Tax law updates
May 11, 2011
Dear Fellow Counselors:
Welcome back to summer and the warmer weather! As always, there are a number of recent developments to apprise you of in tax law at both the federal and state levels. To start you off, here are a few:
The Tax Court Again Invalidates Regulation Imposing Time Limit on Request for Equitable Innocent Spouse Relief. The Tax Court in Pullins v. Commissioner, 136 T.C. No. 20 (2011) invalidates IRS Reg. 1.6015-5(b)(1) which provides that a spouse requesting relief under Code Sec. 6015(f) must do so no later than 2 years from the date of the collection activity against the requesting spouse. Under Code Sec. 6013(d)(3) , taxpayers filing joint income tax returns are jointly and severally liable for the taxes due. However, Code Sec. 6015 provides relief from joint and several liabilities under certain conditions.
The Court’s disagreement arises over the difference between the Code and the Regulations. While Code Sec. 6015(f) does not impose a 2 year requirement, IRS Regulation § 1.6015-5(b)(1) does. The Tax Court has taken the position that the Regulations are wrong. In Lantz v. Commissioner, 132 T.C. 131 (2009) the Court held that Reg. § 1.6015-5(b)(1) is an invalid interpretation of Code Sec. 6015(f). In Pullins, the Court again held that the application of the Regulation will lead to an inequitable result and should not be applied. Consequently, on April 29, 2011 in a letter to the U.S. House of Representatives, IRS Commissioner Doug Shulman stated that he had directed the IRS to review the rules governing innocent spouse determinations.
Taxpayers Opting Out of Overseas Disclosure Program Retain Audit Rights. Taxpayers who opt out of the IRS’s program to voluntarily disclose their overseas assets in favor of a traditional audit still retain the same rights that taxpayers have in the IRS’s regular audit process. This is despite the fact that the agency may look further back and agents are instructed to look for all applicable penalties. Absent fraud, 6 years is as far back as the IRS will go according to John McDougal, IRS Office of Chief Counsel, at the May meeting of the American Bar Association Section of Taxation. Under the current voluntary disclosure program the period is 8 years. Per McDougal IRS agents cannot unfairly assess penalties against taxpayers who opt out of the program. McDougal’s comments came in response to concerns raised by practitioners who said taxpayers are experiencing significant difficulties in deciding whether to enter the 2011 OVDI program.
IRS Provides Interim Guidance on Form W-2 Reporting for Cost of Health Coverage. The IRS has issued interim guidance (Notice 2011-28) requiring employers to report the cost of health care coverage for each employee on the employee’s Form W-2. The Patient Protection and Affordable Care Act specifically requires employers to report the aggregate cost of employer-provided health care coverage on each employee’s Form W-2.
In Notice 2010-69, the IRS made this reporting requirement optional for the 2011 calendar year with it being effective beginning in 2012. Employers will report the aggregate cost of health care coverage on Form W-2 in box 12, using code DD. Notice 2011-28 provides that in the case of the 2012 Forms W-2, and until the IRS issues additional guidance, an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year.
IRS Opens Up CAP to Allow Corporate Taxpayers with $10 Million in Assets to Apply. On March 31, 2011, IRS released IR-2011-32, expanding and making permanent the Compliance Assurance Process (CAP) allowing corporate taxpayers to resolve issues before filing their tax return. Previously only available by invitation, corporations with at least $10 million in assets that are publicly traded or willing to submit quarterly audited financial statements generally may apply. The focus is on issue identification and resolution through transparent and cooperative interaction with the IRS. It requires a contemporaneous exchange of information related to a taxpayer’s proposed return positions and its completed events and transactions that may affect federal tax liability.
While not suitable for every taxpayer, it may provide an excellent opportunity for some corporations. Potential benefits include: (1) resolving issues before the return is filed; (2) achieving tax certainty sooner with less administrative burden than in traditional post-filing examinations; and (3) better management of tax reserves and more precise financial statements.
O’Malley Signs Electric Vehicles Charging Credit. The Governor recently signed a bill to provide owners of electric vehicles with a $400 tax credit towards installation of electric vehicle charging stations in their homes. While it could be costly to install, the bill requires the Public Service Commission to establish a pilot study on how best to encourage off-peak charging of electric vehicles, and to establish a statewide electric vehicle planning council.
Give Where You Live and Get a State Income Tax Credit.The Maryland Department of Housing and Community Development (DHCD) launched a new online tool to highlight tax credit eligible projects of 100 Maryland nonprofits. Individuals and corporations interested in helping strengthen their communities now have a mechanism to identify meritorious local projects according to the DHCD. Secretary Raymond A. Skinner announced that the resource is available at
We will look forward to touching base with you all in our next article and seeing you in the fall. Have a wonderfully abundant and peaceful summer!