SCACPA Podcast 011

SCACPA's Weekly Federal Tax Update

Lynn Nichols Federal Tax Update Podcast

April 2, 2018, edition

Listen as Lynn Nichols provides commentary on 10 Items pertaining to current developments in U.S. tax law. This week’s topics include:

OUR PROGRAM THIS WEEK INCLUDES . . . . . .

1. Economic Analysis: A Spreadsheet to Calculate the New Passthrough Deduction

In economic analysis, Martin A. Sullivan discusses the difficulties new section 199A presents to owners of passthrough businesses.

[Tax Notes Today; 4/2/2018; Article by Martin A. Sullivan]

2. Interest Deductibility Guidance Settles Unanswered Questions

The IRS released expected initial guidance on business interest expense limitations that address several questions for which practitioners had been clamoring for answers since the new tax law was enacted, but they yearn for more.

[Tax Notes Today; 4/3/2018; Article by Emily Foster]

IRS Issues Guidance on Business Interest Expense Limitations

The IRS has issued guidance describing regulations that it intends to issue to help taxpayers comply with section 163(j), which was amended by the Tax Cuts and Jobs Act to provide new rules limiting the deduction of business interest expense for tax years beginning after December 31, 2017.

[Notice 2018-28; 2018-16 IRB 1; 4/2/2018]

IRS Announces Guidance on Business Interest Expense Limitation

The IRS has announced the release of guidance for computing the business interest expense limitation under section 163(j), as amended by Tax Cuts and Jobs Act.

[IR-2018-82; 4/2/2018]

3. Tax Court Upholds Disallowance of Alimony Deduction

The Tax Court held that the IRS properly disallowed an attorney's alimony deduction because under Arkansas law his obligation to pay his former wife’s share of their 2009 federal income tax, joint credit card debt, and property taxes survives her death and therefore does not meet all the requirements to qualify as alimony.

[Davidson v. Commissioner; No. 24619-15; T.C. Memo. 2018-38; 4/2/2018]

4. Business Owner’s Loans Flunk the Bad Debt Test

The Tax Court, sustaining some accuracy-related penalties but not others, held that an individual used one of his real estate business’s funds to pay another of his companies’ debts, finding that these purported loans weren’t deductible as bad debts but instead were taxable distributions and wages.

[Povolny Group Inc. et al v. Commissioner; No. 5935-14; No. 5936-14; T.C. Memo. 2018-37; 4/2/2018]

5. Tax Court Finds Retirement Benefits Subject to Self-Employment Tax

The Tax Court, in a summary opinion, held that retirement benefits received by a businesswoman from a cosmetics company are deferred compensation subject to self-employment tax under section 1401 because they were "derived by an individual from any trade or business carried on by that individual."

[Sherman v. Commissioner; No. 13052-16S; T.C. Summ. Op. 2018-15;4/2/2018]

6. Responsible Person’ Dispute Keeps Payroll Tax Case Alive

A U.S. district court, denying summary judgment to the government in a trust fund recovery penalty case, found genuine issues of material fact over whether an individual was a responsible person under section 6672 who willfully failed to pay a company’s payroll taxes.

[Ireland, Mike L. v. United States; No. 2:17-cv-02014; 4/2/2018]

7. Tax Court Upholds Disallowance of Passthrough Loss Deduction

The Tax Court held that the IRS properly disallowed a couple’s passthrough loss deduction, finding that their real estate activities could not be grouped with their aircraft chartering activities to determine whether they materially participated in the latter, and that the loss from the chartering activities was a passive loss because they did not materially participate.

[Brumbaugh, Charles and C.E. Holifield v. Commissioner; No. 9161-14; T.C. Memo. 2018-40; 4/3/2018]

8. Partnership Denied $1.8 Million Deduction for Easement Donation

The Tax Court, declining to impose a penalty, held that a land development partnership wasn’t entitled to a $1.8 million charitable contribution deduction for the donation of a conservation easement, finding that the easement was donated with the expectation of receiving a substantial benefit and that the value of the easement was zero.

[Wendell Falls Development LLC et al. v. Commissioner; No. 3494-14; T.C. Memo. 2018-45, 4/4/2018]

9. Restless Retiree’s Costs to Remodel House Are Capital Expenditures

The Tax Court, in a summary opinion, held that a couple may not deduct expenses related to a house remodeling project meant to occupy the husband’s time during retirement, finding that his activity was not a trade or business and that expenses incurred to improve the house, a capital asset, may only be treated as capital expenditures.

[Havener, Shane et ux. v. Commissioner; No. 4506-16S; T.C. Summ. Op. 2018-17; 4/4/2018]

10. Reconstruction of Mileage Logs Falls Short of Substantiation Rules

The Tax Court, sustaining an accuracy-related penalty, held that an attorney with multiple law offices wasn’t entitled to a deduction for his business-related vehicle expenses, finding that his attempt to reconstruct the expenses failed to satisfy section 274(d)’s strict substantiation requirements.

[Velez, Alavaro G. v. Commissioner; No. 23718-15; T.C. Memo. 2018-46, 4/5/2018]