Tax News & Views E-file and Foot-Fault Forgiveness Roundup

August 18, 2020

Now available: IRS Form 1040-X electronic filing - "Marking a major milestone in tax administration, the Internal Revenue Service announced today that taxpayers can now submit Form 1040-X electronically with commercial tax-filing software."

But there's a catch: "For the initial phase, only tax year 2019 Forms 1040 and 1040-SR returns can be amended electronically. Additional improvements are planned for the future."

It’s IRS Official: Amended Tax Returns Can Now Be Electronically Filed - Kelly Phillips Erb, Forbes.


The Implication of the New York District Court Decision on Families First - Mel Schwarz, Eide Bailly:

The effect of this decision on employers isn’t clear. Employers, particularly healthcare providers, may find employees exempted from applying for paid leave under the DOL rule now wanting to apply for these benefits. In addition, employees may not need to provide supporting documentation prior to taking Families First Act paid leave. The DOL is expected to appeal the decision and may ask that the ruling be stayed pending the appeal.


IRS Carves Back TCJA Inventory Relief - Peter Reilly, Forbes. "Close study of the Tax Cuts and Jobs Act appeared to give a fantastic break to businesses with less than $25 million in gross receipts. It appeared that they could change accounting methods and write off their inventories."

But if it sounds to good to be true, it usually is: "Reilly’s Third Law of Tax Planning - Any clever idea that pops into your head probably has (or will have) a corresponding rule that makes it not work - proved out with the proposed regulation on inventory."

Proposed Regs Give Welcome Relief on Retirement Plan Loan Offsets - Jonathan Curry, Tax Notes ($). "New proposed regulations on extended rollovers for retirement plan loan offsets provide helpful — and timely — guidance on a provision that many taxpayers may wish to avail themselves of during the pandemic."

Link to proposed regulation: (REG-116475-19)


IRS knows some recently issued nonpayment notices are wrong. Now what? - Kay Bell, Don't Mess With Taxes. "The recent buzz on tax social media was/is about Internal Revenue Service balance-due notices that arrived in folks' mailboxes. However, the people who got the notices did file on time and did pay when they filed. So what gives?"

Inside a Virtual Settlement Day - Bob Probasco, Procedurally Taxing. "My experiences were definitely positive.  If you’ve been hesitant about participating in one, don’t be.  I think it would also make sense to continue offering at least some VSDs or virtual trial sessions even after COVID is long behind us."

Taxpayer That Took IRA Funds to Make Cash Offer on Residence Denied Late Rollover Relief - Ed Zollars, Current Federal tax Developments. "While the IRS has issued numerous private letter rulings over the years granting taxpayers relief for late IRA rollovers, far fewer rulings have been issued denying relief.  But in PLR 2020033008[1] the IRS did just that for a taxpayer’s request for permission to make a late rollover, as the taxpayer had effectively attempted to borrow the funds from the IRA to make a cash offer on a residence."


State Guidance Needed With IRS’s Release of Final 163(j) Regs - Amy Hamilton, Tax Notes ($). "Some states conformed to or decoupled from the TCJA section 163(j) limitations, while others conformed to the IRC for tax year 2020 before the CARES Act was enacted and are not going to go back and adopt the changes..."

The Iowa Department of Revenue has provided guidance. Iowa does not couple with the relaxed Sec. 163(j) rules for 2019. Starting in 2020, Iowa automatically conforms to federal changes, and therefore conforms with the CARES Act 163(j) changes to business interest deductions. 

TCJA's 163(j) Limitation No Longer Applies in Tennessee - Lauren Loricchio, Tax Notes ($). "The limit on the business interest expense deduction in IRC section 163(j) under the federal Tax Cuts and Jobs Act no longer applies in Tennessee as of January 1, according to a notice from the Department of Revenue."

