Tax News Faulty Paperwork Roundup - February 4

February 4, 2020

Tax Court Shuts Down Partners’ Conservation Easement Deduction - Eric Yauch, Tax Notes. ($) "The Tax Court held February 3 that because the partnership retained the right to build single-family dwellings on each of 11 building areas on locations to be determined, the easement granted didn’t meet the perpetual restriction requirement under section 170(h)(2)."

Conservation easement donations can provide generous federal tax deductions. Donations in Iowa can also provide a 50% Iowa tax credit. As this case shows, these donations only work if you meet all of the technical requirements. These can be as simple as getting proper acknowledgement of the donation from the recipient, or as complex as getting a proper appraisal. The IRS has a "campaign" going against abuses of conservation donations, so careless paperwork is unlikely to pass unnoticed.

The taxpayer lost nearly $2 million of deductions, but they managed to avoid hundreds of thousands of dollars of penalties because of inadequate IRS paperwork. (Carter, T.C. Memo. 2020-21)

Circular Cash Flows Could Pose Hazard in O-Zone Transactions - Emily L. Foster, Tax Notes ($). "The related-party rules could trip up some investors because a developer who wants to contribute property to a qualified opportunity fund that then contributes it to the qualified Opportunity Zone business to develop wouldn’t qualify for deferred gain, according to Lisa M. Zarlenga of Steptoe & Johnson LLP."

Cryptocurrency Basis Adjustment May Be Accounting Method Change - Nathan Richman, Tax Notes ($). "Whether a taxpayer’s switch to a new way of calculating a cryptocurrency’s basis is an accounting method change will depend on if it leads to a different amount of lifetime income."

This is true of most tax accounting issues. If you have a change in "timing" of income, it probably is an accounting method change requiring IRS permission. If the issue is a "permanent" item - whether some amount of income or deduction is ever recognized - it's not likely an accounting method issue. More on accounting method issues here.

Lesson From The Tax Court: The Common Law Mailbox Rule Lives! - Bryan Camp, TaxProf Blog. "But please, mail your stuff registered or certified mail."

Imposing the Frivolous Return Penalty - Keith Fogg, Procedurally Taxing. "This case provides yet another example of how friendly the Tax Court is to petitioners."

When It Comes To Gambling On The Super Bowl, You Can Bet The IRS Is Watching - Kelly Phillips Erb, Forbes.

Tax moves to make in day-longer February 2020 - Kay Bell, Don't Mess With Taxes.

Combined State and Federal Corporate Income Tax Rates in 2020 - Garrett Watson, Tax Policy Blog. "Forty-four states and D.C. have corporate income taxes on the books, with top marginal rates ranging from 2.5 percent in North Carolina to a top marginal rate of 12 percent in Iowa."

Are Tax Credits The Best Way To Subsidize Long-Term Care Costs? - Howard Gleckman, TaxVox. "They can be difficult to administer and, as designed, likely these would benefit relatively few of those who most need assistance."

Did you know? Eide Bailly has a tax controversy team to help clients deal with IRS exam, collection and penalty problems.

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