forms) to make an elective payment election under Code Sec. 6417(d)(3) and Reg. Sec. 1.6417-2(b). Certain applicable entities that did not timely file an extension on Form 8868, Application for Extension of Time To File an Exempt Organization Return, will nevertheless be granted an automatic six-month extension to file a Form 880-T for purposes of making an elective payment election.
Financial Products
European Energy Exchange is a Qualified Board or Exchange: In Rev. Rul. 2024-23, the IRS ruled that the European Energy Exchange, which is a regulated exchange of Germany, is a qualified board or exchange within the meaning of Code Sec. 1256(g)(7)(C) as long as the European Energy Exchanger holds a valid Order of Registration under the Commodity Futures Trading Commission's foreign boards of trade registration system.
Bourse de Montreal Is a Qualified Board or Exchange: In Rev. Rul. 2024-22, the IRS ruled that Bourse de Montreal (MX) is a qualified board or exchange within the meaning of Code Sec. 1256(g)(7). MX is a regulated exchange of Quebec, Canada, that offers electronic trading.
Foreign
Final Regulations Provide Rules for Certain Repatriations of Intangible Property: In T.D. 9994, the IRS issued final regulations under Code Sec. 367(d) that terminate the continued application of certain tax provisions arising from a previous transfer of intangible property to a foreign corporation when the intangible property is repatriated to certain United States persons. The final regulations affect certain United States persons that previously transferred intangible property to a foreign corporation.
Chief Counsel's Office Addresses How Sec. 246(b) Limits Dividends Received Deductions: In AM 2024-002, the Office of Chief Counsel provides advice on how the taxable income limitation in Code Sec. 246(b) applies to limit the dividends received deductions under Code Secs. 243 and 245 and the deduction for global intangible low-taxed income and foreign-derived intangible income under Code Sec. 250. The Tax Cuts and Jobs Act included the new Code Sec. 250 deduction in the list of deductions limited by the rules of Code Sec. 246(b), and the memorandum addresses three scenarios that are affected by the first reference to Code Sec. 250 in Code Sec. 246(b)(1).
Non-Willful FBAR Penalty Survives Taxpayer's Death: In U.S. v. Hendler, 2024 PTC 333 (S.D. N.Y. 2024), a district court granted summary judgment for the government and rejected an estate's argument that the government could not assess penalties for failing to file Reports of Foreign Bank and Financial Accounts (FBARs) against a deceased taxpayer's estate. The court found that the government could pursue its claims against the taxpayer's estate because the FBAR penalty accrues on the date the FBAR form is due, not on the date of the assessment, and the liability survives the taxpayer's death because the claim for FBAR-related penalties is remedial and therefore is not extinguished upon the death of the taxpayer.
Gross Income
Proposed Regs Exempt Entities Wholly Owned by Tribal Governments From Income Tax: In REG-113628-21, the IRS issued proposed regulations regarding the federal tax classification of entities wholly owned by Indian Tribal governments. The proposed regulations provide that entities that are wholly owned by Tribes and organized or incorporated exclusively under the laws of the Tribes that own them (i.e., Tribal law entities) generally are not recognized as separate entities for federal tax purposes are not subject to federal income tax; the proposed regulations also clarify that Tribal law entities entirely owned by Tribes may receive the value of certain energy credits under the Inflation Reduction Act.
Procedure
Hunter Biden Scores Partial Victory for Unauthorized Disclosures of Return Info: In Biden v. U.S., 2024 PTC 356 (D. D.C. 2024), a district court denied the IRS's motion for summary judgment and held that the IRS can be held liable under Code Sec. 6103 for the unauthorized disclosure of Hunter Biden's confidential tax return information by attorneys working for two IRS agents who raised concerns about political interference in the investigation into Hunter Biden's tax compliance. However, the court dismissed Biden's claims for damages under the Privacy Act (5 U.S.C. Sec. 552a) as well as for declaratory and injunctive relief.
Substitute for Return is Disregarded for Purposes of Penalty for Failure to File: In CCA 202441013, the Office of Chief Counsel advised that a taxpayer who fails to file a return may be subject to a penalty under Code Sec. 6651(a)(1) for failure to file even if the IRS creates a substitute for return (SFR) under Code Sec. 6020. The Chief Counsel's Office explained that under Code Sec. 6651(g)(2), the SFR is treated as a return for purposes of determining the amount of the additions to tax for failure to pay tax but is disregarded for purposes of determining liability for the failure-to-file penalty.
First Circuit Upholds John Doe Summons Issued to Cryptocurrency Exchange: In Harper v. Werfel, 2024 PTC 346 (1st Cir. 2024), the First Circuit affirmed a district court and held that a customer of Coinbase, a cryptocurrency exchange, did not have a protectable interest under the Fourth or Fifth Amendment and therefore, his lawsuit challenging the validity of a John Doe summons the IRS issued to Coinbase seeking information about its customers was properly dismissed. The First Circuit also affirmed the dismissal of the taxpayer's claim that the summons violated the Administrative Procedure Act (APA) after finding that he failed to raise a challenge to final agency action as required to mount an APA claim.
Tax-Exempt Bonds
IRS Provides Procedures for Tax-Exempt Bond Issuers to Recover Certain Overpayments: In Rev. Proc. 2024-37, the IRS provides guidance to issuers of tax-exempt and other tax-advantaged bonds (as defined in Reg. Sec. 1.150-1(b)) regarding the procedures for filing claims for recovery of overpayments (as defined in Reg. Sec. 1.148-3(i)(1)) of amounts paid to the United States with respect to the rebate requirement under Code Sec. 148(f) for excess investment earnings, the penalty in lieu of rebate provisions under Code Sec. 148(f)(4)(C)(vii) and (viii), or the yield reduction payment provisions under Reg. Sec. 1.148-5(c). The procedure modifies Rev. Proc. 2008-37 and supersedes Rev. Proc. 2017-50.
September 2024
Accounting
IRS Releases September 2024 Applicable Federal Rates: In Rev. Rul. 2024-17, the IRS issued the applicable federal rates for September 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Retirement Accounts Were Not Exempt in Bankruptcy Due to Prohibited Transactions: In Langston v. Dallas Commodity Company, 2024 PTC 297 (N.D. Tex. 2024), a district court affirmed a bankruptcy court's order exempting a Chapter 7 debtor's Roth IRA and traditional Simplified Employee Pension IRA as exempt property under Texas law. The court found that the debtor engaged in prohibited transactions under Code Sec. 4975 by lending money between the plans and a disqualified person and by transferring plan assets to a disqualified person, and thus under Code Sec. 408(e)(2) forfeited his exemption to his IRA funds.
