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Weekly IRS Roundup June 1 – June 5, 2020

by | Jun 8, 2020 | ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of June 1 – June 5, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

June 2, 2020: The IRS reminded taxpayers who live and work abroad that they have until July 15, 2020, to file their 2019 federal income tax return and pay any tax due. Typically, the deadline for such returns is June 15.

June 3, 2020: The IRS issued Notice 2020-42 to provide temporary relief from the physical presence requirement in Treasury Regulations § 1.401(a)-21(d)(6) for participant elections required to be witnessed by a plan representative or a notary public, including a spousal consent required under IRC § 417.

June 4, 2020: The IRS issued Notice 2020-39 and updated the Qualified Opportunity Zones frequently asked questions (FAQs). Notice 2020-39 answers questions regarding relief from certain requirements under IRC § 1400Z-2, particularly providing that if a taxpayer’s 180th day to invest in a qualified opportunity zone would have fallen on or after April 1, 2020, and before December 31, 2020, the taxpayer now has until December 31, 2020, to invest that gain into a qualified opportunity fund (QOF). In addition, Notice 2020-39 provides that the period between April 1, 2020, and December 31, 2020, is suspended for purposes of the 30-month period during which property may be substantially improved.

June 4, 2020: The IRS announced that the Office of Chief Counsel will be expanding its Virtual Settlement Days program. Settlement Days events are organized in effort to resolve US Tax Court cases by providing taxpayers not represented by counsel the opportunity to receive free tax advice from certain pro bono groups such as the Low Income Taxpayer Clinics (LITCs) and American Bar Association (ABA).Through this program, taxpayers can also discuss their Tax Court cases and resolve related tax issues with members of the IRS Office of Chief Counsel, the Independent Office of Appeals and Collection.Due to COVID-19, Settlement Days events are now virtual and allow for taxpayers and volunteers to join from any location. 

June 5, 2020: The IRS issued Notice 2020-43 to seek public comment on a proposed requirement for partnerships to use only one of two alternative methods described in Notice 2020-43 to satisfy the Tax Capital Reporting Requirement with respect to partnership taxable years that end on or after December 31, 2020. The two methods that a partnership may use to report, for each partner, are either (i) the partner’s basis in its partnership interest, reduced by the partner’s allocable share of partnership liabilities, as determined under IRC § 752 (Modified Outside Basis Method); or (ii) the partner’s share of previously taxed capital, as calculated under a modified version of Treas. Reg. § 1.743-1(d) (Modified Previously Taxed Capital Method).

June 5, 2020: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, [...]

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Tax Court Holds IRS Chief Counsel Attorneys May Make Initial Penalty Determination

by , and | Jun 8, 2020 | , ,

In general, section 6751 requires that a supervisor give written approval before penalties can be asserted against a taxpayer. In Koh v. Commissioner, T.C. Memo. 2020-77, authored by the US Tax Court’s (Tax Court) most recent addition—Judge Travis Greaves—the Tax Court affirmed that an attorney from Internal Revenue Service (IRS) Chief Counsel may be authorized to assert such penalties in an answer to a Tax Court petition.

In Koh, the IRS sent the taxpayer a notice of deficiency that included a determination related to penalties under section 6662(j). The taxpayer filed a petition with the Tax Court contesting the IRS’s determination. In its answer, the IRS Chief Counsel attorney asserted that the taxpayer was liable for accuracy-related penalties under section 6662(b)(1) or (2), in the alternative to the section 6662(j) penalties assessed in the original deficiency notice.

The taxpayer sought partial judgment on the pleadings on the grounds that IRS Chief Counsel attorneys are not authorized to assert penalties in the answer. Under section 6751(b)(1), a penalty may not be assessed unless the “the initial determination of such assessment” was “personally approved (in writing) by the immediate supervisor of the individual making such determination.”

