Deloitte IRS Insights September 2019: Taxpayer First Act Provisions; No Reasonable Cause for Failure to File for Reliance on Tax Preparer to E-File; and More

Select Provisions of Interest in the Taxpayer First Act

Taxpayer First Act, H.R. 3151 was signed on July 1, 2019 summarizing provisions relating to the establishment of an Independent Office of Appeals, sensible enforcement of the IRC, the organization and modernization of the IRS, IRS’s use of information technology, cybersecurity and identity theft protection, the modernization of the consent-based income verification system, expanding the IRS’s use of electronic systems, and an increase in the minimum amount of a failure to file penalty.

IRS Issues Penalty Relief to Partnerships and S Corporations that Relied on Proposed GILTI Regulations in Issuing Schedules K-1 to Partners
The Department of the Treasury and the IRS issued Notice 2019-46 announcing their intent to issue regulations that will permit a domestic partnership or S corporation to apply the rules in Prop. Treas. Reg. § 1.951A-5 for taxable years ending before June 22, 2019. Notice 2019-46 also provides relief from certain penalties for a domestic partnership or S corporation that acted consistently with Prop. Treas. Reg. § 1.951A-5 on or before June 21, 2019.

Revenue Procedure 2019-32 Provides a Six-Month Extension for Eligible BBA Partnerships to File a Superseding Form 1065 and Issue Corrected Schedules K-1
The IRS issued Rev. Proc. 2019-32, which allows a six-month extension for eligible BBA partnerships to file a superseding Form 1065, U.S. Return of Partnership Income, and furnish corresponding Schedules K-1, Partner’s Share of Income, Deductions, Credits, etc., to each of its partners to correct errors on a timely filed partnership return.

LB&I Issues Memorandum Regarding Timeframes for Cases to be Sent to Appeals
The Large Business and International Division issued a memorandum that establishes timeframes for the transfer of cases to Appeals. Under the new guidelines, examination cases under the Coordinated Industry Case program or the Large Corporate Compliance program should be closed to Appeals within 240 days from the issuance of the 30-day letter.

IRS Ends Moratorium on Opening New Cost Sharing Arrangement Stock-Based Compensation Examinations After the Ninth Circuit’s Decision in Altera
The Commissioner of the Large Business Division withdrew an earlier memorandum that had directed examiners to stop opening examinations applying Treas. Reg. §§ 1.482-7A(d)(2) and 1.482-7(d)(3). The Ninth Circuit reversed the Tax Court’s opinion in Altera, and on that basis, LB&I withdrew the earlier memorandum and directed examiners to continue to apply Treas. Reg. §§ 1.482-7A(d)(2) and 1.482-7(d)(3).

District Court Holds that an Individual Taxpayer Cannot Establish Reasonable Cause by Showing Reliance on a Tax Return Preparer to E-File a Tax Return
A district court held that an individual cannot establish reasonable cause for failing to timely file a tax return by showing that the individual relied on a tax return preparer to e-file his or her tax return. The district court reasoned that, for an individual, e-filing is still optional, and an individual can still request to file a paper return; thus, it is still appropriate to hold that the filing of an individual tax return is the non-delegable duty of the taxpayer.

Court Declines to Dismiss a Taxpayer’s Equitable Estoppel Claim in Fitzgerald Truck Parts & Sales v. United States
The district court denied the government’s motion to dismiss the taxpayer’s equitable estoppel claim reasoning that, although the Supreme Court has established a very high bar for sustaining an equitable estoppel claim against the government, the Supreme Court has not ruled out the possibility of bringing such a claim and the taxpayer alleged sufficient facts to survive a motion to dismiss.

DC Circuit Holds that the 30-Day Period for Petitioning the Tax Court Under Section 7623(b)(4) is Non-jurisdictional and Subject to Equitable Tolling
The DC Circuit, in a 2 – 1 decision, reversed the Tax Court and held that the 30-day filing period for petitioning the Tax Court under section 7623(b)(4) is not jurisdictional and is subject to equitable tolling.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.

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