Credits
Proposed Regs Issued on Low-Income Communities Bonus Credits Under Sec. 48E: In REG-108920-24, the IRS issued proposed regulations concerning the program to allocate clean electricity low-income communities bonus credit amounts established under Code Sec. 48E(h) by the Inflation Reduction Act of 2022 for calendar years 2025 and succeeding years. Applicants investing in certain clean electricity generation facilities that produce electricity without combustion and gasification may apply for an allocation of environmental justice capacity limitation to increase the amount of the clean electricity investment credit for the tax year in which the facility is placed in service, and the proposed regulations provide definitions and requirements that would be applicable for the program.
Criminal
Sentencing Court in Tax Fraud Case Properly Considered Intended Harm: In U.S. v. Boler, 2024 PTC 296 (4th Cir. 2024), the Fourth Circuit affirmed a district court and held that the sentencing range under the United States Sentencing Guidelines for an individual who was convicted of submitting false tax returns and filing a fraudulent Paycheck Protection Program loan application could rely on the entire financial harm the individual intended to cause, even though she never received the funds from two tax returns denied by the IRS. The court found that the meaning of the term "loss" for purposes of calculating the applicable sentencing enhancement includes the pecuniary harm that the defendant purposely sought to inflict, including harm that would have been impossible or unlikely to occur.
Estate and Gift Taxes
IRS Revises Qualified Domestic Trust Regs to Update Outdated References: In REG-119683-22, the IRS issued proposed amendments to the regulations under Code Sec. 2056A that apply to estates of decedents passing property to or for the benefit of a noncitizen spouse in a domestic trust for which the executor has made an election to be a qualified domestic trust. The proposed regulations modify those regulations to update outdated references, information, and procedures.
Foreign
Proposed Regs Address Elections Relating to Foreign Currency Gains and Losses: In REG-111629-23, the IRS issued proposed regulations regarding the time for making and revoking certain elections relating to foreign currency gain or loss. The proposed regulations revise Reg. Sec. 1.954-2(g)(3)(ii) to provide that controlling U.S. shareholders make an election under Reg. Sec. 1.954-2(g) on behalf of a controlled foreign corporation (CFC) by filing a statement with their original income tax returns for the tax years of the controlling U.S. shareholders in which or with which the tax year of the CFC for which the election is made ends, clearly indicating that the election has been made.
Procedure
Interest Rates Remain the Same for the Fourth Quarter of 2024: In Rev. Rul. 2024-18, the IRS provides the fourth quarter interest rates for 2024, including the rates for underpayments and overpayments. The rates for interest determined under Code Sec. 6621 for the calendar quarter beginning October 1, 2024, are unchanged and will be 8 percent for overpayments (7 percent in the case of a corporation), 8 percent for underpayments, 10 percent for large corporate underpayments, and the rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 5.5 percent.
Court Dismisses Captive Insurer's Suit for Declaratory and Injunctive Relief: In Standard Insurances v. IRS, 2024 PTC 295 (D. Utah 2024), a district court dismissed an action for declaratory and injunctive relief brought by the owners of a purported captive insurance company seeking (1) a declaratory judgment declaring Notice 2016-66 (which designated certain micro-captive transactions as transactions of interest) unlawful and declaring the purported captive insurer as a legitimate captive insurance company. The court found that the relief sought by the taxpayers was either barred by the Anti-Injunction Act or moot in light of IRS Announcement 2023-11, in which the IRS stated that it would not enforce the disclosure requirements or penalties that are dependent upon the procedural validity of Notice 2016-66.
Tax Court Grants Taxpayers' Motion to Remand Collections Case to Appeals: In Keith v. Comm'r, T.C. Memo. 2024-81, the Tax Court granted a taxpayers' motion to remand their collection due process case to the IRS Independent Office of Appeals for reconsideration of their proposed installment agreement. The court found that the determination by the IRS Settlement Officer (SO) of the taxpayers' ability to pay was flawed because the SO incorrectly included a one-time real estate commission check and a loan from the taxpayers' son in their monthly income; the court also found that the taxpayers should have provided the documents requested by the SO relevant to their personal and financial circumstances.
August 2024
Accounting
IRS Releases August 2024 Applicable Federal Rates: In Rev. Rul. 2024-15, the IRS issued the applicable federal rates for August 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), Code Sec. 382(f), Code Sec. 642(c)(5). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Tax Court Improperly Sustained Levy on Taxpayer in Bankruptcy: In Portnoy v. Comm'r, 2024 PTC 280 (3d Cir. 2024), the Third Circuit vacated and remanded an order of the Tax Court granting summary judgment for the IRS and sustaining a levy and liens against a taxpayer. The court found that the IRS's motion for summary judgment was filed during an automatic stay of the Tax Court proceedings triggered by the taxpayer's contemporaneous bankruptcy proceedings and was therefore void.
Earned Income and Child Tax Credits Are Not Exempt in Bankruptcy: In In re Quevedo, 2024 PTC 284 (Bankr. M.D. N.C. 2024), a bankruptcy court sustained a trustee's objection to a claim of exemption by Chapter 7 debtors over their state and federal tax refunds resulting from earned income and child tax credits. The court rejected the debtors' argument that the credits fell under a state-law exemption for "support" payments after finding that the support payments referenced in the state statute are connected to family-related legal duties or obligations and domestic agreements.
Bankruptcy Court Orders Setoff of Employee Retention Credits: In In re Global Aviation Technologies LLC, 2024 PTC 259 (Bankr. D. Kan. 2024), a bankruptcy court ordered the setoff of employee retention credits (ERC) owed to a debtor in a Chapter 7 bankruptcy against the debt owed by the debtor to the Small Business Administration arising from a pre-petition economic injury disaster loan. The court found that under Code Sec. 6402(d)(1), the IRS is required to reduce the amount of any overpayment resulting from the ERC by a past-due legally enforceable debt owing to any federal agency.