The Tax Court reasoned that as the IRS’s representative, the Chief Counsel attorney (or a delegate) may assert additional penalties in an answer to a Tax Court petition. Moreover, the Tax Court ruled that Chief Counsel attorneys had authority to assert penalties in an answer in Roth v. Commissioner, T.C. Memo. 2017-248, aff’d, 922 F.3d 1126 (10th Cir. 2019). That opinion was based on numerous cases holding that the IRS may assert penalties in an answer. However, Roth pre-dated the Tax Court’s opinion in Clay v. Commissioner, 152 T.C. 223 (2019), which cited US Court of Appeals for the Second Circuit authority for the proposition that “written approval is required no later than the issuance of the notice of deficiency rather than the assessment of the tax.”

Practice Point: Taxpayers continue to face risk from penalties being asserted for the first time in an answer in a Tax Court Proceeding. We believe that there is a strong likelihood that Koh will be appealed to the US Court of Appeals for the Third Circuit. We will continue to follow new developments related to penalties and the supervisory approval requirement.



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Tax Court Zooms into Remote Proceedings

by and | Jun 2, 2020 | ,

On May 29, 2020, the US Tax Court (Tax Court) announced that to accommodate continuing uncertainties relating to the COVID-19 pandemic, and until further notice, all court proceedings would be conducted remotely. The Tax Court also issued Administrative Order 2020-02 regarding the conduct of remote proceedings and Administrative Order 2020-03 regarding limited entries of appearance. The Orders are effective until terminated by the Tax Court.

Administrative Order 2020-02 contains sample forms, which are also available under the “Forms” tab on the Tax Court’s website, providing more information on how Tax Court proceedings will be conducted during the pandemic. The updated forms include:

The forms make clear certain requirements that are contained in the Tax Court Rules of Practice and Procedure but were not contained in a prior version of the Standing Pretrial Order. One notable change is that stipulations of fact, which are many times not filed until the day of trial, must now be filed at least 14 days before the trial commences.

Remote proceedings will be conducted using Zoomgov, and access information will be provided to the parties via a meeting identification number and a password. The parties must take steps to ensure that they and their witnesses have adequate technology and internet resources to participate in a remote proceeding. Personal Zoom accounts are not required.

Like most all court proceedings, remote proceedings will be open to the public. The Tax Court will post dial-in information on its website for each trial session, which will allow real-time audio access to proceedings to the general public.

Practice Point:  The Tax Court’s decision to conduct remote proceedings reflects the changing times. Being able to effectively present one’s case in person to a Tax Court Judge requires substantial preparation to tell the taxpayer’s story and advocate for the desired result. Taxpayers and their counsel must now prepare to do the same over videoconference, an arguably much more difficult task. We plan to explore the new rules in more detail in a future article and will keep our readers posted. Taxpayers should be mindful that the general public and the press will be able to virtually attend more court proceedings. Accordingly, your tax issues will be more open and accessible than ever before.



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Weekly IRS Roundup April 20 – April 24, 2020

by | Apr 27, 2020 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of April 20 – April 24, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

April 21, 2020: The US Tax Court proposed amendments to its Rules of Practice and Procedure. The proposed amendment to Rule 24 incorporates simplified procedures for the withdrawal and substitution of counsel, and clarifies limitations on counsel’s representation of a party to more closely follow the American Bar Association Model Rules of Professional Conduct. Written comments to the proposed amendments must be received by May 31, 2020.

April 21, 2020: The Treasury Department and the IRS released Revenue Procedure 2020-27 to provide a waiver of the time requirements of IRC § 911(d)(1). The waiver applies to any individual who reasonably expected to meet the eligibility requirements of IRS § 911(d)(1) during 2019 or 2020, but failed to do so because the individual departed a foreign country on or after a specified date due to COVID-19.

April 21, 2020: The Treasury Department and the IRS released Revenue Procedure 2020-20 to address the “substantial presence test” under IRC § 7701(b)(3) and the impact of travel and related disruptions resulting from COVID-19. COVID-19 may have affected the travel plans of foreign travelers who intended to leave the US. The Revenue Procedure provides that when applying the substantial presence test, an alien individual may exclude certain days of physical presence in the United States, including if the individual qualifies for the Medical Condition Exception described in Revenue Procedure 2020-20.

