With the Budget act passed on December 20, 2019 we seem to have lost track of other tax court and IRS changes in the last few months. We still hope to do a special newsletter in the next few weeks on the budget bill, but we are awaiting IRS clarification on several points. In the meantime, here is what else has been going on:
- In REG-116163-19, the IRS issued proposed regulations which provide guidance under Code Sec. 6402(n) concerning the procedures for identification and recovery of a misdirected direct deposit refund. The regulations reflect changes to the law made by the Taxpayer First Act and affect taxpayers who have made a claim for refund, requested the refund be issued as a direct deposit, but did not receive a refund in the account designated on the claim for refund.
- In IRS Notice 2020-05 the IRS announced 2020 mileage rates at:
- 57.5 cents per mile business (includes depreciation @27cpm)
- 17 cents per mile medical/moving
- 14 cents per mile charity
- In TC Memo 2019-159 (Joyner) the IRS ruled that a business could not use the installment method for mobile home sales, because they were inventory. It was allowed to use the installment method for land sales because the land was unimproved. The IRS was also prevented from changing the taxpayer’s method of accounting because it was never even raised until Tax Court. Read the case for an interesting perspective of IRS’ vindictiveness.
Estates and Gifts
- In November 2019, the Treasury Department and the IRS issued proposed regulations at T.D. 9884 that would allow individuals who make large gifts between 2018 and 2025 to retain the tax benefit of the higher exemption, even if it reverts to pre-2018 levels in 2025 when scheduled.
- It is important to note that if a decedent’s gross estate (the fair market value of the decedent’s assets on the date of death plus prior taxable gifts) does not exceed the new increased lifetime exemption amount ($11.58 million for 2020), an estate tax return is not required to be filed. However, in such circumstance, if an estate tax return is filed, the decedent’s unused lifetime estate and gift tax exemption may be transferred to the decedent’s surviving spouse for use during the spouse’s lifetime or at death. This concept is known as portability, and to take advantage of this beneficial election an estate tax return must be filed.
- IRS Notice 2019-66 provides that the requirement to report partners’ shares of partnership capital on the tax basis method will not be effective for 2019 (for partnership taxable years beginning in calendar 2019) but will be effective beginning in 2020 (for partnership taxable years that begin on or after January 1, 2020). For 2019, partnerships and other persons must report partner capital accounts consistent with the reporting requirements in the 2018 forms and instructions, including the requirement to report negative tax basis capital accounts on a partner-by-partner basis. This notice also clarifies the 2019 requirement for partnerships and other persons to report a partner’s share of “net unrecognized Section 704(c) gain or loss” by defining this term for purposes of the reporting requirement.
Another reporting change concerns a requirement on the Schedule K-1 that partnerships must furnish to their partners that asks whether the partner is a disregarded entity.
- In Proposed Reg. 107431-19 the IRS stated If the taxpayer's payment or transfer of state income tax via a charity payment bears a direct relationship to its trade or business, and the payment is made with a reasonable expectation of commensurate financial return, the payment or transfer to the Code Sec. 170(c) entity may constitute an allowable deduction as a trade or business expense under Code Sec. 162, rather than a charitable contribution under Code Sec. 170.
- In July 2019 the IRS finalized the temporary rules with the issuance of T.D. 9869. Reg. Sec. 301.7701-2(c)(2)(iv)(C)(2) clarifies that a disregarded entity that is treated as a corporation for purposes of employment taxes is not treated as a corporation for purposes of employing its individual owner, who is treated as a sole proprietor, or employing an individual who is a partner in a partnership that owns the disregarded entity. Rather, the entity is disregarded as an entity separate from its owner for this purpose and no W-2’s may be issued. The IRS noted that existing regulations already provide that the entity is disregarded for self-employment tax purposes and specifically noted that the owner of an entity treated in the same manner as a sole proprietorship under Reg. Sec. 301.7701-2(a) is subject to tax on self-employment income. Accordingly, if a partnership is the owner of a disregarded entity, the partners in the partnership are subject to the same self-employment tax rules as partners in a partnership that does not own a disregarded entity.