Corporations
Proposed Regs Address Dual Consolidated Losses and Certain Disregarded Payments: In REG-105128-23, the IRS issued proposed regulations that address certain issues arising under the dual consolidated loss rules in Code Sec. 1503(d), including the effect of intercompany transactions and items arising from stock ownership in calculating a dual consolidated loss. The proposed regulations also address the application of the dual consolidated loss rules to certain foreign taxes that are intended to ensure that multinational enterprises pay a minimum level of tax and rules regarding certain disregarded payments that give rise to losses for foreign tax purposes.
Credits
IRS Begins Processing Some Employee Retention Credit Claims: In IR-2024-203, the IRS announced that it will start processing claims for the employee retention credit (ERC) filed between September 14, 2023, and January 31, 2024, after previously announcing a moratorium on ERC claims filed after September 14, 2023. In addition, the IRS stated that in recent weeks it has sent out 28,100 disallowance letters to businesses whose claims showed a high risk of being incorrect and has identified 50,000 valid ERC claims which it is moving into the pipeline for payment processing in coming weeks.
Court Upholds Moratorium on Employee Retention Credit: In Stenson Tamaddon, LLC v. IRS, 2024 PTC 269 (D. Ariz. 2024),, a district court dismissed an action for injunctive and declaratory relief brought by a tax advisory firm on the grounds that the IRS improperly instituted a moratorium on processing claims for the employee retention credit. The court found that the firm raised serious questions regarding the IRS's authority to impose the moratorium but those questions did not warrant preliminary injunctive relief outside a stronger showing on the balance of equities and public interest.
IRS Issues Procedures for Claiming Carbon Oxide Sequestration Credit: In Notice 2024-60, the IRS describes the information that must be included in a written report described in Reg. Sec. 1.45Q-4(c)(2) and provides the procedures a taxpayer must follow to submit the lifecycle analysis report and required supporting information to the IRS and the Department of Energy before any credit for carbon oxide sequestration under Code Sec. 45Q(a)(2)(B)(ii) or (a)(4)(B)(ii) is determined for qualified carbon oxide utilized by the taxpayer in the manner described in Code Sec. 45Q(f)(5). The IRS must approve the taxpayer's lifecycle analysis before the taxpayer may claim any Code Sec. 45Q utilization credit determined with respect to a taxpayer on any federal income tax return for a tax year beginning on or after January 13, 2021.
IRS Provides Five New Warning Signs of Incorrect Employee Retention Credit Claims: In IR-2024-198, the IRS shared five new warnings signs being seen on incorrect claims by businesses for the employee retention credit. The new red flags cover the following areas: (1) essential businesses during the pandemic that could fully operate and did not have a decline in gross receipts; (2) businesses unable to support how a government order fully or partially suspended business operations; (3) businesses reporting family members' wages as qualified wages; (4) businesses using wages already used for Paycheck Protection Program loan forgiveness; and (5) large employers claiming wages for employees who provided services.
Criminal
Court Rejects "Literal Truth" Defense as Basis for Overturning Tax Fraud Conviction: In U.S. v. Kuhn, 2024 PTC 276 (W.D. N.C. 2024), a district court declined to set aside three individuals' convictions in connection with their involvement in a scheme to defraud the United States by promoting, marking and selling an unlawful tax scheme known as the "Gain Elimination Plan," which they used to reduce their clients' taxable income by fraudulently inflating business expenses through fictitious royalties and management fees. The individuals asserted that their guilty verdicts should be reversed under a "literal truth" defense, i.e., that because the numbers on the tax forms themselves added up to the total income listed, the returns were "literally true;" the court said their assertion that 1+2=3 is "literally true" held no water when the evidence proved that "1" and "2" were the result of fabricated deductions and fees.
Employee Benefits
Guidance Provided for Pension Plan Sponsors to Use Plan-Specific Mortality Tables: In T.D. 10005, the IRS issued final regulations that update the requirements that a plan sponsor of a single-employer defined benefit plan must meet to obtain IRS approval to use mortality tables specific to the plan in calculating present value for minimum funding purposes (as a substitute for the generally applicable mortality tables). In addition, in Rev. Proc. 2024-32, the IRS updates Rev. Proc. 2017-55 to set forth the procedure by which the sponsor of a defined benefit plan subject to the funding requirements of Code Sec. 430 may request approval from the IRS for the use of plan-specific substitute mortality tables in accordance with Code Sec. 430(h)(3)(C) and Reg. Sec. 1.430(h)(3)-2.
Employment Taxes
Member of Indian Tribe Is Not Exempt from Self-Employment Tax: In Bibeau v. Comm'r, 2024 PTC 257 (8th Cir. 2024), the Eighth Circuit affirmed the Tax Court and held that an enrolled member of the Minnesota Chippewa Tribe is not exempt from federal taxation on his self-employment income. The court found that no law or treaty expressly or implicitly exempts the member's income from taxation.
Foreign
Failure to File FBARs by Taxpayer Who Filed Reports in Prior Years Was Willful: In U.S. v. Rund, 2024 PTC 278 (E.D. Va. 2024), a district court granted summary judgment for the government and held that an individual willfully failed to file Reports of Foreign Bank and Financial Accounts (FBARs) for numerous foreign accounts. The court found that the individual knew of the reporting requirements for foreign bank accounts since he had filed FBARs for previous years and rejected his contention that he thought he lacked signature authority over the accounts because he could have found out for certain with minimal effort, and his failure to do so was at the very least reckless.
Information Reporting
IRS Issues New Draft of Form 1099-DA, Digital Asset Proceeds from Broker Transactions: In IR-2024-204, the IRS announced that it has posted an early draft of the updated Form 1099-DA, which is the form for brokers to report certain sale and exchange transactions of digital assets that take place beginning in calendar year 2025. The new draft of Form 1099-DA reflects the final regulations issued in T.D. 10000 and includes the transitional relief described in Notice 2024-56, Notice 2024-57, and Rev. Proc. 2024-28.
Penalties
Court Dismisses Appraiser's Suit to Prevent the IRS from Imposing Penalties: In Summerour v. IRS, 2024 PTC 255 (D. D.C. 2024), a district court dismissed a lawsuit brought by a licensed real estate appraiser challenging penalties assessed under Code Sec. 6695A for gross overvaluations in appraisal reports he prepared for third parties to claim conservation easement contribution deductions. The court concluded that the appraiser's suit sought to enjoin the payment of a tax and was thus barred by the Anti-Injunction Act.
