If a taxpayer’s virtual currency activities are too infrequent to rise to the level of investment activities or do not qualify as trader or dealer activities, losses associated with virtual currency transactions are not deductible. This article explores tax-law issues that arise in the context of “personal use virtual currency” and reminds taxpayers to be aware of both their intent when acquiring or holding virtual currency and the potential tax implications arising from such activities.
The Internal Revenue Service (IRS) views convertible virtual currency as property, not foreign currency. As such, taxpayers must record and track the tax basis of each unit of virtual currency held in order to properly report taxable gain or loss when disposing of a unit or units of virtual currency. This article reviews the IRS’s position with respect to the identification and tax basis of such units.
Given limited guidance by US tax authorities regarding taxation of virtual currency activities, taxpayers with such holdings may find themselves in uncharted territory as to whether to take positions that are contrary to IRS pronouncements. This article explores relevant notices, rulings and FAQs, and reviews the types of deference that courts tend to put on different types of IRS interpretations and guidance.
Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 22 – June 26, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.
June 24, 2020: The IRS issued final regulations permitting a regulated investment company (RIC) that receives qualified real estate investment trust (REIT) dividends to report dividends the RIC pays to its shareholders as section 199A dividends.
June 25, 2020: The IRS Office of Chief Counsel announced a limited settlement offer to certain taxpayers with pending docketed US Tax Court cases involving syndicated conservation easement transactions. The settlement offer requires a concession of the income tax benefits claimed by the taxpayer and imposes penalties.
June 26, 2020: The IRS will begin to reopen Taxpayer Assistance Centers starting on June 29, 2020. In-person appointments will be available for certain items.
June 26, 2020: The IRS issued a reminder to taxpayers and businesses that income tax liabilities as well as postponed April 15 and June 15, 2020, estimated tax payments are due July 15, 2020. Taxpayers who owe a 2019 income tax liability, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020. One payment should be for their 2019 income tax liability and one payment for their 2020 estimated tax payments.
June 26, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).
Special thanks to Emily Mussio in our Chicago office for this week’s roundup.
In remarks at the NYU Tax Controversy Forum on June 18, 2020, Internal Revenue Service (IRS) officials indicated that the agency is analyzing the use of private foundations for tax planning. Ms. Tamera Ripperda, who is the commissioner of the Tax Exempt and Government Entities (TEGE) Division and previously served as the industry director for the Global High Wealth in the Large Business and International (LB&I) Division, said the agency is focusing on cross-division collaborations to target high-income, high-wealth taxpayers.
The TEGE Division has trained more than 400 LB&I agents this year on the use of private foundations in tax planning for high-net-worth individuals. Additionally, the divisions are using data analytics to identify linkages between LB&I and TEGE cases. Commissioner Ripparda stated that TEGE has identified more than 1,000 private foundations “that have linkages or that are interwoven into these global high-wealth enterprises,” and the IRS will likely examine many of these entities.
Practice Point: Several years ago, the IRS launched its “Wealth Squad,” a team of agents trained in looking through entities and tax structures to focus on the overall strategy of ultra-wealthy taxpayer to reduce their tax incidence. (See this link for more information on that program.) The IRS’s examination of private foundations as a tool to reduce taxes for wealthy is the next chapter for the IRS to crack down on perceived abuse. It is clear that lawmakers and US Treasury officials are increasingly focused on perceived lax enforcement and low audit rates of high-income, high-wealth taxpayers. Taxpayers who use private foundations in their planning should begin working with their tax advisers now to review potential exposure and make sure they are prepared for an expected IRS audit.
Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 15 – June 20, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.
June 19, 2020: The US Tax Court announced that the Court will resume receiving mail effective July 10, 2020. Any items currently being held by the United States Postal Service or any private delivery service will be delivered to the Court on that day.
June 19, 2020: The IRS issued proposed regulations that provide guidance for the deduction of qualified transportation fringe (QTF) and commuting expenses. As part of the Tax Cuts and Jobs Act (TCJA), taxpayers are not allowed deductions for QTF expenses or for certain commuting expenses. These proposed regulations address the elimination of the QTF deduction. The proposed regulations also provide guidance to determine the amount of QTF parking expense that is nondeductible.
June 19, 2020: The IRS released Notice 2020-50 to help retirement plan participants affected by the COVID-19 take advantage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act regarding retirement plan distributions. The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans between January 1 and December 30, 2020 without being subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. Notice 2020-50 expands the definition of who is a qualified individual to take into account additional factors such as reductions in pay, rescissions of job offers, and delayed start dates with respect to an individual, as well as adverse financial consequences to an individual arising from the impact of the COVID-19 on the individual’s spouse or household member.
June 20, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).
Special thanks to Emily Mussio in our Chicago office for this week’s roundup.
The coronavirus (COVID-19) pandemic has thrown our personal and professional lives into a constant state of change, as we deal with social distancing, e-learning, remote working, and Zoom. In this American Bar Association article, Andrew R. Roberson, a partner in US and International Tax at McDermott Will & Emery, describes how the constant change or “next normal” rings true in the tax world as well, both for taxpayers and practitioners, as we all adapt to today’s challenges.
Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 8 – June 12, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.
June 9, 2020: The IRS published a reminder for taxpayers that estimated tax payments for tax year 2020, originally due April 15 and June 15, are now due July 15. Any individual or corporation that has a quarterly estimated tax payment due has until July 15 to make that payment without penalty.
June 11, 2020: The IRS released Notice 2020-46 to address that cash payments employers make to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation, or personal leave which their employees forgo will not be treated as compensation. Additionally, the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer.
June 12, 2020: The IRS and Treasury issued proposed regulations to amend the existing regulations to add a definition of real property to reflect statutory changes and the Tax Cuts and Jobs Act (TCJA) limiting IRC § 1031 to exchanges of real property. Written or electronic comments and requests for a public hearing must be received by August 11, 2020.
June 12, 2020: The IRS issued Notice 2020-49 to provide tax relief for certain taxpayers affected by the COVID-19 pandemic involved in new markets tax credit transactions under IRC § 45D(a). Specifically, the notice provides guidance for community development entities (CDEs) and qualified active low-income community businesses (QALICBs) investing and conducting businesses in low-income communities. The notice postpones to December 31, 2020, the due dates for making investments, making reinvestments, and expending amounts for construction of real property under IRC § 45D due to be performed or expended on or after April 1, 2020, and before December 31, 2020.
June 12, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).
Special thanks to Emily Mussio in our Chicago office for this week’s roundup.
When the US Tax Court (Tax Court) shut down in March, the public was unable to request copies of Tax Court records. That changed effective June 1, 2020, as non-parties may now call and request copies of court records which will then be sent via email. The cost for copy requests is $0.50 per page, with a per-document cap of $3.00. The Tax Court’s press release on this subject can be found here.
Practice Point: It can be extremely beneficial to taxpayers and their advisors to see arguments being made by other taxpayers and the Internal Revenue Service in cases with similar legal issues. The ability to now directly call the Tax Court to request briefs or other filings in a docketed case, and to receive such documents electronically, is significant. Moreover, the cap of $3.00 per document may provide an incentive to request documents where the price per page, without a cap, was previously financially burdensome.
A recent US Tax Court Memorandum Opinion held that a settlement agreement embodied in Internal Revenue Service (IRS) Form 870-AD does not preclude the IRS from reopening an audit and issuing a notice of deficiency.
In Howe v. Commissioner, T.C. Memo 2020-78, the Tax Court held that equitable estoppel did not bind the Commissioner to an agreement in Form 870-AD. Only settlements that comply with Internal Revenue Code (IRC) sections 7121 and 7122 are binding on both the taxpayer and government, and an IRS Form 870-AD does not comply with those provisions. Further, the Court held that equitable estoppel did not bar the IRS from asserting a larger deficiency against the taxpayer because, even if true, the alleged failures to follow internal IRS procedures would not rise to the level of affirmative misconduct.
An IRS revenue agent initially began an audit of the 2008 tax return for the taxpayer, who was CEO and majority shareholder of a healthcare company, in 2011. At the conclusion of the audit, the revenue agent issued a Notice of Proposed Adjustment (NOPA) and IRS Form 886-A. The taxpayer responded to the NOPA by filing a protest letter at the IRS Appeals Office. In settlement of the issue during the IRS Appeals Office review, the taxpayer and the IRS appeals officer (on behalf of the IRS) signed a Form 870-AD that reduced the asserted tax deficiency and eliminated the IRC section 6662 accuracy-related penalty. The IRS Appeals Officer filed an IRS Appeals Case Memorandum (ACM) summarizing the facts and legal arguments.
In response to the ACM, the revenue agent who conducted the audit, in consultation with her supervisor and local IRS counsel, internally filed a Dissent for Appeals Decision. The Dissent for Appeals Decision sought to reopen the case against the taxpayer on the grounds that the taxpayer made material factual misrepresentations during the IRS Appeals process. The IRS Appeals Director approved reopening the case, and the IRS issued a Notice of Deficiency.
The taxpayer sought review in the Tax Court on the grounds that the IRS improperly reopened the case and that the settlement represented in Form 870-AD equitably estopped the Commissioner from issuing the Notice of Deficiency. The Tax Court rejected the taxpayer’s argument. Following its holding in Greenberg’s Express, Inc. v. Commissioner, 62 T.C. 324, 327 (1974), the Tax Court will only look behind a Notice of Deficiency when there is “substantial evidence of unconstitutional conduct on the Commissioner’s part and the integrity of our judicial process would be impugned if we were to let the Commissioner benefit from such conduct.” (Howe, at *12.) The Tax Court found there was no substantial evidence of unconstitutional conduct by the IRS.
Further, there is a heightened standard for applying equitable estoppel against the IRS. In addition to the traditional detrimental reliance elements, asserting equitable estoppel claims against the government requires a showing that: “(1) the government engaged in affirmative misconduct going beyond mere negligence; (2) the government’s wrongful acts will cause a serious [...]
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