AICPA Tax Insider (June 4, 2020): Tax Rules for Real Estate Professionals; Exempt Org Reporting Regs Finalized; Electronic Amended Returns and More

E-filing of Form 1040-X coming this summer

The IRS announced that taxpayers will be able to electronically file Forms 1040-X, Amended U.S. Individual Income Tax Return, later this summer.

Tax rules for real estate professionals

By Barbara Bryniarski

Determining whether a taxpayer involved in real estate activities qualifies as a real estate professional establishes whether the taxpayer can deduct losses from those activities against ordinary income and whether income or gains from them will be subject to the net investment income tax. 

Cost recovery changes in the TCJA

By Richard Ray, CPA, Ph.D., and Nora A. Bouqayes, Ph.D.

This article discusses changes to the law and IRS guidance on how to elect to expense qualified real property and change the depreciation of certain assets to the alternative depreciation system.

Final regs. address reporting by tax-exempt organizations

The IRS finalized regulations permitting tax-exempt organizations other than Sec. 501(c)(3) organizations to omit the names of substantial donors when filing Forms 990, Return of Organization Exempt From Income Tax.

Premium tax credit unaffected by personal exemption decrease to zero

The IRS issued long-promised proposed regulations explaining how taxpayers who may qualify for the Sec. 36B premium tax credit are affected by the temporary reduction of the personal exemption deduction under Sec. 151 to zero.

State considerations of Sec. 163(j) carryforwards

By Dan De Jong, J.D., LL.M., and Jorge Alegre, CPA

Varying calculation methods can result in differing Sec. 163(j) limitations for federal and state purposes. This creates complexity, but those differences can have a favorable state tax effect for some taxpayers.

The IRS announced that taxpayers will be able to electronically file Forms 1040-X, Amended U.S. Individual Income Tax Return, later this summer.

Tax rules for real estate professionals

By Barbara Bryniarski

Determining whether a taxpayer involved in real estate activities qualifies as a real estate professional establishes whether the taxpayer can deduct losses from those activities against ordinary income and whether income or gains from them will be subject to the net investment income tax. 

Cost recovery changes in the TCJA

By Richard Ray, CPA, Ph.D., and Nora A. Bouqayes, Ph.D.

This article discusses changes to the law and IRS guidance on how to elect to expense qualified real property and change the depreciation of certain assets to the alternative depreciation system.

Final regs. address reporting by tax-exempt organizations

The IRS finalized regulations permitting tax-exempt organizations other than Sec. 501(c)(3) organizations to omit the names of substantial donors when filing Forms 990, Return of Organization Exempt From Income Tax.

Premium tax credit unaffected by personal exemption decrease to zero

The IRS issued long-promised proposed regulations explaining how taxpayers who may qualify for the Sec. 36B premium tax credit are affected by the temporary reduction of the personal exemption deduction under Sec. 151 to zero.

State considerations of Sec. 163(j) carryforwards

By Dan De Jong, J.D., LL.M., and Jorge Alegre, CPA

Varying calculation methods can result in differing Sec. 163(j) limitations for federal and state purposes. This creates complexity, but those differences can have a favorable state tax effect for some taxpayers.

AICPA TAX DOCUMENT SUMMARIES WEEK OF JUNE 1, 2020

EMPLOYEE BENEFITS

IRS announces upcoming guidance on remedial amendment cycles for certain plans

The IRS announced that (1) it plans to issue opinion letters with regard to the third six-year remedial amendment cycle for pre-approved defined contribution plans by June 30, 2020, or soon thereafter; (2) it will accept from an employer eligible to submit a determination letter request an application for an individual determination letter under the third six-year remedial amendment cycle for pre-approved defined contribution plans from Aug. 1, 2020, to July 31, 2022; and (3) an employer adopting a newly approved plan will be required to adopt the plan document by July 31, 2022. The IRS noted that Rev. Proc. 2017-41 sets forth procedures for providers of pre-approved plans to obtain opinion letters, once every six years, for qualified pre-approved plans submitted with respect to the third (and subsequent) six-year remedial amendment cycles. Announcement 2020-7 (6/1/20).

ESTATES, TRUSTS & GIFTS

Decedent’s advances to son were partially loans and partially gifts

The Tax Court held that advances made by a taxpayer to her son prior to her death were loans through 1989, but, after that, they were gifts. The court noted that the decedent expected her son to repay the loans because she expected him to make a success of his architecture practice but realized by the end of 1989 that he was unlikely to be successful and repay her advances. Estate of Bolles, T.C. Memo. 2020-71 (6/1/20).

INDIVIDUALS

Taxpayer cannot exclude ‘gifts’ from income, but IRS failed to meet its burden in assessing penalty

The Tax Court held that transfers of funds to a taxpayer over several years did not constitute gifts excludable from income under Sec. 102 where the record documenting the gifts consisted largely of the taxpayer’s unsubstantiated and self-serving testimony that the court did not find credible. However, the court found that the taxpayer was not liable for penalties under Sec. 6662 because the IRS did not satisfy its initial burden of production under Sec. 6751(b). Kroner, T.C. Memo. 2020-73 (6/1/20).

Court grants collection action against taxpayer; IRS did not abuse its discretion

The Tax Court granted summary judgment to the IRS and sustained collection actions against a taxpayer who owed the IRS more than $15,000. The court also found that the IRS settlement officer (SO) did not abuse her discretion in closing the case after noting that the SO waited two months after a deadline she had set for closing the case for the taxpayer to submit financial information that she never received. Nimmo, T.C. Memo. 2020-72 (6/1/20).

IRS PROCEDURE

Renewable electricity production and refined coal production credit amounts for 2020

The IRS republished the inflation-adjustment factors and reference prices for calendar year 2020 that are used to determine the availability of the renewable electricity production credit, the refined coal production credit, and the Indian coal production credit under Sec. 45. Notice 2020-38 (6/1/20).

IRS updates list of countries with information reporting agreements on bank deposit interest

The IRS provided an updated list of countries with which the United States has in force an information exchange agreement, such that bank deposit interest paid to residents of those countries must be reported by payers to the extent required under Regs. Secs. 1.6049-8(a) and 1.6049-4(b)(5). The revenue procedure adds Singapore to this list. Rev. Proc. 2020-15 (6/1/20).

LLCS AND LLPS

Tenth Circuit affirms decision in solar-energy tax credit scheme

The Tenth Circuit affirmed a district court decision enjoining the defendants from promoting an unlawful solar-energy tax credit scheme and ordering them to disgorge their gross receipts from the scheme. RaPower-3, LLC, No. 18-4119 (10th Cir. 6/2/20).

S CORPORATIONS

Court rejects loss deductions of real estate developer with underwater properties

The Tax Court held that a real estate developer, who undertook a series of transactions to transfer parcels of real estate encumbered by liabilities in excess of their fair market value into liquidating trusts established for the benefit of his lenders, could not claim ordinary losses from those transactions and thus could not subsequently deduct net operating losses generated from those transactions. The court concluded that the losses reported by the taxpayer’s S corporation, which owned the properties, were not bona fide dispositions and were not evidenced by closed and completed transactions, fixed by identifiable events, that were actually sustained during the year at issue. Sage, 154 T.C. No. 12 (6/2/20).

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

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