Procedure
District Court Properly Dismissed Petition to Quash Third Party Summonses: In Harrison v. Comm'r, 2024 PTC 268 (5th Cir. 2024), the Fifth Circuit affirmed a district court's dismissal of a taxpayer's action to quash third-party summonses issued by the IRS seeking documents related to the taxpayer's corporate entity alter ego. The Fifth Circuit found that the taxpayer lacked standing to challenge the summonses under the notice exception in Code Sec. 7609(c)(2)(D)(i).
July 2024
Accounting
IRS Releases July 2024 Applicable Federal Rates: In Rev. Rul. 2024-13, the IRS issued the applicable federal rates for July 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), Code Sec. 382(f), Code Sec. 642(c)(5). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
Canadian Retirement Plan Is Not Exempt in Bankruptcy: In Green v. Leibowitz, 2024 PTC 256 (7th Cir. 2024), the Seventh Circuit held that a registered retirement savings plan organized under Canadian law did not qualify for a bankruptcy exemption under an Illinois statute exempting accounts "intended in good faith to qualify as a retirement plan under applicable provisions of the Internal Revenue Code." The Seventh Circuit found that, even though the plan qualified for the deduction for contributions to a qualified foreign plan under Code Sec. 404A, it was not a tax-qualified retirement plan under the Code.
Corporations
Final Regs Provide Guidance on Reporting and Payment of Stock Repurchase Excise Tax: In T.D. 10002, the IRS issued final regulations that provide guidance regarding the reporting and payment of the Code Sec. 4501 excise tax on repurchases of corporate stock made after December 31, 2022. The regulations affect certain publicly traded corporations that repurchase their stock or whose stock is acquired by certain specified affiliates.
Credits
IRS Provides Inflation Adjustment Factor for Renewable Electricity Production Credit: In 89 FR 56924, the IRS provides the 2024 inflation adjustment factors and reference price used for determining the availability of the credit for renewable electricity production under Code Sec. 45. The 2024 inflation adjustment factor and reference price apply to calendar year 2024 sales of kilowatt hours of electricity produced in the United States or a possession thereof from qualified energy resources.
IRS FAQs Address Registration Requirement for Clean Fuel Production Credit: In FS-2024-25, the IRS provided answers to frequently asked questions (FAQs) related to the registration procedures for the clean fuel production credit under Code Sec. 45Z. The FAQs address which entity must apply for registration pursuant to Notice 2024-49, including if the entity producing the clean fuel is a disregarded entity and how claim procedures will work when the registrant is a disregarded entity.
Proposed Regs Address Recapture of Interest on Excess COVID-19 Tax Credits: In REG-109032-23, the IRS issued proposed regulations providing that the IRS will assess as an underpayment of tax any overpayment interest paid under Code Sec. 6611 to a taxpayer on an erroneous refund of the employment tax credits provided under the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security Act, and the American Rescue Plan Act of 2021 (COVID-19 credits). The proposed regulations apply to all interest amounts paid under Code Sec. 6611 on or after the date of publication in the Federal Register for any erroneous refund of the COVID-19 credits.
IRS Publishes Inflation Adjustment Factors for Clean Hydrogen Credit: In Notice 2024-45, the IRS published the inflation adjustment factors for the credit for production of clean hydrogen under Code Sec. 45V and the corresponding amounts for calendar years 2023 and 2024. The inflation adjustment factor and applicable amount are used to determine the amount of the credit allowable under Code Sec. 45V.
IRS Publishes Reference Price for Nonconventional Source Production Credit: In Notice 2024-51, the IRS published the reference price for the nonconventional source production credit under Code Sec. 45K for calendar year 2023. Code Sec. 45K(d)(2)(A) generally provides that the Treasury Department shall determine and publish the inflation adjustment factor and the reference price for the preceding calendar year for purposes of the nonconventional source production credit under Code Sec. 45K.
IRS Releases Revised Draft Form 6765, Credit for Increasing Research Activities: In IR-2024-171, the IRS announced the release of draft Form 6765, Credit for Increasing Research Activities, which is used to figure and claim the research credit under Code Sec. 41. The changes to the form include optional reporting for certain qualified small business taxpayers of Section G (previously labeled Section F) which requests the Business Component Detail, and a reduced number of business components that must be reported on Section G; the IRS also notes that revised Section G will be option for all filers for tax year 2024 (processing year 2025) to allow time to transition to the Section G format.
Deductions
Tax Court Rejects Easement Deduction Based on "Lost Development Rights: " In Corning Place Ohio, LLC v. Comm'r, T.C. Memo. 2024-72, the Tax Court sustained the disallowance of a charitable contribution deduction claimed by a partnership that renovated a historic office building the building into luxury apartments, then granted a conservation easement over the property. The partnership claimed the deduction on the theory that it had relinquished the rights to add a 34-story vertical addition on top of the historic building, but the court found that the 34-story addition was a "chimerical concept ginned up solely to support a wildly inflated appraisal" and imposed a 40 percent penalty for a gross valuation misstatement.
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-59, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Excise Taxes
Seat Selection and Online Booking Fees Are Subject to Air Transportation Excise Tax: In PMTA 2024-04, the Office of Chief Counsel advised that additional fees paid by airline passengers for seat selection or online booking are amounts paid for taxable transportation and are therefore subject to the air transportation excise tax under Code Sec. 4261(a). The Chief Counsel's Office found that the definition of "transportation" in Code Sec. 4262(d) includes elements of the transportation of persons by air such as selecting a seat on a flight and purchasing a ticket.
IRS Reminds Taxpayers That Code Sec. 280E Still Applies to Marijuana Businesses: In IR-2024-177, the IRS stated that until a final federal rule is published, marijuana remains a Schedule I controlled substance and Code Sec. 280E, which disallows all deductions or credits for amounts incurred in carrying on a trade or business of illegally trafficking in a Schedule I or II controlled substance, still applies. The IRS noted that although the law has not changed, and Code Sec. 280E applies to businesses that sell marijuana - even if they operated legally under state law - some taxpayers are filing amended returns seeks refunds; the IRS said that these claims are not valid and that it is taking steps to address these claims.
