Tax News & Views New York City and Roseville Roundup

June 10, 2020

Cornyn Seeks Support for PPP Expense Deductibility Bill - Jad Chamseddine, Tax Notes ($). "John CornynR-Texas, told Tax Notes June 9 that he hopes the bill will get a vote by unanimous consent this week, saying 'it appears to have broad support.'"

But success in the House isn't guaranteed.


Proposed Regulations Would Allow Members of Health Care Sharing Ministries to Recognize Tax Savings - Kristine Tidgren, Ag Docket:

The proposed regulations provide that payments for membership in a health care sharing ministry that shares expenses for medical care, as defined in IRC § 213(d)(1)(A), are payments for medical insurance under IRC § 213(d)(1)(D). This determination, the proposed regulations state, has no bearing on whether a health care sharing ministry is considered an insurance company. It is not. The guidance states that amounts paid for medical insurance under IRC § 213(d)(1)(D) need not be paid to an insurance company to be payments for medical insurance under IRC § 213.

The proposed rules also allow medical deductions for "Direct Primary Care Arrangements: 

The proposed regulations define a “direct primary care arrangement” (DPCA) as a contract between an individual and one or more primary care physicians under which the physician or physicians agree to provide medical care for a fixed annual or periodic fee without billing a third party. 

This would make such arrangements eligible for reimbursements from HRAs

IRS Warns On COVID-19 Scams Involving Stimulus Checks, Fake Cures & More - Kelly Phillips Erb, Forbes:

In particular, the IRS Criminal Investigation Division (IRS-CI) has been made aware of various schemes targeting Economic Impact Payments (EIPs, or stimulus checks). Some of these scams suggest that you can get more money from the government - or get your stimulus check faster - if you share personal details and pay a small "processing fee." That's not true: there are no shortcuts

If you get a phone call offering to "help" you with your payment, hang up.

The latest COVID-19 risk? Scams to steal relief money - Kay Bell, Don't Mess With Taxes:

IRS CI says it has seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as "Corona Virus," "COVID-19" and "Stimulus" in varying ways.

Also fake charities, quack treatments, and investment frauds.


IRS Tax Deadline Is July 15, Extend To October To Cut Audit Risk? - Robert W. Wood, Forbes. "Many returns filed right at the deadline are filed in haste, some carelessly. That will probably be true in July, maybe even more so than the usual April 15 date."

Paycheck Protection, Churches And The Constitution - It’s Complicated - Peter Reilly, Forbes. "I’m more of the mind that some mix of federal, state and local government shut down the butchers, the bakers and the candlestick makers and Congress did something to protect their paychecks. They also shut down churches. Protect those paychecks too."

Are Advances to Children Loans or Gifts? - Roger McEowen, Agricultural Law and Taxation Blog. "The Tax Court noted that with respect to situations involving loans to family members, an actual expectation of repayment and an intent to enforce the debt are critical to sustaining the tax characterization of the transaction as a loan."

Oakbrook Land Holdings v Comm’r: A Follow-Up Post Exploring the Impact of Administrative Law on Validity of Tax Regulations - Leslie Book, Procedurally Taxing. "Oakbrook suggests that the bar may be lower for longstanding tax regulations, and highlights the way that these challenges arise in deficiency cases rather than at a time closer to the rule’s promulgation. Of course that makes no sense, but that takes us to other issues and how perhaps it is time to allow a more orderly challenge to IRS guidance outside the traditional tax controversy process."

The COVID-19 Crisis Reveals The President’s Misplaced Budget Priorities - C. Eugene Steuerle, TaxVox. "Moreover, the growth in Social Security and Medicare alone would absorb almost all the nearly $1 trillion growth in total revenues over the decade."


First, assume a residence. There is an old joke about economists stranded on a desert island with nothing but canned goods. They discuss the problem, and one of the party helpfully chimes in, "first, assume a can opener."

A CPA takes that approach and runs with it in a recent Tax Court case. Instead of assuming a can opener, he assumes a residence. It turns out to be a flawed assumption.

Qualified Residence Interest is one of the biggest deductions remaining to individuals. For home acquisition debt up to $750,000 (up to $1.1 million on most homes purchased before 2018) the tax law allows an itemized deduction for interest paid. IRS Publication 936 explains what qualifies:

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

The publication adds "You can have only one main home at any one time. This is the home where you ordinarily live most of the time...A second home is a home that you choose to treat as your second home."

The taxpayer owned residential properties in California and New York, so that would seem to work well. But the taxpayer had a problem. He filed his return "married filing separately," which brought him under an obscure special rule, as Tax Court Judge Thornton explains:

On his 2015 Federal income tax return petitioner elected a filing status of married filing separately. Pursuant to section 163(h)(4)(A)(ii)(II), if a married couple does not file a joint return for the taxable year, each of them “shall be entitled to take into account 1 residence unless both individuals consent in writing to 1 individual taking into account the principal residence and 1 other residence.” The record does not reflect that petitioner and his wife both consented in writing to petitioner's taking mortgage interest deductions with respect to more than one residence. Consequently, petitioner is precluded from claiming mortgage interest deductions with respect to both the New York City property and the Hermosa Beach property. 

So, deduct the interest on one property, right? So he chose New York. But there's one more complication: the taxpayer lived with his parents in Roseville, Minnesota, during the tax year. 

Petitioner has failed to show that any of these factors, or any other specific factors, support a conclusion that the New York City property was his principal residence during 2015. His place of employment during 2015 was in Minnesota. He testified that he lived there “with my parents in a rental.” On brief he asserts that this was a “transient” living arrangement. This assertion is called into [*12] question, however, by the fact that when he petitioned this Court in 2018, he was still using the Minnesota address as his place of residence. Except for petitioner's reference to his parents living in Minnesota, the record is silent as to the principal place of residence in 2015 of petitioner's family members, including his wife.

So what was going on with the New York place?

The record shows that during 2015 petitioner did not use the New York City property as his residence at all, much less for a majority of the time — he resided in Minnesota in 2015, and the New York City property was rented for the entire year.

Our taxpayer tripped over the "home" part. Another provision, usually seen in dealing with vacation homes, pops up: Sec. 280A. The judge explains: 

For purposes of section 280A(d)(1) a dwelling unit is used [*13] by the taxpayer as a residence during the taxable year if the taxpayer uses it for personal purposes for more than the greater of (1) 14 days during the taxable year or (2) 10% of the number of days during the taxable year that the unit is rented at a fair rental value. Because petitioner rented out the New York City property for all 365 days in 2015, it was not used as his residence within the meaning of section 280A(d)(1) and hence is not a qualified residence within the meaning of section 163(h)(4)(A)(i)(II).

Decision for IRS: No qualified residence interest deduction.

The moral? Usually it's not hard to deduct mortgage interest for purchase debt. But if your "residence" is in New York and you live in Roseville, you may have a problem. Also, married couples filing separate returns face - in addition to unfriendly tax brackets - a host of obscure little rules that complicate their returns.

Cite: T.C. Memo. 2020-74


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