April 21, 2020: The IRS published frequently asked questions (FAQs) titled “Information for nonresident aliens and foreign businesses impacted by COVID-19 travel disruptions.” The FAQs address the impact of COVID-19 travel disruptions on nonresident alien individuals who perform services or other activities in the US and foreign corporations who employ individuals or engage individuals as agents to perform services or other activities in the US may be considered engaged in a US trade or business. The FAQs provides that the affected person may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020 and on or before April 1, 2020, during which services or other activities conducted in the US will not be taken into account in determining whether the nonresident alien or foreign corporation is engaged in a US trade or business. However, it must be true that such activities were performed by one or more individuals temporarily present in the US and would not have been performed in the US but for COVID-19 travel disruptions.

April 23, 2020: The Treasury Department and the IRS released proposed regulations addressing how to determine if an exempt organization has more than one unrelated trade or business, and, if so, how to calculate the organization’s unrelated business taxable income.

April 23, 2020: The IRS published FAQs on carrybacks of net operating [...]

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IRS Failed to Prove Supervisory Approval For Penalty Based Upon Redacted Document

by , and | Apr 8, 2020 | , , ,

In a recent order in the The Cannon Corp. v. Commissioner, No. 12466-16, the US Tax Court (Tax Court) held that a redacted email from a revenue agent’s supervisor to the agent regarding a notice of deficiency was not sufficient to satisfy the approval requirement under Internal Revenue Code (IRC) section 6751(b) for the assertion of accuracy-related penalties.

Under IRC section 6751(b), as interpreted by case law, the Internal Revenue Service (IRS) is permitted to assert penalties only if the initial determination to assert the penalty is approved in writing by the supervisor of the individual making such a determination. That provision has been litigated recently in several notable cases, for example, Chai v. Commissioner, 851 F.3d 190 (2d Cir. 2017), and Graev v. Commissioner, 149 T.C. 485 (2017). Since Graev, the Tax Court has issued a series of decisions on the requirements of IRC section 6751(b). Our recent article discussing these decisions can be found here.

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Weekly IRS Roundup March 23 – 27, 2020

by | Mar 30, 2020 | , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of March 23 – 27, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

March 23, 2020: The US Tax Court cancelled trial sessions from May 4, 2020 through June 29, 2020 due to the COVID-19 outbreak. For further discussion, see here.

March 23, 2020: The IRS updated Publication 946, “How to Depreciate Property”, for use in preparing 2019 tax returns. The updated publication notes the dollar amount in effect for tax IRC Section 179 expensing and the retroactive extension for 2019 and the expiration of certain depreciation at the end of 2020.

March 23, 2020: Final regulations under IRC section 901(m) were released that deal with transactions that generally are treated as asset acquisitions for US income tax purposes and either are treated as stock acquisitions or are disregarded for foreign income tax purposes. These regulations are necessary to provide guidance on applying section 901(m). These regulations affect taxpayers claiming foreign tax credits.

March 24, 2020: The IRS published Questions & Answers (Q&As) regarding the federal income tax filing and payment extension to July 15 to the COVID-19 outbreak. The Q&As provide supplemental information from Notice 2020-18. For further discussion, see here.

March 25, 2020: The IRS announced the “People First Initiative” in response to the COVID-19 outbreak to assist taxpayers in ways such as easing payment guidelines and postponing compliance actions. For further discussion, see here.

March 25, 2020: The IRS released guidance on Forms 8985 and 8986, Part II, Item G, to enter the date the audited partnership originally furnished the Forms 8986 to its partners.

March 27, 2020: The IRS announced Erin M. Collins will be the National Taxpayer Advocate and lead the Taxpayer Advocate Service, an independent organization within the IRS. Collins will start as the National Taxpayer Advocate on March 30, 2020, ahead of the original scheduled start date, due to the COVID-19 outbreak.