Foreign
IRS Issues Final Regs on Triangular Reorgs and Inbound Nonrecognition Transactions: In T.D. 10004, the IRS issued final regulations regarding the treatment of property used to acquire parent stock or securities in connection with certain triangular reorganizations involving one or more foreign corporations; the consequences to persons that receive parent stock or securities pursuant to such reorganizations; and the treatment of certain subsequent inbound nonrecognition transactions following such reorganizations and certain other transactions. The final regulations affect corporations engaged in certain triangular reorganizations involving one or more foreign corporations, certain shareholders of foreign corporations acquired in such reorganizations, and foreign corporations that participate in certain inbound nonrecognition transactions.
IRS Announces Suspension of U.S.-Russia Tax Treaty: In Announcement 2024-26, the IRS announced that the United States provided formal notice to the Russian Federation on June 17, 2024, to confirm the suspension of the operation of paragraph 4 of Article 1 and Articles 5-21 and 23 of the Convention between the United States of America and the Russian Federation for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed at Washington on June 17, 1992 (Convention), as well as the operation of its accompanying Protocol, by mutual agreement. The announcement states that the suspension will take effect both for taxes withheld at source and in respect of other taxes on August 16, 2024, and will continue until otherwise decided by the two governments.
Procedure
Proposed Regs Identify Basket Contracts as Listed Transactions: In REG-102161-23, the IRS issued proposed regulations that identify transactions that are the same as, or substantially similar to, certain basket contract transactions as listed transactions, a type of reportable transaction. The IRS stated that taxpayers may be using basket contracts to inappropriately defer income recognition or convert ordinary income or short-term capital gain into long-term capital gain.
Certain Redacted Portions of Internal Revenue Manual Are Exempt from FOIA: In Fogg v. IRS, 2024 PTC 243 (3d Cir. 2024), the Third Circuit affirmed a district court and held that the IRS was not required to disclose certain redacted contents of the Internal Revenue Manual (IRM) relating to authentication of third-party requests for taxpayer information. The court found that the redacted portions of the IRM are exempt from disclosure because they are techniques and procedures for law enforcement investments and their disclosure could reasonably be expected to risk circumvention of the law.
Proposed Regs Allow IRS to Directly Accept Payments by Credit Card: In REG-120137-19, the IRS issued proposed amendments to regulations regarding the payment of tax by commercially acceptable means. The proposed amendments reflect changes to the law made by the Taxpayer First Act that allow the IRS to directly accept payments of tax by credit or debit card, without having to connect taxpayers to third-party payment processors.
Certain Participants in Syndicated Conservations Easements To Receive Settlement Offers: In IR-2024-174, the IRS announced the mailing of a time-limited settlement offer for certain taxpayers who participated in Syndicated Conservation Easements and substantially similar transactions that are under audit in the IRS's Large Business & International and Small Business and Self-Employed divisions. The IRS noted that it will notify eligible taxpayers by letter with the applicable terms and timelines to respond, and taxpayers who do not receive a letter are not eligible for this resolution.
Court Dismisses Employee's Lawsuit Against Employer for Complying With IRS Levy: In Thomas v. Pilgrim Pride Corporation, 2024 PTC 227 (11th Cir. 2024), the Eleventh Circuit affirmed the dismissal of a lawsuit brought by an individual seeking damages against his employer for its compliance, through the levying of payroll funds, with an IRS lien for back taxes. The Eleventh Circuit found that under Code Sec. 6332(e), the employer was exempt from liability for honoring the levy even if the levy was in some way defective.
CFO's Whistleblower Retaliation Claim Survives Summary Judgment: In Branson v. Jackson Municipal Airport Authority, et al., 2024 PTC 231 (S.D. Miss. 2024), a district court denied summary judgment to the former employer of an individual who filed a lawsuit under Code Sec. 7623(d) claiming she was fired for insisting that members of the board fill out Forms W-9 for their per diem payments and for issuing Forms 1099 for the payments. The court denied the employer's motion after finding there was ample evidence that the individual was fired for reporting the income to the IRS, including the close proximity of time between her reporting the income and her termination.
Tax Accounting
Automatic Consent Procedure Provided for Allowance Charge-off Method: In Rev. Proc. 2024-30, the IRS modified Rev. Proc. 2024-23 to provide procedures under Code Sec. 446 and Reg. Sec. 1.446-1(e) for regulated financial companies and members of regulated financial groups to obtain automatic consent to change methods of accounting to the Allowance Charge-off Method described in Prop. Reg. Sec. 1.166-2, issued in REG-121010-17. The procedure was issued in response to requests for guidance on how taxpayers may change to the Allowance Charge-off Method for tax years ending on or after December 28, 2023.
Tax Return Preparers
Taxpayers' Nondelegable Duty to File Does Not Foreclose Recourse Against Tax Preparer: In Gagliardi v. Prager Metis CPAs LLC, 2024 PTC 240 (S.D. N.Y. 2024), a district court rejected a CPA firm's motion to dismiss an action brought by taxpayers for allegedly failing to file multiple years of their tax returns, resulting in the taxpayers incurring over half a million dollars in fees and penalties. The court found that the taxpayers' nondelegable duty to the government file returns did not preclude their claim for malpractice against their accountants.
June 2024
Accounting
IRS Releases June 2024 Applicable Federal Rates: In Rev. Rul. 2024-12, the IRS issued the applicable federal rates for June 2024 for purposes of Code Sec. 1274(d), Code Sec. 1288(b), and Code Sec. 382(f). The ruling also contains the appropriate percentages for determining the low-income housing credit described in Code Sec. 42(b)(1) and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of Code Sec. 7520.
Bankruptcy
IRS Can Pursue Unsecured Claims Based on an Alter Ego Theory: In In re Tampa Hyde Park CafProperties, LLC, 2024 PTC 200 (Bankr. M.D. Fla. 2024), a bankruptcy court rejected a Chapter 7 debtor's objection to an unsecured claim filed by the IRS for unpaid taxes owed by the debtor's alleged alter ego. The court held that the IRS is authorized to initiate civil actions against non-taxpayers to collect taxes owed by a non-taxpayer's alter ego and further held that, because the IRS's alter ego claim alleged an injury to the IRS, not the debtor, the claim was not property of the bankruptcy estate and could not have been released by the Chapter 7 trustee.