Hawaii Enacts Partial Conformity With CARES Act - Paul Jones, Tax Notes ($). "The bill specifies that forgiven Paycheck Protection Program loans, which aren’t taxed as income at the federal level, are also not taxed as income at the state level. It also conforms the state’s tax rules to the portions of the CARES Act that temporarily increased the size of the tax-free loans qualified individuals can take from their retirement plans and delayed repayment for some loans, as well as suspended the limit on certain deductible charitable contributions for 2020. It also establishes that stimulus payments to individuals won’t be taxed as income."

Link to Bill: S.B. NO. 2920

California Legislators Propose 0.4% Wealth Tax, Plus 16.8% Income Tax Rate - Robert W. Wood, Forbes. "You can read Assembly Bill 1253 for yourself. If it passes, it could cause some Californians to hop in their Teslas and head for Texas, Nevada or Washington state, which have no state income taxes. In fact, moving to any other state would mean lower state taxes."

Fines and Forfeitures and Racial Disparities - Sarah Calame and Aravind Boddupalli, TaxVox. "As recently as 2019, New Orleans could jail residents who were unable to pay fines. Black residents of New Orleans were jailed for failure to pay fines at 1.5 times the rate of White residents. A federal district judge in Louisiana ruled this “debtors’ prison scheme” unconstitutional in 2017, and the Fifth Court of Appeals upheld this decision two years later, ruling that financing OPCDC courts through fines and court fees created strong incentives for judges to aggressively pursue payment."


Burying Your Head in the Sand - Russ Fox, Taxable Talk. "To put it in sports terms, the Pittsburgh Pirates have a better chance of winning the 2020 World Series than the DFS companies do of not having to pay the wagering excise taxes." 

DFS = Daily fantasy sports.


Substantial Compliance Doctrine Saves Developer’s $4M Deduction - Kristen Parillo, Tax Notes ($). "Despite the defects — the appraisals failed to provide the donation dates or state that they were prepared for income tax purposes — the IRS was still able to evaluate the reported contributions and investigate and address concerns about overvaluation, Tax Court Judge David Gustafson held in an August 17 memorandum opinion."

Donations of appreciated long-term gain property generate a full fair market value deduction, while permanently avoiding tax on the property's appreciation. This big benefit, and the difficulty of valuing non-traded property, has led to strict tax law appraisal and reporting requirements. Any property donation (other than traded securities) over $5,000 requires an appraisal and must be reported correctly on Form 8283. Taxpayers foot-faulting their paperwork often lose their deduction entirely.

This taxpayer came close enough for Tax Court Judge Gustafson:

We have held that failing to include the date of contribution in the appraisal is not significant when the return includes a Form 8283 that specifies the date of contribution. See Zarlengo v. Commissioner, T.C. Memo. 2014-161, at *36 (finding that taxpayers substantially complied by disclosing contribution date on appraisal summary); Simmons v. Commissioner, T.C. Memo. 2009-208, 98 T.C.M. (CCH) 211, 215 (2009) (same), aff'd, 646 F.3d 6 (D.C. Cir. 2011). Because the [Taxpayers'] returns for 2008 and 2009 included the respective Forms 8283 and disclosed the respective dates of the contributions, the absence of that information from the appraisal is not fatal in this case.

The taxpayers' appraisal also failed to have the magic words saying the appraisal was prepared for income tax purposes. Judge Gustafson again:

In this case each appraisal valued the correct asset (a fee simple interest in real property) according to the correct standard (fair market value); each was prepared within 30 days of the date of contribution; and each used a commonly accepted approach (the income approach) to estimate fair market value for the contribution (discussed below in part III). In other words, the appraisals do not have multiple cumulative defects that we have previously held to be fatal for deducting charitable contributions.

It's good that the IRS wasn't able to disallow a $1.5 million deduction for meaningless errors. Unfortunately, the taxpayer had to litigate in Tax Court to save the deduction. 

The Moral? Be extremely careful to cross all the t's and dot all the i's when you donate appreciated property that requires an appraisal. Foot-faults can lose not just a point, but the whole match.

Cite: TC Memo 2020-120.

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