For tax professionals, the year's midpoint provides an appropriate time to reflect on developments thus far — and between Supreme Court cases, congressional legislation, and agency pronouncements, this year may well be more eventful than most.
By the end of the year we will have a clearer view of the overall picture. In the meantime, David De Jong, a CPA and a partner in the Rockville, Maryland, law firm of Stein Sperling Bennett De Jong Driscoll, has provided his analysis of the most important developments that have transpired so far this year.
Individuals
- Final regulations under Code Sections 170 and 786 follow prior proposed regulations limiting charitable contributions flowing from partnerships based on conservation easements to 2.5 times the sum of each partner's "relevant basis" and determine how to compute relevant basis for such purpose.
- In Stead v. Commissioner, the Tax Court in a bench opinion required a corporate owner to report signed but uncashed checks as income but not unsigned uncashed checks except to the extent that withholdings had been paid over.
- In Estate of Finnegan v. Commissioner, TC Memo 2024-42, the Tax Court concluded that settlement proceeds paid by a state as a result of improper findings of abuse and neglect of the plaintiffs' children were taxable as paid for violation of their civil rights and not for post-traumatic stress disorder which had little or no mention in the complaint, jury instructions, voir dire questions or otherwise.
- In Amos v. Commissioner, 133 AFTR2d 2024-1267, the Eleventh Circuit Court of Appeals agreed with the Tax Court that a CPA who owned several burger franchises could not substantiate over $4 million in net operating losses dating back 15 years when no original records were produced except tax returns and a carryover worksheet.
Matthew Hatcher/Bloomberg
- In Notice 2024-46, the Internal Revenue Service determined that payments made by Norfolk Southern to individuals affected by the
2023 train derailment in East Palestine, Ohio , are tax-free disaster payments as the result of "an event of catastrophic nature;" payments for lost wages and payments to businesses were determined to be taxable. - In Announcement 2024-19, the IRS indicated that amounts received from the Department of Energy for home energy rebate programs are not income but constitute a reduction in price paid for the home improvements.
- In Announcement 2024–26, the service announced that it was reciprocating actions by Russia to negate portions of the tax treaty between the countries designed to avoid double taxation.
- In News Release 2024-174, the IRS indicated that it will be sending offers in July to many taxpayers who participated in syndicated conservation easements but who have not settled their cases.
- In Fact Sheet 2024-13, the IRS stated that the value of work-life information and referral services offered by an employer are generally exempt from taxation as de minimis.
- In Letter Ruling 202426011, the IRS ruled that a pre-2019 postnuptial agreement is a "divorce or separation instrument" allowing an alimony deduction based on such agreement to be deductible to the payor and income to the recipient (the result should not be different if it were a prenuptial agreement).
Retirement and estate planning
- Proposed regulations under Code Section 6011 would make certain transactions involving the use of the charitable remainder annuity trust and a single premium annuity a "listed transaction."
- In Hubbard v. Commissioner, TC Memo 2024-16, the Tax Court determined that a pharmacist serving a 30-year prison term for distribution of controlled substances was taxable on a forfeiture of his IRA of more than $400,000, notwithstanding that the seizure was involuntary.
- In Bolles v. Commissioner, 133 AFTR2d 2024-1235, the Ninth Circuit Court of Appeals agreed with the Tax Court that transfers of money from a mother to her son were loans for the first five years but were gifts for the next 18 years; though transactions within the family are presumed to be gifts, there was an expectation of repayment in the early years that diminished.
- in Steward v. Commissioner, TC Summary Opinion 2024-3, the Tax Court allowed a musician whose contemporaneous automobile log was destroyed in a fire to deduct automobile expenses but not multiple trips to Japan, where he had never performed, as he could not prove a business purpose for the travel.
- In Estate of Fry v. Commissioner, TC Memo 2024-8, the Tax Court concluded that transfers between related companies were contributions for equity and not debt due largely to conditional repayment, allowing additional basis to be considered for purpose of using flowthrough losses; the IRS position in this case was opposite its usual stance.