Corporations
IRS Extends Waiver of Addition to Tax for Underpayments of Corporate AMT: In Notice 2024-47, the IRS extends the relief provided in Notice 2024-33, which waived the estimated tax penalty imposed under Code Sec. 6655 (for a corporation's failure to pay estimated income tax) to the extent attributable to the revised corporate alternative minimum tax (CAMT) under Code Sec. 55, but only with respect to an installment of estimated tax due on April 15, 2024, or May 15, 2024, with respect to a tax year that began in 2024. The relief provided in Notice 2024-33 is extended to any installment of estimated tax by a corporate taxpayer with respect to a tax year that began in 2024 that is due on or before August 15, 2024, to the extent attributable to the CAMT.
Credits
IRS Provides Statistical Area Category and Coal Closure Category Updates: In Notice 2024-48, the IRS provides lists of information that taxpayers may use to determine whether they meet certain requirements under the Statistical Area Category or the Coal Closure Category as described in Sections 3.03 and 3.04 of Notice 2023-29 for purposes of qualifying for energy community bonus credit amounts or rates under Code Secs. 45, 45Y, 48, and Code Sec. 48E. The notice does not include information that pertains to the Brownfield Category as described in Section 3.02 of Notice 2023-29.
Procedures for Manufacturers to Submit Info Regarding New Clean Vehicles Updated: In Rev. Proc. 2024-26, the IRS issued a procedure that updates existing procedures and provides additional procedures for qualified manufacturers to submit information regarding new clean vehicles to ensure the vehicles satisfy the requirements of Code Sec. 30D(d) and (e) for the applicable calendar year and therefore are eligible for the clean vehicle credit under Code Sec. 30D. The procedure also updates existing procedures regarding seller report updates and recissions and modifies Section 7.03(4) of Rev. Proc. 2023-33 and Sections 5.04 and 5.06 of Rev. Proc. 2023-38.
Registration Requirements for Clean Fuel Production Credit Provided: In Notice 2024-49, the IRS provides guidance on the registration requirements for the clean fuel production credit determined under Code Sec. 45Z. A taxpayer must have a signed registration letter from the IRS dated on or before January 1, 2025, for the taxpayer to be eligible to claim the Code Sec. 45Z credit for production starting January 1, 2025.
Additional Guidance on Domestic Content Bonus Credit Amounts Issued: In Notice 2024-41, the IRS modifies the existing safe harbor provided in Notice 2023-38 on which taxpayers may rely to qualify for the domestic content bonus credit amounts under Code Secs. 45, 45Y, 48, and Code Sec. 48E for certain qualified facilities or energy projects. The notice also provides a new safe harbor that allows taxpayers to elect to use the classifications of components and cost percentages (in lieu of direct costs of the manufacturer as provided in Notice 2023-38) to determine if the adjusted percentage rule is satisfied.
IRS Provides Unallocated Solar and Wind Capacity Limitation Amount: In Announcement 2024-25, the IRS provides the total amount of unallocated environmental justice solar and wind capacity limitation for the low-income communities bonus credit program under Code Sec. 48(e) and Reg. Sec. 1.48(e)-1 that has been carried over from the 2023 program year to the 2024 program year. Additionally, the announcement sets forth the distribution of the carried over capacity limitation among the facility categories, category 1 sub-reservations, and application options for the 2024 program year.
Criminal
Court Cannot Order Immediate Restitution for Filing False Returns: In U.S. v. Lavigne, 2024 PTC 168 (E.D. Mich. 2024), a district court held that the government was not entitled to immediately enforce a restitution order in a criminal judgment against an individual for filing false income tax returns in violation of Code Sec. 7206(1), but instead must wait until the individual is released from prison and begins his term of supervised release. The court found that federal courts are authorized to order restitution as a condition of supervised release for any criminal offense, including tax crimes, but immediate restitution is not allowed because the Mandatory Victim Restitution Act does not authorize restitution as an independent part of the sentence for tax offenses.
Excise Tax Assessment Was Not Grounds for Expungement of Illegal Gambling Conviction: In U.S. v. Groppo, 2024 PTC 179 (9th Cir. 2024), a panel of the Ninth Circuit affirmed a district court's denial of an individual's motion to expunge his conviction for aiding and abetting the transmission of wagering information for his role as a "sub-bookie" in an unlawful international sports gambling enterprise. The individual argued that the IRS's assessment, in reliance on his criminal proceedings, of a potential tax liability of over $100,000 in excise tax and penalties was highly disproportionate to the amount he agreed to forfeit in his plea deal, but the panel found that a district court is powerless to expunge a valid arrest and conviction solely for equitable considerations, including alleged misconduct by the IRS.
Deductions
Judge Cannot Deduct Expenses Under Fee-Based Public Official Exception: In Banuelos v. Comm'r. T.C. Summary 2024-7, the Tax Court held that a taxpayer was not entitled to deduct unreimbursed employee business expenses related to his employment as an administrative law judge under the exception for fee basis public officials in Code Sec. 62(a)(2)(C). The court found that the taxpayer did not receive fees directly from the public in exchange for services rendered.
2025 Inflation Adjustments Issued for HSAs and Excepted-Benefit HRAs: In Rev. Proc. 2024-25, the IRS issued the 2025 inflation adjusted amounts for health savings accounts (HSAs) as determined under Code Sec. 223 and the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements (HRAs) under Reg. Sec. 54.9831-1(c)(3)(viii). For calendar year 2025, (1) the annual limitation on deductions under Code Sec. 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $4,300; (2) the annual limitation on deductions under Code Sec. 223(b)(2)(B) for an individual with family coverage under a high deductible health plan is $8,550; (3) a "high deductible health plan" is defined under Code Sec. 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,650 for self-only coverage or $3,300 for family coverage, and for which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $8,300 for self-only coverage or $16,600 for family coverage; and (4) the maximum amount that may be made newly available for the plan year for an excepted benefit HRAs is $2,150.
IRS Provides Reference Standard for Energy Efficient Commercial Building Property: In Announcement 2024-24, the IRS notifies taxpayers of the applicable Reference Standard 90.1 required under Code Sec. 179D(c)(2) as part of the definition of energy efficient commercial building property (EECBP). This announcement supplements and supersedes Announcement 2023-1 by affirming ASHRAE/IES Reference Standard 90.1-2022 as the applicable Reference Standard 90.1 for EECBP placed in service after December 31, 2028, and the construction of which did not begin by December 31, 2022.
