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Recent Tax Law Updates: August 2019

| Aug 8, 2019 | Tax Law

IRS Enforces Stock-Based Compensation Rule. The Large Business and International Division formally withdrew its Cost-Sharing Arrangement Stock-Based Compensation Directive dated January 12, 2018 and provided new instructions for examiners on transfer pricing issue selection related to SBC in CSAs.

Draft 2019 Form 706 & Instructions Now Available to be used for decedents who passed after December 31, 2018. Please note that Schedule R-1, Generation-Skipping Transfer Tax is now a separate form.

IRC §704: Final Regulations on Partner’s Distributive Share of Foreign Income Taxes are issued to improve the operation of the current safe harbor rule determining whether allocations of creditable foreign tax expenditures are considered in accordance with partners’ interests in a partnership. Temporary regulations issued in TD 9748 (2/4/2016) were removed and proposed regulations were adopted with no substantive changes. (TD 9871)

IRC §7602: Summons Enforcement & Taxpayer Ordered to Show Cause as to why he shouldn’t be compelled to comply with an IRS summons after prima facia enforcement showing by the IRS. (U.S. v. Saghian, DC CA, 124 AFTR 2d ¶2019-5103)

Insurance Policy with Death Benefit Satisfies Qualified Long-Term Care Insurance Rule. In a private letter ruling, the IRS decided that an insurance policy that provided coverage for qualified long-term care services and had a refund of premium death benefit met the qualified long-term care insurance contract rule regarding death benefits. (PLR 201930025)

Employer Who Sent False Information is Liable for Damages Under IRC §7434. False information as to worker’s income to the IRS resulted in statutory damages against the employer. (Vanderbilt, (DC FL 7/24/2019) 124 AFTR 2d ¶ 2019-5084)

Court Affirms Identity Theft, Conspiracy Convictions Against Return Preparers. In not such a novel set of facts, in an 11th Circuit jury trial, convictions affirmed for two principals of tax preparation businesses where they led a scheme to file false tax returns and receive refunds on behalf of deceased individuals. Guilt was determined from circumstantial evidence including bank records, corporate filings, emails, etc. (U.S. v. Exavier, CA 11, 124 AFTR 2d ¶2019-5099)

Bankruptcy Doesn’t Toll the 2 Year Statute of Limitations For Refund Suit. (Dixon, (DC IN 7/24/2019) 124 AFTR 2d ¶2019-5085)

Court of Federal Claims Deems IRS Letter 3709 Sufficient for Proper Assessment of FBAR Penalty. Hence, the IRS was not required to produce an internal form. See, Mitchell, (Ct Fed Cl 7/24/2019) 124 AFTR 2d ¶2019-5082.

IRC §408: Decedent’s IRA Is Not Considered an Inherited IRA. Surviving spouse is considered a payee/distributee of a decedent’s IRA, not the recipient of an inherited IRA. The surviving spouse was eligible to roll over IRA proceeds to an IRA set up and maintained in his own name, as long as the rollover occurred within 60 days after he received the proceeds in his capacity as estate administrator; any income from proceeds determined to not be included in the year of distribution. (PLR 201931006)

IRC §501: Organization Loses Exempt Status under IRC §501(c) after it failing to file a protest to the proposed adverse determination within 30 days. (PLR 201931012)

Tax Court Affirms Order Denying Motion to Restrain Collection. The valuation-misstatement penalty relates to an adjustment to a partnership item and is not in the US Tax Court’s deficiency jurisdiction, in a case where the partnership was considered a “sham” and “lacking economic substance.” (Highpoint Tower Technology Inc. v. Comm., CA 11, 124 AFTR 2d ¶2019-5080)

Ninth Circuit Affirms Conviction for Tax Fraud shooting down taxpayer’s argument that the district court should have included an additional caveat with its advice-of-accountant jury instruction; expert testimony as to taxpayer’s accountants conduct was properly excluded as it had no bearing on the taxpayer acting willfully. The court also found that the decision to exclude prior exculpatory statements was not a violation of due process and did not give rise to 5th Amendment privilege. (U.S. v. Prezioso, CA 9, 124 AFTR 2d ¶2019-5087)