- In Moore v. United States, 133 AFTR2d 2024 -1805, the
U.S. Supreme Court in a 7-2 decision affirmed a holding of the Ninth Circuit Court of Appeals finding the Mandatory Repatriation Tax on U.S. shareholders included in the Tax Cuts and Jobs Act of 2017 is constitutional and not in violation of the 16th Amendment as being a tax on unrealized investment gains. - In Worthington Holdings LLC v. Commissioner, 162 TC No. 10, the Tax Court threw out a TEFRA adjustment against a partner for 2016 where the LLC had elected, as was the law for 2016 and 2017, to come under the new BBA partnership procedures, declining to invoke equitable estoppel against the taxpayer.
- In Belcik v. Commissioner, TC Memo 2024-49, the Tax Court determined that a couple had about $7 million of unreported income over a 20-year period when they did not file returns; he had a foreign bank account that he used to pay business and personal expenses.
- In XC Foundation v. Commissioner, 124 AFTR2d 2024 -1678, the Ninth Circuit Court of Appeals agreed with the Tax Court that a corporation not in good standing could not use the Tax Court to appeal its denial of tax-exempt status, extending a principle applied to profit-making entities in numerous instances.
- In Iowaska Church of Healing v. Werfel, 133AFTR 2d 2024- __, the District of Columbia Circuit Court of Appeals agreed with a D.C. federal district court that the IRS properly denied exempt status to an Iowa church whose members used a tea with a psychedelic drug as part of its religious practices.
- In Schwarz v. Commissioner, TC Memo 2024-55, the Tax Court, in a 117-page opinion, determined that a dentist and his wife, owners of over 15,000 acres of land in South Texas, with gross income from farming — including hunting/fishing on their lands — averaging almost $1 million per year but with huge losses, was not engaged in a "for profit" activity but rather sought to offset an average of $2 million in earned income.
- In Powell v. Internal Revenue Service, 133 AFTR2d 2024-1212, a Pennsylvania federal district court determined that the general manager of an auto body shop was not personally liable as he was not an owner, director or officer and his signature authority was used only per direction of the owner and, in any event, he was unaware of the tax liability.
- In Revenue Ruling 2024-14, the IRS indicated that it will apply the "economic substance doctrine" to disallow tax benefits in transactions involving related-party partnerships to which the parties generate a disparity between inside basis and outside basis causing increased depreciation deductions and/or reduced gain upon sale of the property.
- In Information Release 2024-177, the IRS reminded marijuana businesses that deductions other than cost of goods sold remain disallowed until final regulations declassifying marijuana as a controlled substance.
- In a press call, IRS Commissioner Danny Werfel stated that, during suspension of processing new claims for the Employee Retention Credit, the IRS has disallowed one-third of processed claims and has a backlog of 1.4 million claims, of which it suspects that 70% have questions as to accuracy.
Procedure
- FinCEN proposed regulations would require special record retention and submission of information on most non-financed transfers of residential real property other than to individuals for the purpose of assisting in identifying money laundering.
- In Loper Bright Enterprises v. Raimondo, 133 AFTR2d 2024 - ____, and Relentless v. Department of Commerce, 133AFTR2d 2024 -_____ , the U.S. Supreme Court by a 6-3 margin overrode a 40-year decision allowing a regulation to stand if it offered any reasonable interpretation of an unclear statute, paving the way for courts to give less deference to regulations from the IRS and other government agencies.
- In Murrin v. Commissioner, TC Memo 2024-10, the Tax Court declined to overrule a decision from two decades earlier and held that a literal reading of the law keeps the civil statute of limitations open indefinitely upon fraud by the preparer even if unknown to the taxpayer; a divided Federal Circuit Court of Appeals decision is to the contrary.
- In United States v. Gaynor, 133 AFTR2d 2024-716, a Florida federal district court jury concluded that a deceased heiress to the Texaco fortune did not willfully evade FBAR reporting for three years when she answered to the negative on Schedule B regarding foreign accounts, despite having $31 million in a Swiss account and attempted to file back returns and FBARs through a "silent disclosure" against her late father.
- In tax tips from the Taxpayer Advocate, the IRS warned that an artificial intelligence chatbot may not provide accurate or complete answers to tax questions and, as a result, taxpayers should not solely rely on AI-generated tax advice.