Employee Benefits
IRS Issues Questions and Answers on Educational Assistance Programs: In FS-2024-22, the IRS provides answers to frequently asked questions (FAQs) related to educational programs under Code Sec. 127. Taxpayers may exclude up to $5,250 in educational assistance benefits from gross income if they are provided under a Code Sec. 127 educational assistance program, and amounts paid under such a program are generally deductible by the employer as a business expense under Code Sec. 162.
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-53, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-40, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Foreign
Reporting Requirements for Qualified Derivative Payments Postponed to 2027: In Notice 2024-43, the IRS announces that it intends to amend the regulations under Code Secs. 59A and 6038A to defer the applicability date of certain provisions of the regulations relating to the reporting of qualified derivative payments until tax years beginning on or after January 1, 2027. Taxpayers may rely on the provisions in Notice 2024-43 before the issuance of the amendments to the final regulations.
IRS Further Extends Phase-In Period for Complying with Final Section 871(m) Regs: In Notice 2024-44, the IRS issued additional guidance for complying with the final regulations on dividend equivalents under Code Secs. 871(m), 1441, 1461, and Code Sec. 1473 in 2025, 2026, and 2027. Specifically, the guidance extends for two years the period during which the enforcement standards provided by Notice 2022-37 will apply.
Court Has No Discretion to Reduce FBAR Late Payment Penalty: In U.S. v. Reyes, 2024 PTC 173 (E.D. N.Y. 2024), a district court rejected a taxpayers' request that the court apply a lower penalty rate than the six-percent late-payment penalty rate the taxpayers owed under 31 U.S.C. Sec. 3717(e)(2) due to their failure to timely file a Report of Foreign Bank and Financial Accounts (FBAR). The court found that the late-payment penalty applies to unpaid FBAR penalties and that courts have no ability to reduce the amount of the late-payment penalty to a rate lower than the six-percent rate prescribed by the statute and regulations.
Payments to Foreign Captive Insurer Are Subject to 30 Percent Tax on FDAP Income: In CCA 202422010, the Office of Chief Counsel advised that, in an abusive micro-captive arrangement involving a foreign entity (Captive), a revenue agent may propose an adjustment to include purported interest payments made by a domestic entity (Insured) to the Captive as U.S.-source fixed, determinable, annual or periodical (FDAP) income subject to the 30-percent gross tax under Code Sec. 881. The Chief Counsel's Office added that the proposed FDAP adjustment to the Captive may be made even if a denial of the Insured's claimed deduction for the same payments has been asserted.
Innocent Spouse Relief
Husband Denied Relief Due to Involvement in Wife's Stock Options Transaction: In Strom v. Comm'r, T.C. Memo. 2024-58, the Tax Court held that a taxpayer was not entitled to innocent spouse relief under Code Sec. 6015(b) or (f) with respect to a $39 million deficiency resulting from unreported income arising from his wife's exercise of stock options. The court found that not only was the taxpayer aware of the option exercises but was involved in them; the court found that he participated alongside his wife in meetings with lawyers and tax consultants to develop tax-favorable positions and approved the reporting positions on the couple tax return with respect to the income attributable to those exercises.
Penalties
ESOP Expert Liable for Fraud Penalties for Misappropriated Pension Plan Funds: In Smiley v. Comm'r, T.C. Memo. 2024-66, the Tax Court held that an attorney, who held himself out as a leading expert on employee stock option plans (ESOPs) and who devised a method for extracting excess assets from an overfunded pension plan through a merger of the overfunded plan with another pension plan sponsored by a tax-exempt entity, was liable for a fraud penalty under Code Sec. 6663(a). The court found that the attorney failed to report millions of dollars of misappropriated pension plan funds and attempted to evade tax by hiding the income in a maze of financing arrangements, misleading documents, wire transfers among multiple bank accounts, and stock transactions lacking economic substance.
Procedure
IRS Makes Direct File Permanent and Extends It to All 50 States: In IR-2024-151, the IRS announced that it will make Direct File a permanent option for filing federal tax returns starting in the 2025 tax season. The IRS added that for the 2025 filing season, it will work with all states that want to partner with Direct File, and there will be no limit to the number of states that can participate in the coming year.
Interest Rates for Tax Overpayments and Underpayments Unchanged for Q3 2024: In Rev. Rul. 2024-11, the IRS issued the rates for interest on tax overpayments and underpayments for the third quarter of 2024. The rates determined under Code Sec. 6621 for the calendar quarter beginning July 1, 2024, are unchanged from the first quarter and will be 8 percent for overpayments (7 percent in the case of a corporation), 8 percent for underpayments, 10 percent for large corporate underpayments, and 5.5 percent on the portion of a corporate overpayment exceeding $10,000.
Tax Accounting
Retirement Community's Accounting Method for Deferred Entrance Fees Upheld: In Continuing Life Communities Thousand Oaks, LLC v. Comm'r, 2024 PTC 167 (9th Cir. 2024), the Ninth Circuit affirmed the Tax Court's grant of summary judgment in favor of a continuing care community after finding that its accounting method for deferred entrance fees satisfied the all-events test under Reg. Sec. 1.451-1(a) and therefore clearly reflected income. The Ninth Circuit agreed with the Tax Court that the taxpayer's right to receive any deferred entrance fee from a resident became fixed only once the taxpayer fulfilled its obligation to provide lifetime care to that resident and thus, the provision of lifetime care was a condition precedent, not a condition subsequent, to its right to receive any deferred entrance fee.
Tax Exempt Organizations
IRS Obsoletes Rev. Proc. 82-2 Due to Material Changes in State Laws: In Rev. Proc. 2044-22, the IRS obsoletes Rev. Proc. 82-2, which identified state laws and circumstances that the IRS previously concluded would permit an organization to satisfy Reg. Sec. 1.501(c)(3)-1(b)(4). The IRS stated that many of the state laws identified in Rev. Proc. 82-2 have materially changed, and a procedure cannot be relied upon to the extent it is predicated on state law and that state law has materially changed.
IRS Obsoletes Rev. Rul. 75-38 Due to Material Changes in State Laws: In Rev. Rul. 2024-10, the IRS obsoletes Rev. Rul. 75-38, which identified the state laws and circumstances that the IRS previously concluded would permit an organization to satisfy the private foundation governing instrument requirements of Code Sec. 508(e). The IRS stated that a number of the state laws identified in Rev. Rul. 75-38 have materially changed, and a revenue ruling cannot be relied upon to the extent it is predicated on state law and that state law has materially changed.