March 27, 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.



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US Tax Court Cancels Remainder of Spring Trial Sessions

by | Mar 23, 2020 | , ,

After cancelling several trial sessions for March 2020 and April 2020, and closing its building until further notice, the US Tax Court (Tax Court) has announced that the remainder of its trial sessions through the end of June 2020 have been cancelled as a result of the coronavirus (COVID-19). The cancelled trial sessions will be rescheduled at a later date. Although the Tax Court’s building is closed, the court remains operational:

Tax Court personnel are working remotely. The eAccess and eFiling systems remain operational and the Court will continue to process items received electronically, serve orders and opinions, enter and serve decisions, work with litigants, and receive telephone calls.

Practice Point: Much like prior government shutdowns, the cancellation of a large number of trial sessions stemming from COVID-19 is a major disruption for the Tax Court, taxpayers and the Internal Revenue Service (IRS). Those taxpayers whose cases have been delayed should continue to work with IRS Chief Counsel attorneys to try and resolve their cases without the need for trial.



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Weekly IRS Roundup March 16 – 20, 2020

by | Mar 23, 2020 | , , ,

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of March 16 – 20, 2020. Additionally, for continuing updates on the tax impact of COVID-19, please visit our resource page here.

March 17, 2020: The IRS published Rev. Rul. 2020-9 to provide various prescribed rates for federal income tax purposes for April 2020.

March 18, 2020: The US Tax Court announced that it will close effective March 18, 2020 until further notice. Mail will be held for delivery until the US Tax Court reopens. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal by timely mailing a petition or notice of appeal, which will be determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service. The eAccess and eFiling systems will remain operational. For more information, see here.

March 19, 2020: The IRS released clarifications to the Instructions for Form 1065-X, Amended Return or Administrative Adjustment Request (AAR). The clarifications relate to the changes resulting from the Bipartisan Budget Act of 2015.

March 20, 2020: The IRS announced that the due date for paying taxes and filing returns is pushed back from April 15, 2020 to July 15, 2020 for individuals and businesses in response to the COVID-19 outbreak. Associated interest, additions to tax and penalties for late payment will also be suspended until July 15, 2020 and begin to accrue on July 16, 2020. This relief is automatic, no forms need to be filed to qualify. State filing and payment deadlines vary and taxpayers should consult the rules of each applicable state. For more information, see here.

March 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.



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US Tax Court Closed Until Further Notice

by | Mar 19, 2020 | ,

At 9:00 PM last night, the US Tax Court (Tax Court) issued a press release announcing that it was closing its building. As we previously discussed, the Tax Court previously closed the building to the public but still allowed the hand-delivery of petitions. Now, all taxpayers must mail petitions to the Tax Court (other documents may be electronically filed), which highlights the importance of abiding by the rules for timely mailing to ensure that jurisdictional requirements are met. The full press release from the Tax Court reads as follows:

Effective immediately and until further notice, the United States Tax Court building is closed. Mail will be held for delivery until the Court reopens. Taxpayers may comply with statutory deadlines for filing petitions or notices of appeal by timely mailing a petition or notice of appeal to the Court. Timeliness of mailing of the petition or notice of appeal is determined by the United States Postal Service’s postmark or the delivery certificate of a designated private delivery service.

The eAccess and eFiling systems remain operational. Petitions and other documents may not be hand delivered to the Court.

If you have any questions, please contact the Public Affairs Office at (202) 521-3355.



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Tax Court Closes Building and Cancels More Trial Sessions

by | Mar 16, 2020 | , ,

As the fallout from the coronavirus (COVID-19) continues, the US Tax Court (Tax Court) has cancelled additional trial sessions. As we previously discussed, the Tax Court last week cancelled all trial sessions for March 2020. Now, the Tax Court has announced that all trial sessions for April 2020 are also cancelled. Additionally, although the Tax Court will remain open to receive mail and accept hand-delivered petitions, the Tax Court building will be closed to visitors.



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