AICPA Tax Insider (May 28, 2020): Misconceptions about defined benefit plans; deduction for worthless partnership interest; and more

3 common misconceptions about defined benefit plans

By David Podell

Defined benefit plans permit larger employer contributions than most qualified retirement plans and are worth a look despite these misconceptions.

HSA contribution limits increase for 2021

The IRS issued its annual inflation-adjusted contribution limits for contributions to health savings accounts permitted to participants in high-deductible health plans. Most of the amounts increased slightly over the 2020 amounts.

IRS mobilizing 3,500 phone operators to answer stimulus questions

With many taxpayers still having problems using the IRS’s “Get My Payment” website, the IRS announced that it is mobilizing 3,500 telephone representatives to answer some of the most common questions about economic impact payments.

Deduction for worthless partnership interest

By Eric Mauner, CPA

In a recent Tax Court case, the taxpayer proved it was entitled to a Sec. 165(a) loss deduction for worthlessness of a partnership interest, reinforcing the position that actual abandonment of a partnership interest is not required to claim a loss.

7 areas to consider when evolving your tax practice

By April Walker, CPA, CGMA

Here are ways for firms to try to think differently during this strange time.

Supreme Court strikes down attempt at federal common-lawmaking

By James A. Beavers, CPA, CGMA, J.D., LL.M.

The common law rule that the U.S. Supreme Court objected to was a long-standing doctrine that governed how tax refunds were allocated among consolidated groups of corporations. The rule is not necessary to protect unique federal interests; instead, state law governs the issue, the Court held.


Tax document summaries for the week of May 25–29, 2020, covering bankruptcy, individuals, IRS procedure, and more.

BANKRUPTCY

Under state law, bank that generated losses is entitled to tax refund

On remand from the Supreme Court, the Tenth Circuit applied Colorado state law (rather than the Bob Richards rule, as earlier) to hold that the Federal Deposit Insurance Corp., as receiver for a bankrupt bank, and not the bank’s holding company, was the owner of a federal tax refund that arose from the bank’s losses. Rodriguez v. Federal Deposit Ins. Corp., No. 17-1281 (10th Cir. 5/26/20).

ESTATES, TRUSTS & GIFTS

Trust can challenge tax liabilities

The Tax Court, citing Sec. 6330(c)(2)(B), held that a trust could challenge its underlying tax liabilities for 2014 and 2015 because it had had no prior opportunity to do so. The trust had properly raised the challenge during a Collection Due Process hearing by contending that the IRS had improperly disallowed net operating loss carryforward deductions for the two years, the court held, and denied the IRS’s motion for summary judgment. Amanda Iris Gluck Irrevocable Trust, 154 T.C. No. 11 (5/26/20).

INDIVIDUALS

Tax Court lacks jurisdiction to redetermine deficiency but can redetermine penalty

The Tax Court held that it lacked jurisdiction to redetermine a deficiency resulting from the IRS’s denial of a married couple’s like-kind exchange of a condominium for a 25% interest in an apartment building owned by a partnership. However, the court denied the taxpayers’ motion for summary judgment with respect to an accuracy-related penalty over which it held it had jurisdiction. The IRS’s denial of like-kind exchange treatment was a “computational adjustment” because it represented a change in the tax liability of a partner that properly reflected the treatment of a partnership item under the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), the court held. Gluck, T.C. Memo. 2020-66 (5/26/20).

Taxpayer gets deductions regardless of return preparer’s fiction

The Tax Court agreed with a brief submitted by the IRS after a taxpayer’s trial that stated that $40,345 of income and expenses reported on the taxpayer’s Schedule C was a fiction; however, the court rejected the IRS’s argument that the taxpayer could not deduct $12,060 of expenses the IRS had previously allowed, holding it allowable as an unreimbursed employee deduction on Schedule A. The court noted that the taxpayer’s tax return preparer had created a fiction by setting up the appearance of a Schedule C business to create a business loss deduction to reduce the taxpayer’s salary income. Aguilar, T.C. Summ. 2020-16 (5/26/20).

Elimination of personal exemption does not affect premium tax credit

The IRS issued proposed regulations clarifying that the reduction of the personal exemption deduction to zero for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, does not affect an individual taxpayer’s ability to claim the Sec. 36B premium tax credit. REG-124810-19 (5/26/20) (see related news story).

IRS PROCEDURE

IRS issues income amounts for qualified mortgage bonds

The IRS issued guidance with respect to the U.S. and area median gross income amounts used by issuers of qualified mortgage bonds, as defined in Sec. 143(a), and issuers of mortgage credit certificates, as defined in Sec. 25(c), in computing the income requirements described in Sec. 143(f). Rev. Proc. 2020-33 (5/26/20).

Change proposed for withholding rules for retirement and annuity payments

The IRS issued proposed regulations for income tax withholding on retirement and annuity payments to implement an amendment made by the law known as Tax Cuts and Jobs Act, P.L. 115-97. REG-100320-20 (5/26/20).

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

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