Tax Return Preparers
Final Regs Reduce PTIN User Fee From $21 to $11: In T.D. 9997, the IRS issued final regulations relating to the imposition of certain user fees on tax return preparers. The final regulations adopt without change the text of interim final and proposed regulations issued in T.D. 9980 and REG-106203-23 that reduced the user fee to apply for or renew a preparer tax identification number (PTIN) from $21 to $11 (plus the fee payable directly to a third-party contractor).
May 2024
Accounting
IRS Issues May 2024 Applicable Federal Rates: In Rev. Rul. 2024-9, the IRS provides various prescribed rates for federal income tax purposes for May 2024, including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by Code Sec. 1274.
Bankruptcy
Fourth Circuit Affirms Bankruptcy Court's Ruling That Debtor's Home Was Not Exempt: In Morgan v. Bruton, 2024 PTC 122 (4th Cir. 2024), the Fourth Circuit held that property owned as a tenancy by the entirety may not be exempted from an individual debtor's bankruptcy estate under 11 U.S.C. Sec. 522(b)(3)(B) to the extent of the debtor's tax debt to the IRS. The court found that, because a federal tax lien can attach to one spouse's interest in an entireties property, even when the tax debt is not jointly owed, the property is not "exempt from process" under federal nonbankruptcy law if the IRS has the right to obtain such a lien.
Corporations
Limited Waiver of Addition to Tax Provided for Underpayments of Corporate AMT: In Notice 2024-33, the IRS provides a limited waiver of the addition to tax under Code Sec. 6655 for underpayment of estimated income tax by a corporation to the extent the amount of any underpayment is attributable to a portion of a corporation's corporate alternative minimum tax (CAMT) liability under Code Sec. 55, as amended by the Inflation Reduction Act of 2022. The waiver applies to the installment of estimated tax that is due on or before April 15, 2024, or on or before May 15, 2024 (in the case of a fiscal year taxpayer with a tax year beginning in February 2024).
Credits
IRS Updates FAQs on Clean Vehicle Credits: In FS-2024-14, the IRS issued updated answers to frequently asked questions (FAQs) related to the new clean vehicle credit under Code Sec. 30D, the previously-owned clean vehicle credit under Code Sec. 25E, and the qualified commercial clean vehicles credit under Code Sec. 45W. Among other updates, the FAQs state that in order to claim the new clean vehicle credit, a taxpayer must include the vehicle identification number of the new clean vehicle on Form 8936, Clean Vehicle Credits, when the taxpayer files his or her income tax return.
IRS Updates FAQs on Energy Efficient Home Improvement Credits: In FS-2024-15, the IRS provided updates to frequently asked questions (FAQs) about the energy efficient home improvement credit under Code Sec. 25C and the residential energy property credit under Code Sec. 25D. The FAQs incorporate the guidance provided in Announcement 2024-19 regarding incentives, grants, or rebates provided to a taxpayer to purchase or install qualifying property and state that such incentives are generally not included in the taxpayer's gross income but reduce the amount of the expenditure on which the taxpayer calculates the tax credit.
IRS Issues Corrected Census Tracts for Alternative Fuel Refueling Property Credit: In IR-2024-107, the IRS corrected Appendix A and Appendix B of Notice 2024-20 to add additional eligible census tracts for the qualified alternative fuel vehicle refueling property credit under Code Sec. 30C. This correction reflects additional census tracts that were determined to meet the description of eligible census tracts in Notice 2024-20.
IRS Issues Nationwide Average Purchase Price for Residences: In Rev. Proc. 2024-21, the IRS provides issuers of qualified mortgage bonds, as defined in Code Sec. 143(a), and issuers of mortgage credit certificates, as defined in Code Sec. 25(c), with (1) the nationwide average purchase price for residences located in the United States, and (2) average area purchase price safe harbors for residences located in statistical areas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. Generally, issuers must use the nationwide average purchase price limitation contained in the procedure for commitments to provide financing or issue mortgage credit certificates that are made, or (if the purchase precedes the commitment) for residences that are purchased, in the period that begins on April 16, 2024, and ends on the date when the nationwide average purchase price limitation is rendered obsolete by a new revenue procedure.
Deductions
Taxpayers Can't Claim Theft Loss Resulting from Investor's Fraud Scheme: In Giambrone v. Comm'r, T.C. Memo. 2024-47, the Tax Court held that the owners of a troubled savings and loan institution who sold $10 million of newly issued stock in the company to an investor, giving him a controlling interest, could not claim a theft loss deduction after the investor was indicted for fraud, resulting in the company's closure and placement into receivership. The taxpayers argued that they suffered a theft by deception of their control of the company, but the court found no law that suggests that a controlling interest in a company can be considered property and was not persuaded that the transfer of the controlling interest in the company was based on deception by the investor.
Employee Benefits
IRS Issues Monthly Corporate Yield Curve and Segment Rates: In Notice 2024-34, the IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Code Sec. 417(e)(3), and the 24-month average segment rates under Code Sec. 430(h)(2). In addition, the notice provides guidance as to the interest rate on 30-year Treasury securities under Code Sec. 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Code Sec. 431(c)(6)(E)(ii)(I).
Fact Sheet Provides FAQs on Tax Treatment of Work-Life Referral Services: In FS-2024-13, the IRS provides answers to frequently asked questions (FAQs) addressing the tax treatment of work-life referral services (sometimes also called caregiver or caretaker navigation services) provided by an employer to an employee. Under certain circumstances, the value of such referral services can be excluded from gross income and employment taxes as a de minimis fringe benefit.
IRS Issues SIFL Rates for First Half of 2024: In Rev. Rul. 2024-8, the IRS issued the standard industry fare level (SIFL) cents-per-mile rates and terminal charge in effect for the first half of 2024 for purposes of Reg. Sec. 1.61-21(g). The SIFL rates may be used in valuing noncommercial flights provided as an employee fringe benefit on employer-provided aircraft.
Insurance Companies
IRS Issues Asset/Liability Percentages and Domestic Investment Yields: In Rev. Proc. 2024-20, the IRS issued the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under Code Sec. 842(b) for tax years beginning after Dec. 31, 2022. Rev. Proc. 2023-21 contains the information for the domestic asset/liability percentages and domestic investment yields for tax years beginning after Dec. 31, 2021.
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